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Orrstown outlines plans for when consent order is lifted

Orrstown Financial Services Inc. said this week it’s already looking past the consent order it’s still under from the Federal Reserve and looking to what it can do when the sanctions are lifted.

In an investor presentation Tuesday, the bank’s management team said the lifting of the consent order will mean a cost savings of about $1 million to $1.5 million within about nine to 12 months of the order’s removal.

The savings come through lower Federal Deposit Insurance Corp. assessments and the elimination of professional service fees and problem asset remediation costs.

There still is no definitive date as to when the Fed will lift the consent order, which has been in effect since March 2012. The Fed came down on Orrstown to remove its bad loans and have better board oversight.

The Pennsylvania Department of Banking and Securities lifted its consent order in April because of the progress made.

Under the terms of the Fed’s consent order, Orrstown cannot give dividends to its shareholders, and it cannot expand through acquisition or branch openings.

But the Shippensburg-based company, which is the parent company of Orrstown Bank, has had a very good 2014, leaving it with capital it couldn’t use for traditional methods during the year.

Once the consent order is lifted, the company said it can deploy that capital with the option of restoring a cash dividend to shareholders or instituting a share buy-back program. It also can explore merger and acquisition opportunities, though it said they must be “accretive to earnings per share and have a reasonable tangible book value earn back period.”

It said acquisition opportunities management would consider would be of “institutions smaller than the company,” according to a filing with the Securities and Exchange Commission. However, it is not opposed to a merger of an equal company “if the right deal presents itself and would provide a favorable returns to shareholders,” according to the SEC filing.

Orrstown reported assets of about $1.2 billion on Dec. 31. It has identified about 100 banks within a two-hour drive of Orrstown that have less than $750 million in assets. It also said growth opportunities will present themselves as “fall out occurs” from local mergers in progress. The presentation identified the separate acquisitions of Integrity Bank of Camp Hill by S&T Bank and Susquehanna Bank of Lititz by BB&T Bank.

In the presentation, it has specifically “targeted” expansion in three counties to its east — Lancaster, York and Frederick, Md. In 2013, Orrstown opened a loan production office in Lancaster County.

Michael Sadowski

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