8-K/A
ORRSTOWN FINANCIAL SERVICES INC (ORRF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 1, 2024
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||
|---|---|---|---|---|---|---|---|
| (Exact name of registrant as specified in its charter) | |||||||
| Pennsylvania | 001-34292 | 23-2530374 | |||||
| --- | --- | --- | |||||
| (State or other jurisdiction of incorporation) | (SEC File Number) | (IRS Employer Identification No.) | 4750 Lindle Road | Harrisburg | Pennsylvania | 17111 | |
| --- | --- | --- | --- | ||||
| (Address of principal executive offices) | (Zip Code) | Registrant’s telephone number, including area code: | 717 | 532-6114 | |||
| --- | --- | --- | Not Applicable | ||||
| --- | |||||||
| (Former name or former address, if changed since last report) | Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | ||||||
| --- | --- | ||||||
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, no par value | ORRF | Nasdaq Stock Market |
| Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | ||
| --- | --- | |
| ☐ | Emerging growth company | |
| ☐ | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
Explanatory Note
This Amendment No. 1 to Current Report on Form 8-K/A (“Amendment No. 1”) is being filed with the Securities and Exchange Commission (the “SEC”) solely to amend and supplement Item 9.01 of the Current Report on Form 8-K (the “Original 8-K”) filed by Orrstown Financial Services, Inc. (“Orrstown”) on July 1, 2024, reporting the completion of its previously announced merger of equals (the “Merger”) with Codorus Valley Bancorp, Inc. (“Codorus Valley”). Under Item 9.01 of the Original 8-K, Orrstown stated that (a) the financial statements of Codorus Valley required by Item 9.01(a) of Current Report on Form 8-K would be filed by amendment no later than 71 calendar days after the date that the Original 8-K was required to be filed, and (b) the pro forma consolidated financial information required by Item 9.01(b) of Current Report on Form 8-K would be filed by amendment no later than 71 calendar days following the date that the Original 8-K was required to be filed. No other changes have been made to the Original 8-K.
The pro forma financial information included in this Amendment No. 1 has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual operations that Orrstown and Codorus Valley would have achieved had the companies been combined during the periods presented in the pro forma financial information, and is not intended to project the future results of operations that the combined company may achieve after completion of the Merger.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The audited consolidated balance sheets of Codorus Valley as of December 31, 2023 and 2022, the related audited consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity, and consolidated statements of cash flows of Codorus Valley for the years ended December 31, 2023 and 2022 attached hereto as Exhibit 99.1 and incorporated herein by reference.
The unaudited interim consolidated financial statements of Codorus Valley as of and for the three-month periods ended March 31, 2024 and 2023, are attached hereto as Exhibit 99.2 and incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma combined consolidated financial information of Orrstown and Codorus Valley as of and for the three months ended March 31, 2024, and for the year ended December 31, 2023, and the notes related thereto, is attached hereto as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
The following exhibit is furnished as part of this Current Report on Form 8-K:
Document
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma combined consolidated financial information has been prepared using the acquisition method of accounting under the provisions of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), giving effect to the merger of Codorus Valley Bancorp, Inc. ("Codorus Valley") with and into Orrstown Financial Services, Inc. ("Orrstown"), with Orrstown as the surviving corporation. Under this method, Codorus Valley’s assets and liabilities as of the date of the merger were recorded at their respective fair values and added to those of Orrstown. Any difference between the purchase price for Codorus Valley and the fair value of the identifiable net assets acquired (including core deposit intangibles) was recorded as goodwill. The goodwill resulting from the merger will not be amortized to expense, but instead will be reviewed for impairment at least annually. Any core deposit intangible and other intangible assets with estimated useful lives to be recorded by Orrstown in connect with the merger are amortized to expense over their estimated useful lives. The financial statements of Orrstown issued after the merger will reflect the results attributable to the merged operations of Codorus Valley beginning on the date of completion of the merger.
On July 1, 2024, Orrstown completed the previously announced merger of equals with Codorus Valley, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 12, 2023, by and between Orrstown and Codorus Valley. At the effective time of the Merger (the “Effective Time”), Codorus Valley was merged with and into Orrstown, with Orrstown as the surviving corporation, which was promptly followed by the merger of Codorus Valley's wholly-owned bank subsidiary, PeoplesBank, A Codorus Valley Company, with and into Orrstown Bank, a wholly-owned subsidiary of Orrstown, with Orrstown Bank as the surviving bank.
The following unaudited pro forma combined consolidated financial information is based on the separate historical financial statements of Orrstown and Codorus Valley and gives effect to the merger of Orrstown and Codorus Valley, including pro forma assumptions and adjustments related to the merger, as described in the accompanying notes to the unaudited pro forma combined consolidated financial information. The unaudited pro forma combined consolidated financial information and accompanying notes have been prepared to illustrate the effects of the merger under the acquisition method of accounting.
The unaudited pro forma combined consolidated financial statements are provided for informational purposes only. The unaudited pro forma combined consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma combined consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Information, which requires the depiction of the accounting for the transaction, which we refer to as transaction accounting adjustments. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates.
The unaudited pro forma combined consolidated balance sheet as of March 31, 2024 combines the historical financial statements of Orrstown and Codorus Valley and gives effect to the merger as if the merger occurred on March 31, 2024. The unaudited pro forma combined consolidated statements of income give effect to the merger as if the merger occurred on January 1, 2023, for the year ended December 31, 2023, and for the three months ended March 31, 2024.
The following unaudited pro forma condensed combined consolidated financial information and accompanying notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of Orrstown and accompanying notes included in Orrstown's Annual Report on Form 10-K for the year ended December 31, 2023, (ii) the historical unaudited consolidated financial statements of Orrstown and accompanying notes included in Orrstown's quarterly report on Form 10-Q for the three months ended March 31, 2024, (iii) the historical audited consolidated financial statements of Codorus Valley and accompanying notes included in Codorus Valley's Annual Report on Form 10-K for the year ended December 31, 2023, and (iv) the historical unaudited consolidated financial statements of Codorus Valley and accompanying notes included in Codorus Valley’s quarterly report on Form 10-Q for the three months ended March 31, 2024, which are incorporated by reference herein.
The unaudited pro forma combined consolidated financial statements were prepared with Orrstown as the accounting acquirer and Codorus Valley as the accounting acquiree under the acquisition method of accounting. Accordingly, the consideration paid by Orrstown to complete the merger with Codorus Valley was allocated to Orrstown’s assets and liabilities based upon their estimated fair values as of the date of completion of the merger. The allocation is dependent upon certain valuations and other studies that have been included in the unaudited condensed pro forma financial statements. The total purchase price for the purpose of this pro forma financial information is $234.0 million, which is based on Orrstown’s closing common stock price of $27.36 as of June 28, 2024.
Unaudited Pro Forma Combined Consolidated Balance Sheet
As of March 31, 2024
| (in thousands) | Orrstown Historical | Codorus Valley Historical | Transaction Accounting Adjustments | Notes | Combined Pro Forma | ||||
|---|---|---|---|---|---|---|---|---|---|
| Assets | |||||||||
| Cash and due from banks | $ | 23,552 | $ | 15,534 | $ | — | $ | 39,086 | |
| Interest-bearing deposits with banks | 159,170 | 11,128 | (22,872) | (A)(M) | 147,426 | ||||
| Cash and cash equivalents | 182,722 | 26,662 | (22,872) | 186,512 | |||||
| Restricted investments in bank stocks | 11,453 | 3,186 | — | 14,639 | |||||
| Securities available for sale | 514,909 | 339,495 | — | (E) | 854,404 | ||||
| Loans held for sale | 535 | 958 | — | 1,493 | |||||
| Loans | 2,303,073 | 1,739,269 | (79,847) | (F) | 3,962,495 | ||||
| Less: Allowance for credit losses | (29,165) | (21,645) | 3,722 | (F) | (47,088) | ||||
| Net loans | 2,273,908 | 1,717,624 | (76,125) | 3,915,407 | |||||
| Premises and equipment, net | 28,952 | 19,090 | 6,537 | (G) | 54,579 | ||||
| Cash surrender value of life insurance | 73,656 | 62,406 | — | 136,062 | |||||
| Accrued interest receivable | 13,496 | 8,373 | — | 21,869 | |||||
| Goodwill | 18,724 | 2,301 | 44,853 | (H) | 65,878 | ||||
| Other intangibles assets, net | 2,189 | — | 44,827 | (H) | 47,016 | ||||
| Deferred tax assets, net | 21,181 | 16,760 | 3,466 | (I) | 41,407 | ||||
| Other assets | 41,606 | 11,738 | — | 53,344 | |||||
| Total assets | $ | 3,183,331 | $ | 2,208,593 | $ | 686 | $ | 5,392,610 | |
| Liabilities | |||||||||
| Deposits: | |||||||||
| Noninterest-bearing | $ | 418,512 | $ | 365,358 | $ | — | $ | 783,870 | |
| Interest-bearing | 2,277,439 | 1,549,705 | (2,890) | (J) | 3,824,254 | ||||
| Total deposits | 2,695,951 | 1,915,063 | (2,890) | 4,608,124 | |||||
| Securities sold under agreements to repurchase and federal funds purchased | 12,099 | 4,272 | — | 16,371 | |||||
| FHLB advances and other borrowings | 115,000 | 41,827 | (219) | (K) | 156,608 | ||||
| Subordinated notes | 32,111 | 30,865 | (1,593) | (K) | 61,383 | ||||
| Other liabilities | 56,488 | 15,572 | 1,195 | (L) | 73,255 | ||||
| Total liabilities | 2,911,649 | 2,007,599 | (3,507) | 4,915,741 | |||||
| Stockholders’ Equity | — | ||||||||
| Preferred stock | — | — | — | — | |||||
| Common stock | 583 | 24,709 | (24,264) | (A) | 1,028 | ||||
| Additional paid-in capital | 187,267 | 142,816 | 90,708 | (A) | 420,791 | ||||
| Retained earnings | 124,075 | 71,249 | (100,031) | (B)(M) | 95,293 | ||||
| Accumulated other comprehensive loss | (28,668) | (32,911) | 32,911 | (C) | (28,668) | ||||
| Treasury stock | (11,575) | (4,869) | 4,869 | (D) | (11,575) | ||||
| Total stockholders’ equity | 271,682 | 200,994 | 4,193 | 476,869 | |||||
| Total liabilities and stockholders’ equity | $ | 3,183,331 | $ | 2,208,593 | $ | 686 | $ | 5,392,610 |
See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of transaction accounting adjustments.
Unaudited Pro Forma Combined Consolidated Statement of Income
For the Three Months Ended March 31, 2024
| (in thousands, except share and per share data) | Orrstown Historical | Codorus Valley Historical | Transaction Accounting Adjustments | Notes | Combined Pro Forma | ||||
|---|---|---|---|---|---|---|---|---|---|
| Interest income | |||||||||
| Loans | $ | 36,233 | $ | 26,855 | $ | 4,080 | (F) | $ | 67,168 |
| Investment securities | 5,461 | 2,834 | 1,664 | (E) | 9,959 | ||||
| Short-term investments | 956 | 155 | — | 1,111 | |||||
| Total interest income | 42,650 | 29,844 | 5,744 | 78,238 | |||||
| Interest expense | |||||||||
| Deposits | 13,516 | 10,738 | — | (J) | 24,254 | ||||
| Securities sold under agreements to repurchase and federal funds purchased | 25 | 34 | — | 59 | |||||
| FHLB advances and other borrowings | 1,474 | 1,061 | 3 | (K) | 2,538 | ||||
| Subordinated notes | 754 | 369 | 51 | (K) | 1,174 | ||||
| Total interest expense | 15,769 | 12,202 | 54 | 28,025 | |||||
| Net interest income | 26,881 | 17,642 | 5,690 | 50,213 | |||||
| Provision for credit losses | 298 | 116 | — | (F) | 414 | ||||
| Net interest income after provision for credit losses | 26,583 | 17,526 | 5,690 | 49,799 | |||||
| Noninterest income | |||||||||
| Service charges on deposit accounts | 1,200 | 556 | — | 1,756 | |||||
| Interchange income | 911 | 899 | — | 1,810 | |||||
| Swap fee income | 199 | 31 | — | 230 | |||||
| Wealth management income | 3,102 | 1,735 | — | 4,837 | |||||
| Mortgage banking activities | 458 | 105 | — | 563 | |||||
| Income from life insurance | 634 | 414 | — | 1,048 | |||||
| Other income | 131 | 436 | — | 567 | |||||
| Investment securities losses | (5) | — | — | (5) | |||||
| Total noninterest income | 6,630 | 4,176 | — | 10,806 | |||||
| Noninterest expenses | |||||||||
| Salaries and employee benefits | 13,752 | 9,879 | — | 23,631 | |||||
| Occupancy, furniture and equipment | 2,639 | 1,722 | 23 | (G)(L) | 4,384 | ||||
| Data processing | 1,265 | 1,111 | — | 2,376 | |||||
| Automated teller and interchange fees | 351 | 470 | — | 821 | |||||
| Advertising and bank promotions | 398 | 312 | — | 710 | |||||
| FDIC insurance | 441 | 246 | — | 687 | |||||
| Professional services | 631 | 283 | — | 914 | |||||
| Taxes other than income | 494 | 363 | — | 857 | |||||
| Intangible asset amortization | 225 | 2 | 2,037 | (H) | 2,264 | ||||
| Merger related expenses | 672 | 118 | (790) | — | |||||
| Other operating expenses | 1,601 | 1,755 | — | 3,356 | |||||
| Total noninterest expenses | 22,469 | 16,261 | 1,270 | 40,000 | |||||
| Income before income tax expense | 10,744 | 5,441 | 4,420 | 20,605 | |||||
| Income tax expense | 2,213 | 1,186 | 799 | (N) | 4,198 | ||||
| Net income | $ | 8,531 | $ | 4,255 | $ | 3,621 | $ | 16,407 |
See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of transaction accounting adjustments.
Unaudited Pro Forma Combined Consolidated Statement of Income
For the Year Ended December 31, 2023
| (in thousands, except share and per share data) | Orrstown Historical | Codorus Valley Historical | Transaction Accounting Adjustments | Notes | Combined Pro Forma | ||||
|---|---|---|---|---|---|---|---|---|---|
| Interest income | |||||||||
| Loans | $ | 126,595 | $ | 100,804 | $ | 16,456 | (F) | $ | 243,855 |
| Investment securities | 21,493 | 10,728 | 6,657 | (E) | 38,878 | ||||
| Short-term investments | 1,809 | 1,766 | — | 3,575 | |||||
| Total interest income | 149,897 | 113,298 | 23,113 | 286,308 | |||||
| Interest expense | |||||||||
| Deposits | 37,510 | 30,754 | 2,890 | (J) | 71,154 | ||||
| Securities sold under agreements to repurchase and federal funds purchased | 114 | 1,237 | — | 1,351 | |||||
| FHLB advances and other borrowings | 5,350 | 839 | 11 | (K) | 6,200 | ||||
| Subordinated notes | 2,017 | 1,476 | 205 | (K) | 3,698 | ||||
| Total interest expense | 44,991 | 34,306 | 3,106 | 82,403 | |||||
| Net interest income | 104,906 | 78,992 | 20,007 | 203,905 | |||||
| Provision for credit losses | 1,682 | 145 | 7,588 | (F) | 9,415 | ||||
| Net interest income after provision for credit losses | 103,224 | 78,847 | 12,419 | 194,490 | |||||
| Noninterest income | |||||||||
| Service charges on deposit accounts | 4,866 | 2,338 | — | 7,204 | |||||
| Interchange income | 3,873 | 3,815 | — | 7,688 | |||||
| Swap fee income | 1,039 | 751 | — | 1,790 | |||||
| Wealth management income | 11,340 | 6,337 | — | 17,677 | |||||
| Mortgage banking activities | 591 | 315 | — | 906 | |||||
| Income from life insurance | 2,482 | 1,452 | — | 3,934 | |||||
| Other income | 1,508 | 1,844 | — | 3,352 | |||||
| Investment securities losses | (47) | (388) | — | (435) | |||||
| Total noninterest income | 25,652 | 16,464 | — | 42,116 | |||||
| Noninterest expenses | |||||||||
| Salaries and employee benefits | 50,983 | 37,974 | — | 88,957 | |||||
| Occupancy, furniture and equipment | 9,593 | 7,075 | 93 | (G)(L) | 16,761 | ||||
| Data processing | 4,913 | 4,042 | — | 8,955 | |||||
| Automated teller and interchange fees | 1,252 | 1,976 | — | 3,228 | |||||
| Advertising and bank promotions | 2,157 | 2,951 | — | 5,108 | |||||
| FDIC insurance | 1,960 | 983 | — | 2,943 | |||||
| Professional services | 2,905 | 1,839 | — | 4,744 | |||||
| Taxes other than income | 1,050 | — | — | 1,050 | |||||
| Intangible asset amortization | 953 | 2 | 8,149 | (H) | 9,104 | ||||
| Merger related expenses | 1,059 | 956 | 28,139 | (M) | 30,154 | ||||
| Other operating expenses | 7,018 | 5,670 | — | 12,688 | |||||
| Total noninterest expenses | 83,843 | 63,468 | 36,381 | 183,692 | |||||
| Income before income tax expense | 45,033 | 31,843 | (23,962) | 52,914 | |||||
| Income tax expense | 9,370 | 6,870 | (4,357) | (N) | 11,883 | ||||
| Net income | $ | 35,663 | $ | 24,973 | $ | (19,605) | $ | 41,031 |
See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of transaction accounting adjustments.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Basis of Pro Forma Presentation
The unaudited pro forma combined consolidated balance sheet as of March 31, 2024 and the unaudited pro forma combined consolidated statements of income for the three months ended March 31, 2024 and for the year ended December 31, 2023 are based on the historical financial statements of Orrstown and Codorus Valley after giving effect to the completion of the merger and the assumptions and adjustments described in the accompanying notes. Such financial statements do not reflect cost savings or operating synergies expected to result from the merger, the costs to achieve these cost savings or operating synergies, or any anticipated disposition of assets that may result from the integration of the operations of both companies.
Certain historical financial information has been reclassified to conform to the current presentation.
The transaction was accounted for under the acquisition method of accounting in accordance with ASC 805. In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the merger consideration is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.
Under ASC 805, all of the assets acquired and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Changes in deferred tax asset valuation allowances and income tax uncertainties after the merger date generally affect income tax expense. Based on the integration plan, for those assets in the combined company that will be phased out or will no longer be used, additional amortization, depreciation and possibly impairment charges may be recorded after management completes the integration plan.
The unaudited pro forma information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.
Note 2 — Purchase Price Merger Consideration
Under the terms of the Merger Agreement, Codorus Valley stockholders are entitled to receive 0.875 shares of Orrstown common stock for each share of Codorus Valley common stock. Based on the number of Codorus Valley common stock shares outstanding as of March 28, 2024, the purchase price merger consideration is as follows.
| (dollars are in thousands, except per share data) | March 31, 2024 | |
|---|---|---|
| Number of shares of Codorus Valley common stock outstanding | 9,662,378 | |
| Number of Codorus Valley unvested restricted stock units | 111,169 | |
| Total number of shares | 9,773,547 | |
| Per common share exchange ratio | 0.875 | |
| Number of shares of Orrstown common stock — as exchanged | 8,551,854 | |
| Multiplied by Orrstown common stock price per common share (closing stock price as of June 28, 2024) | $ | 27.36 |
| Purchase price merger consideration for Codorus Valley | $ | 233,979 |
Note 3 — Merger Consideration Allocation
Under the acquisition method of accounting, the total merger consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Codorus Valley based on their estimated fair value as of the closing of the merger. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The total merger consideration as shown in the tables above is allocated to Codorus Valley’s tangible and intangible assets and liabilities based on their fair values as follows:
| (in thousands) | Codorus Valley Book Value<br><br>March 31, 2024 | Fair Value Adjustments | Notes | Codorus Valley<br><br>Fair Value<br><br>March 31, 2024 | |||
|---|---|---|---|---|---|---|---|
| Total purchase price considerations | $ | 233,979 | |||||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||
| Cash and cash equivalents | $ | 26,662 | $ | — | $ | 26,662 | |
| Restricted investments in bank stocks | 3,186 | — | 3,186 | ||||
| Securities available for sale | 339,495 | — | 339,495 | ||||
| Loans held-for-sale | 958 | — | 958 | ||||
| Loans, net of allowance for credit losses (“ACL”) | 1,717,624 | (68,536) | (F) | 1,649,088 | |||
| Premises and equipment, net | 19,090 | 6,537 | (G) | 25,627 | |||
| Cash surrender value of life insurance | 62,406 | — | 62,406 | ||||
| Accrued interest receivable | 8,373 | — | 8,373 | ||||
| Goodwill | 2,301 | (2,301) | (H) | — | |||
| Other intangibles | — | 44,827 | (H) | 44,827 | |||
| Deferred income tax asset, net | 16,760 | 1,797 | (I) | 18,557 | |||
| Other assets | 11,738 | 11,738 | |||||
| Total identifiable assets acquired | 2,208,593 | (17,676) | 2,190,917 | ||||
| Deposits | 1,915,063 | (2,890) | (J) | 1,912,173 | |||
| Securities sold under agreements to repurchase | 4,272 | — | 4,272 | ||||
| FHLB advances and other borrowings | 41,827 | (219) | (K) | 41,608 | |||
| Subordinated notes | 30,865 | (1,593) | (K) | 29,272 | |||
| Other liabilities | 15,572 | 1,195 | (L) | 16,767 | |||
| Total liabilities assumed | 2,007,599 | (3,507) | 2,004,092 | ||||
| Total identifiable net assets | $ | 200,994 | $ | (14,169) | $ | 186,825 | |
| Goodwill | $ | 47,154 |
Approximately $44.8 million has been allocated to amortizable intangible assets acquired. The amortization related to the fair value of net amortizable intangible assets is reflected as a transaction accounting adjustment to the unaudited pro forma combined consolidated financial statements.
Identifiable intangible assets. The fair values of intangible assets were determined based on the provisions of ASC 805, which defines fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The allocation to intangible assets is allocated to core deposit intangibles.
Goodwill. Goodwill represents the excess of the merger consideration over the fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets are the experience and expertise of personnel, operations, customer base and organizational cultures that can be leveraged to enable the combined company to build an enterprise greater than the sum of its parts. In accordance with ASC Topic 350, Intangibles—Goodwill and Other, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. In the event management determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of the impairment during the period in which the determination is made.
Note 4 — Adjustments to the Unaudited Pro Forma Combined Consolidated Balance Sheet and Statements of Income
The unaudited pro forma financial information is not necessarily indicative of what the financial position of Orrstown would have been had the merger been completed at the date indicated. Such information includes adjustments that may be revised and may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the
combined companies would have been, nor necessarily indicative of the financial position of the post-merger periods. The unaudited pro forma financial information does not give consideration to the impact of possible cost savings, expense efficiencies, synergies, strategic modifications, asset dispositions or other actions that may result from the merger.
The following unaudited transaction accounting adjustments result from accounting for the merger, including the determination of fair value of the assets, liabilities, and commitments that Orrstown acquired from Codorus Valley. The pro forma combined consolidated balance sheet was adjusted to reflect the reversal of Codorus Valley's historical equity account balances, the purchase price considerations, the fair value adjustments and the after-tax provision for credit losses for non-PCD loans to record the transaction accounting adjustments for common stock, additional paid-in capital ("APIC"), retained earnings, accumulated other comprehensive income ("AOCI") and treasury stock. The descriptions related to these adjustments are as follows: (dollars are in thousands, except share and per share data):
| A | Orrstown common shares issued to stockholders of Codorus Valley representing the total merger consideration. For the purpose of this pro forma presentation, common stock is the number of Orrstown shares to be issued to Codorus Valley stockholders multiplied by the par value of $0.05205. Additional paid-in capital is the difference between purchase price merger consideration for Codorus Valley and common stock. The value of a share of Orrstown common stock was assumed to equal its closing price on June 28, 2024, as reported by NASDAQ ($27.36 per common share). | |
|---|---|---|
| Transaction accounting adjustment for common stock | ||
| --- | --- | --- |
| Reversal of Codorus Valley common stock | (24,709) | |
| Number of shares of Orrstown common stock issued | 8,551,854 | |
| Par value of Orrstown common stock | 0.05205 | |
| Par value of Orrstown shares issued for merger | ||
| Total transaction accounting adjustment for common stock | (24,264) |
All values are in US Dollars.
| Transaction accounting adjustment for APIC | Balance Sheet<br><br>March 31, 2024 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Reversal of Codorus Valley common stock to APIC | $ | 24,709 | |||||||
| Reversal of Codorus Valley retained earnings to APIC | 71,249 | ||||||||
| Reversal of Codorus Valley accumulated other comprehensive loss to APIC | (32,911) | ||||||||
| Reversal of Codorus Valley treasury stock to APIC | (4,869) | ||||||||
| 58,178 | |||||||||
| Issued and outstanding shares of Codorus Valley common stock | 9,773,547 | ||||||||
| Exchange ratio | 0.875 | ||||||||
| Number of Orrstown common stock issued | 8,551,854 | ||||||||
| Closing price of Orrstown common stock as of June 28, 2024 | $ | 27.36 | |||||||
| Purchase price consideration for common stock | $ | 233,979 | |||||||
| Cash in lieu of fractional shares | 10 | ||||||||
| Par value of Orrstown common stock | 445 | ||||||||
| APIC adjustment for Orrstown common stock issued | $ | 233,524 | |||||||
| Less: Codorus Valley shareholders’ equity | 200,994 | ||||||||
| Net adjustment to APIC for stock consideration | 32,530 | ||||||||
| Total transaction accounting adjustment for APIC | $ | 90,708 | |||||||
| B | Adjustment to retained earnings for the impact to earnings for the estimated one-time merger expenses to be paid in conjunction with the merger, net of the related tax benefit and the allowance for credit losses for acquired non-purchase credit deteriorated (“PCD”) loans, net of the related tax benefit. | ||||||||
| --- | --- | Transaction accounting adjustment for retained earnings | Balance Sheet<br><br>March 31, 2024 | ||||||
| --- | --- | --- | |||||||
| Reversal of Codorus Valley retained earnings | $ | (71,249) | |||||||
| Provision for credit fair value mark assigned to Non-PCD loans | (5,919) | ||||||||
| Orrstown merger-related expenses | (22,863) | ||||||||
| Total transaction accounting adjustment for retained earnings | $ | (100,031) | C | Adjustment to reverse Codorus Valley's AOCI | |||||
| --- | --- | Transaction accounting adjustment for AOCI | Balance Sheet<br><br>March 31, 2024 | ||||||
| --- | --- | --- | |||||||
| Reversal of Codorus Valley accumulated other comprehensive loss | $ | 32,911 | |||||||
| Total transaction accounting adjustment for AOCI | 32,911 | D | Adjustment to reverse Codorus Valley's treasury stock | ||||||
| --- | --- | Transaction accounting adjustment for treasury stock | Balance Sheet<br><br>March 31, 2024 | ||||||
| --- | --- | --- | |||||||
| Reversal of Codorus Valley treasury stock | $ | 4,869 | |||||||
| Total transaction accounting adjustment for treasury stock | 4,869 | E | Adjustment to reflect the fair value of investment securities acquired pursuant to the merger, which will be accreted into income based on the expected life of securities using the straight-line method over the average life of the securities. For the balance sheet at March 31, 2024, securities available-for-sale were recorded at fair value, therefore no balance sheet adjustment is necessary. | ||||||
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| (dollars are in thousands) | March 31, 2024 | December 31, 2023 | March 31, 2024 | ||||||
| Securities available for sale | $ | — | $ | 6,657 | $ | 1,664 | F | Adjustment to reflect the fair value for acquired PCD and non-PCD loans and the reversal of net deferred loan fees. The accruing loan fair value adjustments will be substantially recognized over the expected life of the loans. | |
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| Fair value adjustment on loans acquired: | March 31, 2024 | December 31, 2023 | March 31, 2024 | ||||||
| Interest rate fair value mark assigned to Non-PCD loans | $ | (69,153) | $ | 13,631 | $ | 3,408 | |||
| Interest rate fair value mark assigned to PCD loans | (6,742) | 1,329 | 316 | ||||||
| Total interest rate fair value mark for loans | (75,895) | 14,960 | 3,724 | ||||||
| Credit fair value mark assigned to Non-PCD loans | (7,588) | 1,496 | 356 | ||||||
| Credit fair value mark assigned to PCD loans | (10,335) | — | — | ||||||
| Total credit fair value mark for loans | (17,923) | 1,496 | 356 | ||||||
| Total fair value adjustments for loans | (93,818) | 16,456 | 4,080 | ||||||
| Reversal of net deferred loan fees | 3,636 | — | — | ||||||
| Fair value of PCD loans assigned to ACL | 10,335 | — | — | ||||||
| Total loan adjustments | $ | (79,847) | $ | 16,456 | $ | 4,080 | |||
| Adjustment to the allowance for credit losses ("ACL") to reflect the reversal of Codorus Valley’s existing ACL and to include the gross-up fair value adjustment for PCD loans to the ACL. In addition, the ACL was adjusted to include additional provision expense for acquired non-PCD loans. The pro forma combined consolidated statement of income includes a one-time after-tax provision expense, which is recorded as a direct adjustment to retained earnings on the pro forma combined consolidated balance sheet. | |||||||||
| --- | Balance Sheet | Statements of Income | |||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Allowance for credit losses: | |||||||||
| Reversal of existing ACL | $ | 21,645 | $ | — | $ | — | |||
| Fair value of PCD loans assigned to ACL | (10,335) | — | — | ||||||
| Total adjustment to the ACL excluding CECL for non-PCD loans | $ | 11,310 | $ | — | $ | — | |||
| Provision for credit losses for non-PCD loans | (7,588) | 7,588 | — | ||||||
| Total adjustment to the ACL | $ | 3,722 | $ | 7,588 | $ | — | |||
| Retained Earnings impact to non-PCD | |||||||||
| Deferred tax asset impact (using 22% tax rate) | 1,669 | — | — | ||||||
| Retained Earnings impact | $ | (5,919) | $ | 7,588 | $ | — | |||
| G | Adjustment to reflect the fair value of the Codorus Valley's fixed assets acquired, primarily buildings, based on the current market value. The increase in the fair value will be amortized over an estimated 40 year useful life on a straight line basis. | ||||||||
| --- | --- | ||||||||
| Balance Sheet | Statements of Income | ||||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Premise and equipment, net | $ | 6,537 | $ | 163 | $ | 41 | |||
| H | Adjustments to reverse Codorus Valley's existing goodwill and record goodwill generated as a result of consideration paid in excess of the fair value of the net assets acquired and other intangible assets. The core deposit intangible asset and the customer list intangible asset are amortized based on the sum-of-the-years digits method over the expected life of 10 years. | ||||||||
| --- | --- | ||||||||
| Balance Sheet | Statements of Income | ||||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Intangible assets | |||||||||
| Core deposit intangible asset | $ | 34,427 | $ | 6,258 | $ | 1,565 | |||
| Customer list intangible asset | 10,400 | 1,891 | 472 | ||||||
| Total intangible assets | $ | 44,827 | $ | 8,149 | $ | 2,037 | |||
| Goodwill adjustment | |||||||||
| Reversal of Codorus Valley existing goodwill adjustment | (2,301) | — | — | ||||||
| Transaction Goodwill | |||||||||
| Goodwill booked in transaction | 47,154 | — | — | ||||||
| Total goodwill | $ | 44,853 | $ | — | $ | — | |||
| Total adjustments | $ | 89,680 | $ | 8,149 | $ | 2,037 | |||
| I | Adjustments to reflect the net deferred tax asset/liability generated by the net fair value adjustments and existing pre-merger timing differences and the deferred tax effect of the allowance for credit losses for acquired non-PCD loans using an assumed effective tax rate of 22%. | ||||||||
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Fair value purchase accounting adjustment | $ | (8,168) | $ | — | $ | — | |||
| Provision for credit losses on non-PCD loan | (7,588) | — | — | ||||||
| Total subject to deferred taxes | (15,756) | — | — | ||||||
| Tax impact | $ | 3,466 | $ | — | $ | — | J | Adjustment to reflect the fair value of time deposits assumed based on current interest rates for similar instruments. The average maturity of the time deposits was less than one year. For the pro forma combined consolidated financial statements, the fair value adjustment will be amortized within twelve months following the merger. | |
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Time deposits | $ | (2,890) | $ | 2,890 | $ | — | K | Adjustment to reflect the fair value of the subordinated debt and trust preferred securities assumed based on current interest rates for similar instruments. This fair value adjustments will be amortized over the remaining estimated life of the liabilities. | |
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Subordinated debt | $ | (1,593) | $ | 205 | $ | 51 | |||
| Trust preferred securities | (219) | 11 | 3 | ||||||
| Total subordinated notes and trust preferred securities | $ | (1,812) | $ | 216 | $ | 54 | L | Adjustment to reflect the fair value for operating lease contracts, which will be amortized over the expected life of the lease contracts of 17 years. | |
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Operating lease obligations | $ | 1,195 | $ | 70 | $ | 18 | M | Adjustment represents the merger-related expenses incurred after the Effective Time of the merger, which are recorded to the pro forma combined consolidated balance sheet as an after-tax adjustment to reduce cash and retained earnings. | |
| --- | --- | Balance Sheet | Statements of Income | ||||||
| --- | --- | --- | --- | --- | --- | --- | |||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | |||||||
| Merger-related expenses | $ | 28,139 | $ | 28,139 | $ | — | |||
| Tax impact | (5,276) | (5,276) | — | ||||||
| Merger-related expenses (after-tax) | $ | 22,863 | $ | 22,863 | $ | — | N | Adjustment to reflect the income tax provision of the transaction accounting adjustments using an effective tax rate of approximately 22%, which includes the impact of the of non-deductible merger-related expenses. | |
| --- | --- |
Note 5 — Earnings per Common Share
Unaudited pro forma earnings per common share for the year ended December 31, 2023 and for the three months ended March 31, 2024 have been calculated using Orrstown’s historic weighted average common shares outstanding plus the common shares estimated to be issued to Codorus Valley’s stockholders in the merger.
The following table sets forth the calculation of basic and diluted unaudited pro forma earnings per common share:
| Three Months Ended<br><br>March 31, 2024 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (dollars are in thousands, except per share data) | Basic | Diluted | ||||||||
| Pro forma net income available to common stockholders | $ | 16,407 | $ | 16,407 | ||||||
| Weighted average common shares outstanding: | ||||||||||
| Common shares issued to Orrstown stockholders | 10,349,264 | 10,482,102 | ||||||||
| Common shares issued to Codorus Valley stockholders | 8,442,875 | 8,461,250 | ||||||||
| Pro forma weighted average common shares outstanding | 18,792,139 | 18,943,352 | ||||||||
| Pro forma net income per common share | $ | 0.87 | $ | 0.87 | Year Ended<br><br>December 31, 2023 | |||||
| --- | --- | --- | --- | --- | ||||||
| (dollars are in thousands, except per share data) | Basic | Diluted | ||||||||
| Pro forma net income available to common stockholders | $ | 41,031 | $ | 41,031 | ||||||
| Weighted average common shares outstanding: | ||||||||||
| Common shares issued to Orrstown stockholders | 10,339,937 | 10,434,818 | ||||||||
| Common shares issued to Codorus Valley stockholders | 8,407,000 | 8,421,875 | ||||||||
| Pro forma weighted average common shares outstanding | 18,746,937 | 18,856,693 | ||||||||
| Pro forma net income per common share | $ | 2.19 | $ | 2.18 |