Benzinga | Sep 24, 2020 08:39AM EDT

Orrstown Financial Reports Series Of Steps To Adjust Near-Term Tactical Plans Due To COVID-19 Pandemic, Including Consolidation Of 6 Branch Locations

Orrstown Financial Services, Inc. ("Orrstown"), the holding company for Orrstown Bank (the "Bank") is announcing a series of steps to adjust its near-term tactical plans due to the COVID-19 pandemic. These changes involve the consolidation of six branch locations, the elimination of excess back office space and certain staffing model adjustments. These initiatives are expected to generate approximately $4 million of pre-tax annual expense savings once completed, with a one-time pre-tax charge of approximately $1.5 million to be incurred in the third quarter of 2020. Additional strategies are being developed for 2021 to maintain fee-based revenue at levels above historical trends and to continue to optimize the balance sheet mix during an anticipated prolonged period of low interest rates.

"We continuously review our business model, operations, and delivery channels to ensure that we are operating as efficiently as possible," commented Thomas R. Quinn, Jr., Orrstown's President and Chief Executive Officer. "As the banking habits of consumers and our clients evolve, we have seen these habits accelerated during the COVID-19 pandemic. Clients are becoming more reliant on our digital services, and as such, we will continue to invest the resources necessary to ensure a robust online, mobile, and ATM experience. We still believe in the value of our branch delivery channel, and the personal touch and relationship that it fosters, as clients continue to visit our branches for sound advice and assistance with complex financial situations."

Quinn continued, "Further, all of these changes are designed to proactively prepare for a challenging operating environment in 2021, which forecasts a lower net interest margin due to historically low interest rates and anticipated higher asset quality related costs. Fortunately, Orrstown has made significant investments in technology in recent years, which enables the Bank to adjust its physical branch footprint and staffing model at this time. In short, we are investing in the future direction of the company which best positions us to meet the growing needs of our clients."

Orrstown anticipates that the savings generated from the staffing model adjustments will be approximately $2.5 million annually (pre-tax) and will be fully phased in by the start of 2021. The reductions will reduce the employee count by approximately 8%. The branch consolidations, which are expected to save approximately $1.4 million annually (pre-tax), are subject to regulatory approval and are expected to be completed no later than Q1 2021. The Bank is not exiting any markets and is simply adjusting its distribution model by reducing its physical footprint within existing markets. Of the six branches to be consolidated, three are located in Pennsylvania and three are located in Maryland. If you combine these consolidations with the five announced in 2019, Orrstown will have consolidated 11 branches, or 30% of its physical branch locations, since December 31, 2019. Once the branch consolidations are complete, the Bank's average branch size is expected to be approximately $80 million, a significant increase from approximately $50 million in December of 2019.

The branch consolidations, combined with the elimination of excess back office space will meaningfully reduce the Bank's operational complexity. Upon completion of this initiative, the Bank will have reduced its leased and owned office space by 27% since December 31, 2019. Additionally, the Bank anticipates an additional $0.1 million in annual cost savings as a result of the elimination of excess non-branch real estate, which is expected to be completed by the end of the first quarter of 2021.

The following branch locations will be closing by the first quarter of 2021:

* 5600 Harford Rd. Baltimore, MD 21214

* 788 Washington Blvd., Baltimore, MD 21230

* 22 S. Hanover St, Carlisle, PA 17013

* 1400 Gilbert Way, Suite 101, Lancaster, PA 17601

* 2098 Spring Valley Rd, Lancaster, PA 17601

* 501 Fairmount Ave, Ste 200, Towson, MD 21286