Orrstown Financial in Shippensburg, Pa., has agreed to pay a $1 million to settle charges that it misled investors as it raised capital in the wake of the financial crisis.
The $1.3 million-asset Orrstown failed to disclose credit problems with about $70 million in commercial loans between June 30, 2010, and Sep. 30, 2011, according to an agreement with the Securities and Exchange Commission. Orrstown held two securities offerings during this time period, the agreement said. The company also is said to have miscalculated its allowance for loan losses.
At issue in the case is Orrstown's loan review process. The company failed to heighten the risk ratings on several large accounts after learning that the borrowers – all of whom were real estate developers – were facing challenges repaying their loans.
Orrstown showed "negligence" by not disclosing the impaired loans and, as a result, misstating its quarterly results, according to the Sep. 27 settlement agreement.
Under the agreement, Chief Executive Thomas Quinn also agreed to pay an individual penalty of $100,000. Several other senior executives – including the chief financial, accounting and risk officers at the time of the violations – also agreed to pay fines.
In the two days since the settlement was announced, shares of the company have fallen about 17%, to $20.20 as of midday Thursday. The KBW Bank Index increased over the same period.
Orrstown has 24 branches in Pennsylvania and Maryland.