A tax expense dragged down Orrstown Financial Services (ORRF) in Shippensburg, Pa., in the third quarter.
Orrstown recorded a loss of $21.4 million in the third quarter, compared with a profit of $4.3 million a year earlier, the $1.3 billion-asset company said Monday.
The loss resulted primarily from a $19 million tax-related expense, according to the company. The item covers a deferred tax asset tied to credit losses that it hopes later to take advantage of for accounting purposes. "The valuation allowance represents a non-cash charge to income-tax expense and will be recoverable in future years as the company returns to profitability," Orrstown said.
Net interest income fell 30%, to $9 million, from a year earlier. Net interest margin fell 56 basis points, to 3.10%, reflecting lower yields.
Orrstown recorded noninterest income of $4.9 million, down 73% from the third quarter of 2011, as a result of lower revenue from service charges on deposit accounts and mortgage banking activities, as well as a drop in gains on securities.
Noninterest expense declined 66%, to $11.1 million from the third quarter of 2011. The company's efficiency ratio increased to 71.5% for the first nine months of 2012, compared with 52.6% for the same period in 2011.
The company's provision for loan losses fell 35%, to $5.1 million, compared with a year earlier.
"We are encouraged that during the third quarter of 2012 our nonaccrual loans and other risk elements stabilized on a linked-quarter basis, and were reduced by 43.4% since December 31, 2011, allowing us to significantly decrease our provision for loan losses compared to the most recent three quarters," Thomas R. Quinn, Jr., Orrstown's chief executive, said in a news release.
During the third quarter Orrstown hired a chief operating officer, a chief financial officer and a chief risk officer.