Shares of Orrstown Financial Inc. fell sharply Friday after the Shippensburg, Pa., company warned that it expects to take a larger-than-expected provision for loan losses in the second quarter.
In a Securities and Exchange Commission filing Thursday, the $1.5 billion-asset company said that it expects to set aside roughly $21 million for loan losses in the quarter, more than six times the $3.2 million it provisioned in the first quarter. According to a research note from Sandler O'Neill & Partners LP, roughly $15.6 million of the provision is the result of a softening economy and downgrades to existing credits and the rest is due to a decision to charge off a loan to a residential developer that declared bankruptcy last year.
Sandler O'Neill expects that the provision will wipe out Orrstown's earnings for the second quarter and has lowered its quarterly estimate by $1.61 per share, to a loss of $1.04. The company earned $3.8 million, or 48 cents per share, in the first quarter.
Orrstown's shares fell nearly 10% Friday, to close at $22.61. The company is expected to report second-quarter earnings on July 28.
