EX-99.3

EX-99.3 4 d766891dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined consolidated financial information and accompanying notes show the impact on the historical financial conditions and results of operations of Orrstown Financial Services, Inc., (“Orrstown”) and Hamilton Bancorp, Inc., (“Hamilton”) and have been prepared to illustrate the effects of the merger under the acquisition method of accounting.

The unaudited pro forma combined consolidated balance sheet at March 31, 2019 is presented as if the Orrstown and Hamilton merger had occurred on March 31, 2019. The unaudited pro forma combined consolidated statements of income for the year ended December 31, 2018, and for the three month period ended March 31, 2019, are presented as if the Hamilton merger had occurred on January 1, 2018. The historical consolidated financial information has been adjusted to reflect factually supportable items directly attributable to the Hamilton merger and, with respect to the income statement only, expected to have a continuing impact on consolidated results of operations, and, as such, Orrstown’s one-time merger costs for the Hamilton merger are not included. The unaudited pro forma combined consolidated statements of income for the year ended December 31, 2018 and for the three month period ended March 31, 2019, also reflect adjustments made to Hamilton’s income statements to conform them from Hamilton’s March 31 fiscal year end to Orrstown’s December 31 fiscal year end. Such adjustments were made using income statement information from Hamilton’s audited consolidated financial statements at and for the year ended March 31, 2018, included in Hamilton’s Annual Report on Form 10-K for the year ended March 31, 2018, Hamilton’s unaudited consolidated financial statements included in Hamilton’s Quarterly Reports on Form 10-Q, and Hamilton’s audited consolidated financial statements for the year ended March 31, 2019. In addition, the unaudited pro forma combined consolidated statements of income for the year ended December 31, 2018, include the effect of Orrstown’s acquisition of Mercersburg Financial Corporation (“Mercersburg”), which was completed on October 1, 2018, and the effect of Orrstown’s subordinated debt issuance, which was completed on December 19, 2018, as if they had occurred on January 1, 2018.

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 mergers been completed as of the dates indicated or that may be achieved in the future. 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 financial statements should be read together with:

•

the accompanying notes to the unaudited pro forma combined consolidated financial statements;

•

Orrstown’s audited consolidated financial statements and accompanying notes at and for the year ended December 31, 2018, included in Orrstown’s Annual Report on Form 10-K for the year ended December 31, 2018;

•

Orrstown’s unaudited consolidated financial statements and accompanying notes at and for the three months ended March 31, 2019, included in Orrstown’s Quarterly Report on Form 10-Q for the three months ended March 31, 2019;

•

Hamilton’s audited consolidated financial statements and accompanying notes at and for the year ended March 31, 2018, included in Hamilton’s Annual Report on Form 10-K for the year ended March 31, 2018, which is incorporated by reference into this Form 8-K/A; and

•

Hamilton’s audited consolidated financial statements and accompanying notes at and for the year ended March 31, 2019, which are included in this Form 8-K/A.

Unaudited Pro Forma Combined

Consolidated Balance Sheet

March 31, 2019

(in thousands)


	Orrstown (as reported)			Hamilton			Pro Forma Adjustments			Orrstown Pro Forma
Assets
Cash and due from banks	$	22,387		$	29,561		$	(21,274	)(a)(c)	$	30,674
Interest-bearing deposits with banks		54,830			499						55,329
Federal funds sold		—			8,783						8,783

Cash and cash equivalents		77,217			38,843						94,786

Restricted investments in bank stocks		10,292			2,658						12,950
Securities available for sale		490,221			62,517						552,738
Loans held for sale		4,787			—						4,787
Loans		1,265,539			365,419			(15,883	)(d)(m)		1,615,075
Less: Allowance for loan losses		(14,283	)		(3,088	)		3,088	(e)		(14,283	)

Net loans		1,251,256			362,331						1,600,792

Premises and equipment, net		38,107			3,677			157	(f)(m)		41,941
Cash surrender value of life insurance		41,578			17,911						59,489
Accrued interest receivable		6,340			1,458			(66	)(g)		7,732
Goodwill		12,592			8,564			(4,798	)(h)(m)		16,358
Other intangibles		3,702			487			4,063	(i)(m)		8,252
Other assets		37,191			2,105			5,683	(j)		44,979

Total assets	$	1,973,283		$	500,551					$	2,444,804

Liabilities
Deposits:
Noninterest-bearing	$	214,308		$	26,585					$	240,893
Interest-bearing		1,406,388			360,219			106	(k)(m)		1,766,713

Total deposits		1,620,696			386,804						2,007,606

Borrowings		144,745			51,050			343	(l)		196,138
Accrued interest and other liabilities		28,675			5,477						34,152

Total liabilities		1,794,116			443,331						2,237,896

Stockholders’ Equity
Preferred stock		—			—						—
Common stock		494			34			62	(b)(n)		590
Additional paid-in capital		151,702			32,542			1,603	(b)(n)		185,847
Retained earnings		26,161			27,206			(33,706	)(c)(n)		19,661
Unearned ESOP shares		—			(1,925	)		1,925	(n)		—
Accumulated other comprehensive income (loss)		810			(637	)		637	(n)		810

Total stockholders’ equity		179,167			57,220						206,908

Total liabilities and stockholders’ equity	$	1,973,283		$	500,551					$	2,444,804

See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of pro forma adjustments.

Unaudited Pro Forma Combined

Consolidated Statement of Income

For the year ended December 31, 2018

(in thousands)


	Orrstown (as reported)		Mercersburg (January 1, 2018 to September 30, 2018)		Pro Forma Adjustments			Orrstown / Mercersburg Pro Forma		Subordinated Debt Issuance (v)		Orrstown / Mercersburg with Subordinated Debt Pro Forma		Hamilton as reported (1)		Pro Forma Adjustments			Orrstown Pro Forma
Interest and dividend income
Interest and fees on loans	$	49,802	$	5,309	$	862	(o)	$	55,973			$	55,973	$	17,270	$	1,550	(o)	$	74,793
Interest and dividends on investment securities
Taxable		10,858		22					10,880				10,880		1,344		98	(p)		12,322
Tax-exempt		3,850		161		32	(p)		4,043				4,043		376		33	(p)		4,452
Short-term investments and Federal funds sold		327		93					420				420		372					792

Total interest and dividend income		64,837		5,585					71,316				71,316		19,362					92,359

Interest expense
Interest on deposits		10,185		611		33	(q)		10,829				10,829		3,608		105	(q)		14,542
Interest on borrowings		3,282		—					3,282		1,915		5,197		1,107		499	(r)		6,803

Total interest expense		13,467		611					14,111				16,026		4,715					21,345

Net interest income		51,370		4,974					57,205				55,290		14,647					71,014
Provision for loan losses		800		84					884				884		1,333					2,217

Net interest income after provision for loan losses		50,570		4,890					56,321				54,406		13,314					68,797

Noninterest income
Service charges on deposit accounts		6,054		95					6,149				6,149		477					6,626
Other service charges, commissions and fees		1,737		323					2,060				2,060		—					2,060
Trust and investment management income		6,576		—					6,576				6,576		—					6,576
Brokerage income		2,035		—					2,035				2,035		—					2,035
Mortgage banking activities		2,663		95					2,758				2,758		—					2,758
Income from life insurance		1,463		169					1,632				1,632		1,293					2,925
Other income		320		37					357				357		69					426
Investment securities gains (losses)		1,006		—					1,006				1,006		—					1,006

Total noninterest income		21,854		719					22,573				22,573		1,839					24,412

Unaudited Pro Forma Combined

Consolidated Statement of Income

For the year ended December 31, 2018

(in thousands)


	Orrstown (as reported)		Mercersburg		Pro Forma Adjustments			Orrstown / Mercersburg Pro Forma		Subordinated Debt Issuance (v)			Orrstown / Mercersburg with Subordinated Debt Pro Forma		Hamilton as reported (1)			Pro Forma Adjustments			Orrstown Pro Forma
Noninterest expenses
Salaries and employee benefits		32,524		3,207		(31	)(s)		35,700					35,700		7,506						43,206
Occupancy		3,084		322					3,406					3,406		1,055						4,461
Furniture and equipment		4,079		306					4,385					4,385		354						4,739
Data processing		2,674		280					2,954					2,954		798						3,752
Telephone and communication		753		—					753					753		—						753
Automated teller and interchange fees		806		—					806					806		—						806
Advertising and bank promotions		1,592		—					1,592					1,592		76						1,668
FDIC insurance		681		77					758					758		373						1,131
Legal fees		413		39					452					452		255						707
Other professional services		1,434		125					1,559					1,559		538						2,097
Directors’ compensation		984		170					1,154					1,154		—						1,154
Real estate owned		97		17					114					114		14						128
Taxes other than income		1,012		190					1,202					1,202		—						1,202
Intangible asset amortization		286		—		732	(t)		1,018					1,018		—			735	(t)		1,753
Merger related		3,197		—					3,197					3,197		559						3,756
Other operating expenses		4,363		549					4,912					4,912		1,743						6,655

Total noninterest expenses		57,979		5,282					63,962					63,962		13,271						77,968

Income before income tax expense		14,445		327					14,932					13,017		1,882						15,241
Income tax expense		1,640		31		35	(u)		1,706		(400	)		1,306		5,388			76	(u)		6,770

Net income	$	12,805	$	296				$	13,226				$	11,711	$	(3,506	)				$	8,471

(1)	Hamilton Bancorp information has been reclassed to conform to a calendar year presentation.

See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of pro forma adjustments.

Unaudited Pro Forma Combined

Consolidated Statement of Income

For the three months ended March 31, 2019

(in thousands)


	Orrstown (as reported)		Hamilton			Pro Forma Adjustments			Orrstown Pro Forma
Interest and dividend income
Interest and fees on loans	$	15,059	$	4,239		$	387	(o)	$	19,685
Interest and dividends on investment securities
Taxable		3,492		283			25	(p)		3,800
Tax-exempt		842		62			8	(p)		912
Short-term investments and Federal funds sold		173		175						348

Total interest and dividend income		19,566		4,759						24,745

Interest expense
Interest on deposits		3,694		1,120			26	(q)		4,840
Interest on borrowings		1,183		323			125	(r)		1,631

Total interest expense		4,877		1,443						6,471

Net interest income		14,689		3,316						18,274
Provision for loan losses		400		383						783

Net interest income after provision for loan losses		14,289		2,933						17,491

Noninterest income
Service charges on deposit accounts		1,489		116						1,605
Other service charges, commissions and fees		241		—						241
Trust and investment management income		1,758		—						1,758
Brokerage income		478		—						478
Mortgage banking activities		468		—						468
Income from life insurance		342		111						453
Other income		112		32						144
Investment securities gains		339		—						339

Total noninterest income		5,227		259						5,486

Noninterest expenses
Salaries and employee benefits		8,677		1,692						10,369
Occupancy		1,001		268						1,269
Furniture and equipment		1,023		82						1,105
Data processing		770		214						984
Telephone and communication		212		—						212
Automated teller and interchange fees		236		—						236
Advertising and bank promotions		521		28						549
FDIC insurance		185		56						241
Legal fees		53		56						109
Other professional services		504		116						620
Directors’ compensation		236		—						236
Real estate owned		2		107						109
Taxes other than income		306		—						306
Intangible asset amortization		208		—			183	(t)		391
Merger related		645		254						899
Other operating expenses		1,603		418						2,021

Total noninterest expenses		16,182		3,291						19,656

Income (loss) before income tax expense		3,334		(99	)					3,321
Income tax expense		232		34			19	(u)		285

Net income (loss)	$	3,102	$	(133	)				$	3,036

See accompanying notes to Unaudited Pro Forma Combined Consolidated Financial Information. See Note 4 for explanation and descriptions of pro forma adjustments.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data, unless otherwise indicated)

Note 1 — Basis of Pro Forma Presentation

The unaudited pro forma combined balance sheet at March 31, 2019, and the unaudited pro forma combined statements of income for the year ended December 31, 2018 and for the three months ended March 31, 2019, are based on the historical financial statements of Orrstown and Hamilton after giving effect to the completion of the mergers 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 mergers, or 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 the three companies.

In addition, the unaudited pro forma combined consolidated statements of income for the year ended December 31, 2018, include the effect of Orrstown’s acquisition of Mercersburg Financial Corporation (“Mercersburg”), which was completed on October 1, 2018, and the effect of Orrstown’s subordinated debt issuance, which was completed on December 19, 2018, as if they had occurred on January 1, 2018. The proceeds of the issuance were used for general corporate purposes, including payment of the cash consideration for the Hamilton acquisition.

The Hamilton transaction will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“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 acquisition 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 acquisition 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 acquisition date generally affect income tax expense. Subsequent to the completion of the merger, Orrstown and Hamilton will finalize an integration plan, which may affect how the assets acquired, including intangible assets, will be utilized by the combined company. 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 will 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 — Preliminary Estimated Acquisition Consideration

Under the terms of the Hamilton merger agreement, Hamilton Shareholders received 0.54 shares of Orrstown common stock and $4.10 in cash.

Based on the number of Hamilton Bancorp common stock shares outstanding at March 31, 2019, the preliminary estimated acquisition consideration is as follows.


(dollars are in thousands, except per share data)
Number of shares of Hamilton Bancorp common stock outstanding at March 31, 2019		3,410,983
Per share exchange ratio		0.54

Number of shares of Orrstown Financial Services common stock — as exchanged		1,841,931
Multiplied by Orrstown Financial Services common stock price per share on March 31, 2019	$	18.59

Estimated fair value of Orrstown Financial Services common stock issued	$	34,241

Total Hamilton Bancorp common shares		3,410,983
Multiplied by the cash consideration each Hamilton Bancorp share is entitled to receive	$	4.10

Total cash consideration	$	13,985

Total stock consideration	$	34,241
Total cash consideration		13,985

Preliminary estimated total consideration to be paid to Hamilton Bancorp common stockholders	$	48,226
Estimated value of Hamilton Bancorp stock options to be redeemed in cash		789

Total preliminary estimated acquisition consideration for Hamilton Bancorp	$	49,015

Note 3 — Preliminary Estimated Acquisition Consideration Allocation

Under the acquisition method of accounting, the total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Hamilton based on their estimated fair values as of the closing of the merger. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed for the acquisition, if any, is allocated to goodwill.

The allocation of the estimated acquisition consideration with regard to Hamilton is preliminary because, although the merger was completed May 1, 2019, the merger purchase accounting has not yet been finalized. The preliminary allocation is based on estimates, assumptions, valuations, and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the acquisition consideration allocation adjustments will remain preliminary until Orrstown management determines the final acquisition consideration and the fair values of the assets acquired and liabilities assumed. The final determination of the acquisition consideration allocation is anticipated to be completed as soon as practicable after the completion of the Hamilton merger and will be based on the value of the Orrstown common stock at the closing of the merger. The final amounts allocated to assets acquired and liabilities assumed could differ from the amounts presented in the unaudited pro forma combined consolidated financial statements.

The total preliminary estimated acquisition consideration as shown in the table above is allocated to Hamilton’s tangible and intangible assets and liabilities at March 31, 2019 based on the following preliminary estimated fair values.


Cash and cash equivalents	$	38,843
Restricted investments in bank stocks		2,658
Securities available for sale		62,517
Loans		349,536
OREO (foreclosed assets)		297
Premises and equipment, net		3,834
Cash surrender value of life insurance		17,911
Accrued interest receivable		1,392
Goodwill		3,766
Other intangibles		4,550
Deferred income tax asset, net		5,404
Other assets		2,087
Deposits		(386,910	)
Borrowings		(51,393	)
Accrued interest payable and other liabilities		(5,477	)

Total preliminary estimated acquisition consideration	$	49,015

Approximately $4,550 for Hamilton has been preliminarily allocated to amortizable intangible assets acquired. The amortization related to the preliminary fair value of net amortizable intangible assets is reflected as a pro forma adjustment to the unaudited pro forma condensed combined financial statements.

Identifiable intangible assets. The preliminary 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 preliminary allocation to intangible assets is allocated to core deposit intangibles.

Goodwill. Goodwill represents the excess of the preliminary estimated acquisition consideration over the preliminary 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 — Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments

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 are preliminary and may be revised. Such revisions 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, strategy modifications, asset dispositions or other actions that may result from the mergers.

The following unaudited pro forma adjustments result from accounting for the merger, including the determination of fair value of the assets, liabilities, and commitments that Orrstown, as the acquirer, will acquire from Hamilton. The Hamilton pro forma adjustments presented below are preliminary fair value estimates prepared by Orrstown for the acquisition of Hamilton.

Balance Sheet — the explanations and descriptions below are referenced to the March 31, 2019, Unaudited Pro Forma Combined Consolidated Balance Sheet.


		Hamilton Bancorp
Pro Forma Adjusting entries (Balance Sheet):		Debit		Credit
a	Cash			$	14,774
b	Common stock				96
b	Additional paid-in capital				34,145
c	Cash				6,500
c	Retained earnings	$	6,500
d	Loans				14,458
e	Allowance for loan losses		3,088
f	Premises and equipment, net				434
g	Accrued interest receivable				66
h	Preliminary goodwill assessment		3,766
i	Other intangibles — core deposit intangible (“CDI”)		4,550
j	Other assets — deferred tax asset		5,404
j	Other assets — prepaid taxes		279
k	Interest-bearing deposits				261
l	Borrowings				343
m	Loans				1,425
m	Premises and equipment, net		591
m	Goodwill				8,564
m	CDI				487
m	Interest-bearing deposits		155
n	Common stock		34
n	Additional paid in capital		32,542
n	Retained earnings		27,206
n	Unearned employee stock ownership plan shares				1,925
n	Accumulated other comprehensive income (loss)				637

a	Payment of the cash consideration component of total merger consideration to shareholders, including Hamilton stock options redeemed in cash.

Orrstown common shares issued to Hamilton shareholders representing the stock consideration component of the total merger consideration. For the purpose of this pro forma presentation, the value of a share of Orrstown common stock was assumed to equal its closing price on March 29, 2019, the last trading day before the pro forma date, as reported by NASDAQ ($18.59 per share).

c	Estimated one-time merger expenses to be paid in conjunction with the merger, net of the related tax benefit and the net effect on retained earnings.

d	Adjustment to loans held for investment to reflect the preliminary estimated fair value.

e	Adjustment to allowance for loan losses to reflect the reversal of Hamilton’s allowance for loan losses.

f	Adjustment to branch property and equipment to reflect the preliminary estimated fair value.

g	Adjustment to accrued interest receivable to reflect the preliminary estimated fair value.

h	Adjustment to reflect the preliminary estimated goodwill generated as a result of consideration paid in excess of the fair value of the net assets acquired.

i	Adjustment to reflect the preliminary estimate of the core deposit intangible.

j	Adjustment to reflect the Alternative Minimum tax credit (prepaid tax) and net deferred tax asset generated by the net fair value adjustments and existing pre-merger timing differences using an assumed effective tax rate of 22.3%.

k	Adjustment to time deposits to reflect preliminary estimated fair value.

l	Adjustment to borrowings to reflect preliminary estimated fair value.

m	Adjustments to reflect the reversal of existing fair value adjustments to loans; premises and equipment, net; goodwill; CDI; interest-bearing deposits; and the related net deferred tax assets at Hamilton from previous acquisitions.

n	Reflects the reversal of Hamilton’s shareholders’ equity.

Income Statements — the explanations and descriptions below are referenced to the Unaudited Pro Forma Combined Consolidated Statements of Income for the year ended December 31, 2018 and for the three months ended March 31, 2019.

Income Statements — Pro Forma Adjustments


		Year Ended December 31, 2018
Pro Forma Adjusting entries (Income Statements) *(dollars are in thousands)*		Mercersburg			Hamilton Bancorp
o	Remove existing loan interest accretion of fair value adjustment		$		$	(184	)
o	Preliminary estimate of loan interest accretion of fair value adjustment at acquisition date		862			1,734
p	Preliminary estimate of investment securities accretion of fair value adjustment at acquisition date		32			131
q	Remove existing time deposit amortization of fair value adjustment					256
q	Preliminary estimate of time deposits amortization of fair value adjustment at acquisition date		33			(151	)
r	Remove existing amortization of FHLB borrowings of fair value adjustment					499
s	Preliminary estimate of deferred compensation liability amortization of fair value adjustment at acquisition date		(31	)
t	Remove amortization of existing CDI					(126	)
t	Preliminary estimate of amortization of new CDI		732			861
u	Income tax expense of pro-forma adjustments		35			76

		Three Months Ended March 31, 2019
Pro Forma Adjusting entries (Income Statements) *(dollars are in thousands)*					Hamilton Bancorp
o	Remove existing loan interest accretion of fair value adjustment				$	(46	)
o	Preliminary estimate of loan interest accretion of fair value adjustment at acquisition date					433
p	Preliminary estimate of investment securities accretion of fair value adjustment at acquisition date					33
q	Remove existing time deposit amortization of fair value adjustment					64
q	Preliminary estimate of time deposits amortization of fair value adjustment at acquisition date					(38	)
r	Remove existing amortization of FHLB borrowings of fair value adjustment					125
s	Preliminary estimate of deferred compensation liability amortization of fair value adjustment at acquisition date
t	Remove amortization of existing CDI					(32	)
t	Preliminary estimate of amortization of new CDI					215
u	Income tax expense of pro-forma adjustments					19

o	Represents the reversal of existing interest accretion recorded by Hamilton for loans acquired in prior acquisitions and the estimate of interest income accretion related to the preliminary estimate of the fair value adjustment of the loans acquired pursuant to the Orrstown acquisitions.

p	Represents the estimate of investment securities amortization related to preliminary estimates of the fair value adjustments on investment securities pursuant to the Orrstown acquisitions.

Represents the reversal of existing time deposits amortization recorded by Hamilton for time deposits assumed in prior acquisitions and the estimate of time deposit amortization related to preliminary estimates of the fair value adjustments on the time deposits pursuant to the Orrstown acquisitions.

r	Represents the reversal of existing FHLB borrowings amortization recorded by Hamilton for borrowings assumed in prior acquisitions.

s	Represents the estimate of deferred compensation amortization related to preliminary estimates of the fair value adjustments on liabilities pursuant to the Orrstown acquisitions.

t	Represents the reversal of existing CDI amortization recorded by Hamilton for deposits assumed in prior acquisitions and estimates of CDI amortization related to preliminary estimates of the fair value adjustments on the deposits acquired pursuant to the Orrstown acquisition.

u	Adjustment to reflect the income tax provision of the pro forma adjustments using 21% for the Mercersburg acquisition and 22.3% for the Hamilton acquisition.

v	Adjustment to reflect interest expense on $32,500,000 aggregate principal amount of 6% subordinated notes due 2028, including amortization of loan costs, net of income tax provision at 21%.

Note 5 — Earnings per Common Share

Unaudited pro forma earnings per common share for the year ended December 31, 2018, have been calculated using Orrstown’s historic weighted average common shares outstanding plus the incremental effect of common shares issued to Mercersburg’s shareholders and common shares issued to Hamilton’s shareholders.

Unaudited pro forma earnings per common share for the three months ended March 31, 2019, have been calculated using Orrstown’s historic weighted average common shares outstanding plus the common shares issued to Hamilton’s shareholders.

The following table sets forth the calculation of basic and diluted unaudited pro forma earnings per common share for the year ended December 31, 2018 and for the three months ended March 31, 2019.


	Three Months Ended March 31, 2019				Year Ended December 31, 2018
	Basic		Diluted		Basic		Diluted
Pro forma net income available to common shareholders	$	3,036	$	3,036	$	8,471	$	8,471

Weighted average common shares outstanding
Orrstown		9,160		9,326		8,359		8,537
Incremental effect of common shares issued to Mercersburg shareholders in 2018		—		—		788		788
Common shares issued to Hamilton shareholders		1,842		1,842		1,842		1,842

Pro forma weighted average common shares outstanding		11,002		11,168		10,989		11,167

Pro forma net income per common share	$	0.28	$	0.27	$	0.77	$	0.76