SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL

6 Months Ended

Jun. 30, 2020

SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel Committee on Banking Supervision's capital guidelines for U.S. Banks ("Basel III rules"), an entity must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The Company and the Bank have elected not to include net unrealized gain or loss on available for sale securities in computing regulatory capital.

The consolidated asset limit on small bank holding companies is $3.0 billion and a company with assets under that limit is not subject to the FRB consolidated capital rules, but may file reports that include capital amounts and ratios. The Company has elected to file those reports.

Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject at June 30, 2020 and December 31, 2019.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's classification.

The following table presents capital amounts and ratios at June 30, 2020 and December 31, 2019:


	Actual						For Capital Adequacy Purposes (includes applicable capital conservation buffer)						To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2020
Total risk-based capital:
Orrstown Financial Services, Inc.	$	256,183	14.5	%	$	185,262	10.5	%	n/a		n/a
Orrstown Bank	244,669		13.9	%	185,169		10.5	%	$	176,352	10.0	%
Tier 1 risk-based capital:
Orrstown Financial Services, Inc.	205,582		11.7	%	149,974		8.5	%	n/a		n/a
Orrstown Bank	225,943		12.8	%	149,899		8.5	%	141,081		8.0	%
Tier 1 common equity risk-based capital:
Orrstown Financial Services, Inc.	205,582		11.7	%	123,508		7.0	%	n/a		n/a
Orrstown Bank	225,943		12.8	%	123,446		7.0	%	114,629		6.5	%
Tier 1 leverage capital:
Orrstown Financial Services, Inc.	205,582		7.6	%	107,855		4.0	%	n/a		n/a
Orrstown Bank	225,943		8.4	%	107,901		4.0	%	134,876		5.0	%
December 31, 2019
Total risk-based capital:
Orrstown Financial Services, Inc.	$	244,003	14.1	%	$	182,028	10.5	%	n/a		n/a
Orrstown Bank	231,805		13.4	%	181,948		10.5	%	$	173,284	10.0	%
Tier 1 risk-based capital:
Orrstown Financial Services, Inc.	196,451		11.3	%	147,356		8.5	%	n/a		n/a
Orrstown Bank	216,100		12.5	%	147,291		8.5	%	138,627		8.0	%
Tier 1 common equity risk-based capital:
Orrstown Financial Services, Inc.	196,451		11.3	%	121,352		7.0	%	n/a		n/a
Orrstown Bank	216,100		12.5	%	121,299		7.0	%	112,635		6.5	%
Tier 1 leverage capital:
Orrstown Financial Services, Inc.	196,451		8.6	%	91,782		4.0	%	n/a		n/a
Orrstown Bank	216,100		9.4	%	91,798		4.0	%	114,747		5.0	%

In September 2015, the Board of Directors of the Company authorized a share repurchase program under which the Company may repurchase up to 5% of the Company's outstanding shares of common stock, or approximately 416,000 shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act of 1934, as amended. When and if appropriate, repurchases may be made in open market or privately negotiated transactions, depending on market conditions, regulatory requirements and other corporate considerations, as determined by management. Share repurchases may not occur and may be discontinued at any time. At June 30, 2020, 154,680 shares had been repurchased under the program at a total cost of $2.6 million, or $16.88 per share.

On July 21, 2020, the Board declared a cash dividend of $0.17 per common share, which will be paid on August 10, 2020 to shareholders of record at August 3, 2020.