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MERGER
 12 Months Ended
Dec. 31, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
MERGER MERGER
On July 1, 2024, Orrstown completed the previously announced merger of equals with Codorus Valley, pursuant to the Merger Agreement, dated as of December 12, 2023, by and between Orrstown and Codorus Valley. At the effective time of the Merger (the “Effective Time”), Codorus Valley was merged with and into Orrstown, with Orrstown as the surviving corporation, which was promptly followed by the merger of Codorus Valley’s wholly-owned bank subsidiary, PeoplesBank, A Codorus Valley Company, with and into Orrstown Bank, a wholly-owned subsidiary of Orrstown, with Orrstown Bank as the surviving bank.
Pursuant to the terms of the Merger Agreement, each share of Codorus Valley common stock, $2.50 par value per share (“Codorus Common Stock”), outstanding immediately prior to the Effective Time was canceled and converted into the right to receive 0.875 shares (the “Exchange Ratio”) of Orrstown common stock, no par value per share (“Orrstown Common Stock”), with an amount in cash, without interest, to be paid in lieu of fractional shares.
In addition, at the Effective Time, (i) each option to purchase Codorus Valley common stock issued under Codorus Valley’s 2007 Long-Term Incentive Plan, as amended, 2017 Long-Term Incentive Plan, as amended, and any other similar plan (collectively, the “Codorus Valley Equity Plans”), outstanding immediately prior to the Effective Time was automatically converted into an option to purchase a number of shares of Orrstown Common Stock equal to the product of the number of shares of Codorus Valley common stock subject to such stock option immediately prior to the Effective Time and the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (a) the exercise price per share of Codorus Valley common stock of such stock option immediately prior to the Effective Time divided by (b) the Exchange Ratio; (ii) all time-based restricted stock awards and time-based restricted stock unit awards granted under the Codorus Valley Equity Plans were vested in full; and (iii) all performance-based restricted stock awards and performance-based restricted stock unit awards granted under the Codorus Valley Equity Plans were vested in full. In addition, the 2007 Codorus Valley Bancorp, Inc. Restated Employee Stock Purchase Plan was terminated prior to the closing date of the Merger. Each outstanding share of Orrstown Common Stock remained outstanding and was unaffected by the Merger.
PeoplesBank operated 22 full-service branches and eight limited purpose branches in Pennsylvania and Maryland. Following the Merger, Orrstown operated 51 branches as of July 1, 2024. In November 2024, Orrstown closed six of its branches, including three branches owned by the Bank, which the land and buildings were transferred to held-for-sale. After these branch closures were completed, the Bank has 38 full-service branches and seven limited purpose branches.
The total aggregate consideration delivered to holders of Codorus Valley common stock was 8,532,038 shares of Orrstown Common Stock. The issuance of shares of Orrstown Common Stock in connection with the Merger was registered under the Securities Act on a registration statement initially filed by Orrstown with the SEC on March 29, 2024 and declared effective on April 23, 2024 (the “Registration Statement”). The consideration transferred at the close of the transaction was $233.4 million based on the closing market price of Orrstown Common Stock of $27.36 on June 28, 2024.
The Merger accomplishes the Company’s objectives of providing increased market opportunities and expanding its branch network through a contiguous footprint in Central and Eastern Pennsylvania and the Greater Baltimore, Maryland area. Further, the Merger created an expanded product suite based on the complementary nature of the products and customers of both companies and increases lending capacity, which has supported growth within the existing client base and has provided an opportunity to mitigate risks and increase potential returns.
The following tables summarize the purchase price consideration paid for Codorus Valley and the fair value of the assets acquired and liabilities assumed recognized at the acquisition date:
(dollars are in thousands, except per share data)
Number of shares of Codorus Valley common stock outstanding9,751,323 
Per common share exchange ratio0.875
Expected shares of Codorus Valley common stock to be exchanged
8,532,408 
Fractional shares of common stock to be paid in cash(370)
Number of shares of Orrstown Common Stock - as exchanged
8,532,038 
Orrstown common stock price per common share - closing stock price as of June 28, 2024$27.36 
Purchase price merger consideration for Codorus Valley$233,437 
Under the acquisition method of accounting, the total merger consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Codorus Valley based on their estimated fair value as of the closing of the Merger. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The Company recorded goodwill of $49.4 million in connection with the Merger, which is not amortized for financial reporting purposes, but is subject to annual impairment testing.
Codorus Valley
Book Value		Fair Value AdjustmentCodorus Valley
Fair Value
July 1, 2024July 1, 2024
Total purchase price consideration$233,437 
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents$45,290 $— $45,290 
Restricted investments in bank stocks1,168 — 1,168 
Securities available for sale331,032 (4,532)326,500 
Loans, net of allowance for credit losses ("ACL")1,715,761 (72,368)1,643,393 
Premises and equipment, net17,553 6,551 24,104 
Cash surrender value of life insurance62,817 — 62,817 
Accrued interest receivable8,138 79 8,217 
Goodwill2,301 (2,301)— 
Other intangible assets, net— 50,719 50,719 
Deferred income tax asset, net16,969 2,139 19,108 
Other assets21,024 (218)20,806 
Total identifiable assets acquired2,222,053 (19,931)2,202,122 
Deposits1,948,467 (3,218)1,945,249 
Securities sold under agreements to repurchase7,943 — 7,943 
FHLB advances and other borrowings1,195 (803)392 
Subordinated notes and trust preferred debt41,195 (4,983)36,212 
Other liabilities25,030 3,241 28,271 
Total liabilities assumed2,023,830 (5,763)2,018,067 
Total identifiable net assets$198,223 $(14,168)$184,055 
Goodwill$49,382 

The following are descriptions of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed from the Merger. The Company used independent valuation specialists to assist with the determination of fair values for certain acquired assets and assumed liabilities. As permitted under GAAP, the Company has up to twelve months following the date of the Merger to finalize the fair values of the acquired assets and assumed liabilities related to the merger of Codorus Valley. During this measurement period, the Company may record subsequent adjustments to goodwill for provisional amounts recorded at the merger date, with provisional merger-related tax adjustments.
The Company acquired core deposit intangibles of $40.1 million and customer relationship intangible assets associated with its wealth and brokerage businesses totaling $10.6 million from the Merger. Both were valued utilizing the income approach, which is based on the present value of the cash flows that can be expected to be generated in the future. Subsequent to the initial valuation on July 1, 2024, the core deposit intangible and the customer relationship intangible from the Merger were adjusted by $4.3 million and $179 thousand, respectively, based on provisional adjustments from management's ongoing review. The provision adjustments to the core deposit intangible and customer relationship intangible resulted in deferred tax liabilities of $974 thousand and $41 thousand, respectively. The core deposit intangible and customer relationship intangible assets are amortized based on the sum-of-the-years digits method over the expected life of 10 years.
The Company increased the fair value of premises by $6.6 million with a corresponding decrease to goodwill based upon updated independent market-based appraisals for buildings, land and land improvements. The fair value adjustments will depreciated based on the estimated useful life of 40 years.
Pursuant to the Merger, the Company acquired operating lease assets and operating lease liabilities both with a fair value of $5.1 million based on the income approach, which considered the lease contracts current rental rates, escalation terms and expiration periods. The Company also acquired a finance lease asset and liability with a fair value of $392 thousand. At July 1, 2024, the Company recorded negative fair value adjustments of $1.1 million and $133 thousand to acquired operating lease assets and finance lease assets, respectively, which are amortized over the remaining lease terms.
An adjustment of $3.2 million was recorded to reflect the fair value of the time deposits assumed, which was determined using a discounted cash flow approach that utilized a discount rate equal to current market interest rates for instruments with similar terms and maturities. The fair value adjustment for time deposits will be amortized over the remaining maturities.
Subordinated notes and trust preferred debt were valued using a discounted cash flow approach, which applied a discount rate based upon other issuances with comparable terms. Fair value adjustments of $2.4 million and $2.7 million were recorded for the acquired subordinated notes and trust preferred debt, respectively, which will be amortized over their remaining maturities.
The Company evaluated and classified the acquired loans between non-PCD or PCD. The PCD loans include loans which experienced more-than-insignificant credit deterioration since origination. PCD loans included loans on nonaccrual status, loans with historical delinquency since loan origination or having a risk rating of watch, special mention, substandard, doubtful or loss based on the Company's internal risk rating system. For PCD loans, an ACL is recorded on day 1 and added to the fair value of the loan for its amortized cost. At day 1, a provision for credit loss is not recorded on PCD loans. The following table presents details related to the fair value of acquired PCD loans at the acquisition date:
Unpaid Principal BalancePCD ACLNon-Credit DiscountFair Value of Acquired Loans
Commercial real estate$74,319 $(1,321)$(5,531)$67,467 
Acquisition and development24,232 (2,535)(781)20,916 
Agricultural7,129 (2)(895)6,232 
Commercial and industrial26,325 (1,947)(4,059)20,319 
Residential mortgage16,720 (105)(1,936)14,679 
Installment and other loans117 (10)(11)96 
$148,842 $(5,920)$(13,213)$129,709 
The following table presents selected pro forma information for the years ended December 31, 2024 and 2023 as if the Merger had occurred at January 1, 2023. The pro forma information includes the estimated impact of certain fair value adjustments and other merger-related activity. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been affected on the assumed dates. In addition, the unaudited pro forma information does not reflect management's estimate of any revenue-enhancing opportunities or anticipated cost savings as a result of the integration.
Years Ended December 31,
20242023
Net interest income$199,413 $206,658 
Net Income73,884 73,605