• Orrstown Financial Services, Inc. Reports Third Quarter 2021 Results

    Source: Nasdaq GlobeNewswire / 19 Oct 2021 15:05:01   America/Chicago

    • Net income of $7.2 million for the quarter; diluted third quarter 2021 EPS of $0.65 per share versus $0.45 per share in the third quarter of 2020; net income of $26.2 million for the nine months ended September 30, 2021
    • Second consecutive quarter of significant commercial loan growth; excluding Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans, third quarter commercial loan growth was $98.2 million, or 33% annualized, as our lending team continues to draw from both their long-standing and newly developed relationships
    • Tangible book value per share(1) increased to $21.98 at September 30, 2021 from $21.61 at June 30, 2021 and $19.93 at December 31, 2020
    • Noninterest income rose to $7.7 million in the third quarter of 2021 compared to $6.7 million in the second quarter of 2021; the third quarter included $0.5 million in gains from the sale of asset-backed securities and $0.2 million in tax credits from the Bank's investment in solar renewable energy partnerships
    • A provision for loan losses of $0.4 million was recorded in the third quarter of 2021 compared to $0.6 million in the second quarter of 2021; the provision was net of COVID-19 reserve releases of $1.0 million and $0.8 million for the three months ended September 30, 2021 and June 30, 2021, respectively
    • The SBA PPP portfolio averaged $303.2 million in the three months ended September 30, 2021 as compared to $471.2 million in the three months ended June 30, 2021 as the forgiveness process continues
    • Noninterest expenses increased to $19.0 million in the third quarter of 2021 from $17.0 million in the second quarter of 2021; salaries and employee benefits increased from additions to staff to facilitate growth, performance-based incentive increases and certain credits recorded in the second quarter; recognized a loss of $0.5 million from the termination of a cash flow hedge towards the end of the third quarter, which should improve net interest margin in future quarters
    • Reduced overnight borrowings by $50.0 million upon termination of cash flow hedge
    • Net interest margin declined to 3.03% in the third quarter of 2021 from 3.24% in the second quarter of 2021; excess liquidity increased significantly from a seasonal inflow of municipal deposits and continued SBA PPP forgiveness
    • The Company repurchased 46,838 shares of its common stock at an average price of $22.82 per share during the three months ended September 30, 2021
    • The Board of Directors declared a cash dividend of $0.19 per common share, payable November 8, 2021, to shareholders of record as of November 1, 2021

    (1) Non-GAAP measure. See Appendix B for additional information.

    SHIPPENSBURG, Pa., Oct. 19, 2021 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. ("Orrstown" or the “Company”) (NASDAQ: ORRF), the parent company of Orrstown Bank (the “Bank”), announced earnings for the three months ended September 30, 2021. Net income totaled $7.2 million for the three months ended September 30, 2021, compared with $8.8 million for the three months ended June 30, 2021 and $5.0 million in the three months ended September 30, 2020. Diluted earnings per share totaled $0.65 for the three months ended September 30, 2021, compared with $0.79 in the three months ended June 30, 2021 and $0.45 in the three months ended September 30, 2020.

    Thomas R. Quinn, Jr., President & CEO, commented, “Orrstown's earnings momentum continued into the third quarter of 2021 with year-to-date earnings 60% higher than the same prior year period. Our talented lending teams effectively executed Orrstown's high-touch service model that resonates with businesses and individuals in our markets. Continued loan growth is critical to mitigating the combined impact of excess cash, the prolonged low interest rate environment and declining PPP fee income.”

    Mr. Quinn continued, “Orrstown is committed to being the premier financial institution in the markets we serve. As such, the Company will continue to make strategic investments in employees who excel in a consultative sales environment. We also acknowledge changing client preferences for delivery and service and will continue to make investments in technology that enhance the client experience and allow our team to focus more on client needs than operational complexities. In the short term, PPP fee recognition will continue to benefit earnings while longer-term strategic initiatives come to full realization.”

    DISCUSSION OF RESULTS

    Balance Sheet

    Loans

    Loans held for investment, which includes SBA PPP loans, declined by $5.6 million from June 30, 2021 to September 30, 2021, or 1% annualized, as the impact of SBA PPP forgiveness and consumer loan runoff was mostly offset by net commercial loan production. Excluding SBA PPP loans, total loans increased by $90.1 million from June 30, 2021 to September 30, 2021, or 23% annualized. SBA PPP loans, net of deferred fees and costs, declined by $95.7 million to $259.9 million at September 30, 2021 from $355.6 million at June 30, 2021. Commercial loans, excluding SBA PPP loans, increased by $98.2 million, or 33% annualized, from June 30, 2021 to September 30, 2021. Commercial loan production remains robust and is expected to continue at a solid pace into the fourth quarter.

    The remaining gross balance of SBA PPP loans is $268.5 million at September 30, 2021, of which $195.3 million is from 2021 originations. Net deferred SBA PPP fees of $8.6 million remain at September 30, 2021. The 2021 loans began to achieve forgiveness in the second quarter of 2021 and it is expected that most of them will be forgiven and the net deferred fees will be earned by the end of 2022.

    Home equity lines of credit increased by $4.4 million, or 12% annualized in the third quarter of 2021. Residential mortgage loans declined by $8.6 million, or 16% annualized, in the three months ended September 30, 2021. Due to the low interest rate and competitive environment, the Company has not been aggressively pursuing portfolio mortgage loans. Overall loan growth, excluding SBA PPP loans, was 7% for the nine months ended September 30, 2021.

    Deposits

    Deposits increased by $8.0 million, or 1% annualized, remaining at $2.5 billion at September 30, 2021 compared to June 30, 2021 as an influx of municipal deposits received during the third quarter more than offset the impact of SBA PPP deposit usage and runoff in certificates of deposit. In the third quarter of 2021, noninterest-bearing demand deposits increased by $16.3 million, or 12% annualized; interest bearing checking deposits increased by $16.2 million, or 7% annualized; and money market and savings deposits increased $11.4 million, or 7% annualized. These increases were mostly offset by a decline in certificates of deposit of $35.9 million, or 38% annualized, from June 30, 2021 to September 30, 2021. Deposits rose by $145.2 million, or 6%, from December 31, 2020 to September 30, 2021 due primarily to SBA PPP loan funding and municipal deposit seasonality. The Bank's loan-to-deposit ratio was 78% at September 30, 2021. On a longer-term basis, the Bank continues to target a loan-to-deposit ratio of 90%.

    Other

    Investment securities decreased by $8.0 million to $452.1 million at September 30, 2021 compared to $460.1 million at June 30, 2021. During the third quarter of 2021, the Bank rebalanced its investment portfolio by selling $72.8 million of asset-backed securities and purchasing mortgage-backed securities, municipal securities and United States Treasury notes totaling $60.0 million. See Appendix C for a summary of the Bank's current investments that highlights the concentrations, quality and credit enhancement levels of the portfolio.

    FHLB advances and other borrowings decreased by $56.0 million to $2.0 million at September 30, 2021 compared to $58.0 million at June 30, 2021 due primarily to the payoff of $50.0 million in overnight borrowings in conjunction with the termination of a cash flow hedge.

    Income Statement

    Net Interest Income and Margin

    Net interest income decreased by $1.3 million to $20.6 million for the three months ended September 30, 2021 compared to the three months ended June 30, 2021. The net interest margin declined to 3.03% in the third quarter of 2021 from 3.24% in the second quarter of 2021. The margin reduction was primarily a result of a decrease in SBA PPP interest income (eight basis points), an increase in excess cash (six basis points) and lower purchase accounting accretion (three basis points).

    For the three months ended September 30, 2021 and June 30, 2021, there were $98.2 million and $197.5 million of SBA PPP loans forgiven, respectively. Interest income recognized on SBA PPP loans totaled $3.4 million in the three months ended September 30, 2021 as compared to $5.2 million in the three months ended June 30, 2021. This decline is due to the reduction in forgiveness of 2020 SBA PPP loan originations and reduced outstanding balances.

    The cost of deposits was 0.15% in the third quarter of 2021, which is down from 0.17% in the second quarter of 2021 and 0.44% in the third quarter of 2020. Rate reductions in the first and third quarters of 2021 combined with the maturity of higher yielding certificates of deposit drove this decrease. Late in the third quarter of 2021, the Company terminated a cash flow hedge. Upon discontinuance, the hedged overnight borrowings of $50.0 million were repaid. These transactions are expected to improve the net interest margin by approximately seven basis points on an annualized basis.

    Excess liquidity that has resulted from SBA PPP loan forgiveness and a seasonal inflow of municipal deposits negatively impacted the net interest margin in the three months ended September 30, 2021. Average cash and cash equivalents increased from $290.0 million in the three months ended June 30, 2021 to $347.2 million in the three months ended September 30, 2021. However, the period end cash and cash equivalents balance was reduced to $311.4 million at September 30, 2021 from $336.8 million at June 30, 2021. We have begun implementing strategies to reduce cash balances, which may result in a decline in total assets, but should lead to growth in net interest income, earnings and return on average assets. The net interest margin is expected to improve in the fourth quarter as excess liquidity continues to be reduced.

    Provision for Loan Losses

    Asset quality metrics remain strong and trended positively in the third quarter. The allowance for loan losses totaled $20.0 million at September 30, 2021, compared with $19.4 million at June 30, 2021. Total classified loans decreased by $1.8 million, or 6%, to $26.9 million from June 30, 2021 to September 30, 2021. As of September 30, 2021, the Bank had active COVID-19 related deferred loans totaling $0.3 million, or 0.02% of its total loan portfolio, excluding SBA PPP loans. This compared to $3.9 million, or 0.25% of total loans, excluding SBA PPP loans, at June 30, 2021 and $78.4 million, or 5.0% of total loans, excluding SBA PPP loans, at September 30, 2020.

    Net recoveries were $0.2 million for the three months ended September 30, 2021 compared to net charge-offs of $0.2 million for the three months ended June 30, 2021. Nonperforming loans decreased by $0.8 million to $9.1 million at September 30, 2021 from $9.9 million at June 30, 2021, which was 0.47% of gross loans at September 30, 2021 and 0.51% of gross loans at June 30, 2021. The ratio of the allowance for loan losses to nonaccrual loans was 219% at September 30, 2021 compared to 195% at June 30, 2021. The allowance for loan losses to non-SBA guaranteed loans(1) remained steady at 1.2% as of September 30, 2021 and June 30, 2021. Management believes the allowance for loan losses to be adequate based on current asset quality metrics.

    Commercial loan growth drove provision expense of $0.4 million, net of recoveries, in the three months ended September 30, 2021. This compares to provision expense of $0.6 million and $2.2 million recorded in the three months ended June 30, 2021 and September 30, 2020, respectively. As a result of the relative strength of the economy and performance of the Bank's borrowers, including those that have been on deferral, the remaining qualitative reserve designated for the impact of COVID-19 of $1.0 million was reversed in the three months ended September 30, 2021.

    (1) Non-GAAP measure. See Appendix B for additional information.

    Noninterest Income

    Noninterest income totaled $7.7 million in the three months ended September 30, 2021 compared with $6.7 million in the three months ended June 30, 2021 and $6.9 million in the three months ended September 30, 2020. Fee income growth remains a significant focus for the Bank.

    Investment securities gains totaled $0.5 million in the third quarter of 2021, attributable primarily to the sale of $72.8 million of asset-backed securities.

    Total wealth management income for the three months ended September 30, 2021 and June 30, 2021 remained strong at $2.9 million for both periods, as compared to $2.5 million in the third quarter of 2020. Assets under management have increased by $239.0 million to $1.8 billion from $1.6 billion at September 30, 2020.

    Mortgage banking income increased by $0.2 million from the second quarter of 2021 to $1.3 million in the third quarter of 2021 due to an increase of $0.5 million in the fair value of the residential mortgage loans held for sale and interest rate lock commitments. This was partially offset by a decrease in gain on sale of mortgages of $0.3 million to $1.2 million compared to $1.5 million for the three months ended June 30, 2021. Mortgage loans sold totaled $48.0 million in the third quarter of 2021 compared with $51.8 million in the second quarter of 2021 and $72.8 million in the third quarter of 2020. As of September 30, 2021, the Bank services $488.6 million of residential mortgage loans, which is up by $8.3 million from June 30, 2021. Mortgage banking operations continued to be benefit from the low rate environment driving heightened refinance and purchase activity; however, the market for top-flight talent remains exceedingly competitive. Mortgage banking income was $4.7 million for the nine months ended September 30, 2021 compared to $3.9 million for the nine months ended September 30, 2020.

    Other income increased by $0.2 million to $0.8 million in the third quarter of 2021 from the second quarter of 2021 due primarily to the recognition of tax credits from the Bank's investment in solar renewable energy partnerships.

    Noninterest Expenses

    Noninterest expenses increased by $2.0 million to $19.0 million in the three months ended September 30, 2021 from the three months ended June 30, 2021. Salaries and benefits increased as the Company continues to be the employer of choice in our markets among bankers attracted to a client-first approach to the business, which should allow Orrstown to maintain a strong growth trajectory. The increase of $1.2 million in salaries and employee benefits, for the three months ended September 30, 2021, was attributed to higher employee benefit costs of $0.3 million, performance-based incentive increases of $0.2 million and credits recorded in the prior quarter of $0.2 million, with most of the remaining increase due to additions in personnel. In addition, the Company recognized a $0.5 million loss in the third quarter from the termination of a cash flow hedge derivative. For the three months ended September 30, 2021, no expense was recorded for the reserve for unfunded commitments compared to a reduction of $0.4 million in the three months ended June 30, 2021.

    Income Taxes

    The Company's effective tax rate for the third quarter of 2021 was 18.9% compared with 19.3% for the second quarter of 2021. The Company's effective tax rate is less than the 21% federal statutory rate due to tax-exempt income, including interest earned on tax-exempt loans and securities and income from life insurance policies, as well as tax credits.

    Capital

    Shareholders’ equity totaled $268.6 million at September 30, 2021, an increase of $2.7 million from $265.9 million at June 30, 2021. The increase was primarily attributable to net income, partially offset by dividends paid and a decrease in unrealized gains on available-for-sale securities. Tangible book value per share(1) has grown from $19.93 per share at December 31, 2020 to $21.98 per share at September 30, 2021, an increase of 10%.

    The Company's tangible common equity ratio increased to 8.6% at September 30, 2021 from 8.4% at June 30, 2021. The Company's Tier 1 leverage ratio was 8.3% at September 30, 2021 and 8.0% at June 30, 2021. The Company's total risk-based capital ratio was 15.6% at both September 30, 2021 and June 30, 2021.

    (1) Non-GAAP measure. See Appendix B for additional information.

    The Board of Directors approved a quarterly dividend of $0.19 per share, payable November 8, 2021, to shareholders of record as of November 1, 2021. The dividend payout ratio totaled 29% for the three months ended September 30, 2021 compared to 23% for the three months ended June 30, 2021. The Company continues to believe that capital is adequate at this time to support the risks inherent in the balance sheet, as well as growth requirements.

    Investor Relations Contact:Media Contact:
    Matthew C. Schultheis, CFALuke Bernstein
    Director Strategic Planning and Investor RelationsCorporate Communications Officer
    Phone (717) 510-7127Phone (717) 510-7107
      


            
    ORRSTOWN FINANCIAL SERVICES, INC.       
    FINANCIAL HIGHLIGHTS (Unaudited)       
            
            
     Three Months Ended Nine Months Ended
     September 30, September 30, September 30, September 30,
    (Dollars in thousands, except per share amounts)2021 2020 2021 2020
            
    Profitability for the period:       
    Net interest income$20,620  $20,818  $64,376   $59,878 
    Provision for loan losses365  2,200  (10)  5,025 
    Noninterest income7,651  6,861  21,859   21,128 
    Noninterest expenses19,035  19,265  53,851   56,000 
    Income before income taxes8,871  6,214  32,394   19,981 
    Income tax expense1,679  1,237  6,219   3,577 
    Net income available to common shareholders$7,192  $4,977  $26,175   $16,404 
            
    Financial ratios:       
    Return on average assets (1)0.98% 0.72% 1.21 % 0.84%
    Return on average equity (1)10.69% 8.67% 13.49 % 9.80%
    Net interest margin (1)3.03% 3.24% 3.21 % 3.34%
    Efficiency ratio67.3% 69.6% 62.4 % 69.1%
    Income per common share:       
    Basic$0.66  $0.45  $2.38   $1.50 
    Diluted$0.65  $0.45  $2.36   $1.49 
            
    Average equity to average assets9.20% 8.29% 8.96 % 8.55%
            
    (1) Annualized.       
            


        
    ORRSTOWN FINANCIAL SERVICES, INC.   
    FINANCIAL HIGHLIGHTS (Unaudited)   
    (continued)   
     September 30, December 31,
     2021 2020
    At period-end:   
    Total assets$2,870,182  $2,750,572 
    Total deposits2,502,108  2,356,880 
    Loans, net of allowance for loan losses1,919,799  1,959,539 
    Loans held-for-sale, at fair value6,412  11,734 
    Securities available for sale445,018  466,465 
    Borrowings29,598  77,511 
    Subordinated notes31,948  31,903 
    Shareholders' equity268,569  246,249 
        
    Credit quality and capital ratios (1):   
    Allowance for loan losses to total loans1.03% 1.02%
    Total nonaccrual loans to total loans0.47% 0.52%
    Nonperforming assets to total assets0.32% 0.37%
    Allowance for loan losses to nonaccrual loans219% 195%
    Total risk-based capital:   
    Orrstown Financial Services, Inc.15.6% 15.6%
    Orrstown Bank14.7% 14.7%
    Tier 1 risk-based capital:   
    Orrstown Financial Services, Inc.12.8% 12.5%
    Orrstown Bank13.5% 13.5%
    Tier 1 common equity risk-based capital:   
    Orrstown Financial Services, Inc.12.8% 12.5%
    Orrstown Bank13.5% 13.5%
    Tier 1 leverage capital:   
    Orrstown Financial Services, Inc.8.3% 8.1%
    Orrstown Bank8.7% 8.7%
        
    Book value per common share$23.97  $21.98 
        
    (1) Capital ratios are estimated, subject to regulatory filings   
        


        
    ORRSTOWN FINANCIAL SERVICES, INC.   
    CONSOLIDATED BALANCE SHEETS (Unaudited)   
        
    (Dollars in thousands, except per share amounts)September 30, 2021 December 31, 2020
    Assets   
    Cash and due from banks$36,920   $26,203  
    Interest-bearing deposits with banks274,495   99,055  
    Cash and cash equivalents311,415   125,258  
    Restricted investments in bank stocks7,051   10,563  
    Securities available for sale (amortized cost of $437,852 and $460,999 at September 30, 2021 and December 31, 2020, respectively)445,018   466,465  
    Loans held for sale, at fair value6,412   11,734  
    Loans1,939,764   1,979,690  
    Less: Allowance for loan losses(19,965)  (20,151) 
    Net loans1,919,799   1,959,539  
    Premises and equipment, net34,279   35,149  
    Cash surrender value of life insurance69,792   68,554  
    Goodwill18,724   18,724  
    Other intangible assets, net4,486   5,458  
    Accrued interest receivable8,015   8,927  
    Other assets45,191   40,201  
    Total assets$2,870,182   $2,750,572  
    Liabilities   
    Deposits:   
    Noninterest-bearing$545,323   $456,778  
    Interest-bearing1,956,785   1,900,102  
    Total deposits2,502,108   2,356,880  
    Securities sold under agreements to repurchase27,595   19,466  
    FHLB advances and other2,003   58,045  
    Subordinated notes31,948   31,903  
    Accrued interest and other liabilities37,959   38,029  
    Total liabilities2,601,613   2,504,323  
    Shareholders’ Equity   
    Preferred stock, $1.25 par value per share; 500,000 shares authorized; no shares issued or outstanding     
    Common stock, no par value—$0.05205 stated value per share 50,000,000 shares authorized; 11,248,917 shares issued and 11,205,052 outstanding at September 30, 2021; 11,257,046 shares issued and 11,201,317 outstanding at December 31, 2020586   586  
    Additional paid—in capital189,168   189,066  
    Retained earnings74,122   54,099  
    Accumulated other comprehensive income5,661   3,346  
    Treasury stock— 43,865 and 55,729 shares, at cost at September 30, 2021 and December 31, 2020, respectively(968)  (848) 
    Total shareholders’ equity268,569   246,249  
    Total liabilities and shareholders’ equity$2,870,182   $2,750,572  
              


     
    ORRSTOWN FINANCIAL SERVICES, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
             
      Three Months Ended Nine Months Ended
      September 30, September 30, September 30, September 30,
    (In thousands, except per share amounts) 2021 2020 2021 2020
    Interest income        
    Loans $19,890  $21,645   $62,724   $63,605  
    Investment securities - taxable 1,514  2,145   5,007   8,378  
    Investment securities - tax-exempt 652  417   1,790   1,121  
    Short-term investments 135  9   255   101  
    Total interest income 22,191  24,216   69,776   73,205  
    Interest expense        
    Deposits 937  2,483   3,410   10,147  
    Securities sold under agreements to repurchase 8  20   25   72  
    FHLB advances and other 123  394   458   1,604  
    Subordinated notes 503  501   1,507   1,504  
    Total interest expense 1,571  3,398   5,400   13,327  
    Net interest income 20,620  20,818   64,376   59,878  
    Provision for loan losses 365  2,200   (10)  5,025  
    Net interest income after provision for loan losses 20,255  18,618   64,386   54,853  
    Noninterest income        
    Service charges 993  852   2,758   2,558  
    Interchange income 1,030  900   3,049   2,507  
    Swap fee income 67  95   135   527  
    Wealth management income 2,917  2,464   8,570   7,118  
    Mortgage banking activities 1,333  1,985   4,684   3,926  
    Gains on sale of portfolio loans         2,803  
    Investment securities gains (losses) 479  (13)  635   (44) 
    Other income 832  578   2,028   1,733  
    Total noninterest income 7,651  6,861   21,859   21,128  
    Noninterest expenses        
    Salaries and employee benefits 11,498  10,695   31,907   32,352  
    Occupancy, furniture and equipment 2,374  2,434   7,292   7,049  
    Data processing, telephone, and communication 990  958   3,041   2,620  
    Advertising and bank promotions 735  197   1,434   1,153  
    FDIC insurance 218  230   570   491  
    Professional services 562  603   1,862   2,340  
    Taxes other than income 16  453   929   904  
    Intangible asset amortization 314  357   972   1,224  
    Merger related and branch consolidation expenses   1,310      1,310  
    Insurance claim recovery         (486) 
    Other operating expenses 2,328  2,028   5,844   7,043  
    Total noninterest expenses 19,035  19,265   53,851   56,000  
    Income before income tax expense 8,871  6,214   32,394   19,981  
    Income tax expense 1,679  1,237   6,219   3,577  
    Net income $7,192  $4,977   $26,175   $16,404  
             
    Share information:        
    Basic earnings per share $0.66  $0.45   $2.38   $1.50  
    Diluted earnings per share $0.65  $0.45   $2.36   $1.49  
    Weighted average shares - basic 10,979  10,941   10,976   10,939  
    Weighted average shares - diluted 11,122  11,025   11,103   11,027  
                    


         
    ORRSTOWN FINANCIAL SERVICES, INC.    
    ANALYSIS OF NET INTEREST INCOME    
    Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
     Three Months Ended
     9/30/2021 6/30/2021 3/31/2021 12/31/2020 9/30/2020
       Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-
     Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent
    (Dollars in thousands)Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
    Assets                             
    Federal funds sold & interest-bearing bank balances$347,242  $135  0.15% $290,039  $81  0.11% $145,595  $39  0.11% $48,019  $14  0.12% $31,087  $9  0.12%
    Investment securities (1)464,417  2,339  2.00  438,110  2,421  2.22  468,273  2,512  2.18  486,613  2,643  2.16  496,107  2,673  2.14 
    Loans (1)(2)(3)1,919,926  19,945  4.12  2,014,600  21,375  4.26  2,033,219  21,574  4.30  2,015,749  23,960  4.73  2,054,193  21,741  4.21 
    Total interest-earning assets2,731,585  22,419  3.26  2,742,749  23,877  3.49  2,647,087  24,125  3.70  2,550,381  26,617  4.15  2,581,387  24,423  3.76 
    Other assets195,089      188,810      182,737      182,764      190,119     
    Total$2,926,674      $2,931,559      $2,829,824      $2,733,145      $2,771,506     
    Liabilities and Shareholders' Equity                             
    Interest-bearing demand deposits$1,411,243  286  0.08  $1,394,384  292  0.08  $1,334,219  438  0.13  $1,283,024  655  0.20  $1,213,208  939  0.31 
    Savings deposits209,112  53  0.10  200,439  50  0.10  183,576  45  0.10  172,068  52  0.12  168,377  67  0.16 
    Time deposits349,215  598  0.68  382,467  739  0.78  397,271  909  0.93  411,395  1,155  1.12  432,438  1,477  1.36 
    Total interest-bearing deposits1,969,570  937  0.19  1,977,290  1,081  0.22  1,915,066  1,392  0.29  1,866,487  1,862  0.40  1,814,023  2,483  0.54 
    Securities sold under agreements to repurchase23,578  8  0.13  22,417  8  0.14  21,452  9  0.17  20,055  13  0.26  21,145  20  0.38 
    FHLB advances and other45,071  123  1.09  57,896  164  1.14  58,000  171  1.20  135,558  320  0.94  219,567  394  0.71 
    Subordinated notes31,938  503  6.29  31,924  502  6.29  31,909  502  6.29  31,895  502  6.29  31,881  501  6.29 
    Total interest-bearing liabilities2,070,157  1,571  0.30  2,089,527  1,755  0.34  2,026,427  2,074  0.42  2,053,995  2,697  0.52  2,086,616  3,398  0.65 
    Noninterest-bearing demand deposits548,923      545,617      516,849      406,454      417,939     
    Other38,409      37,561      36,244      36,216      37,330     
    Total Liabilities2,657,489      2,672,705      2,579,520      2,496,665      2,541,885     
    Shareholders' Equity269,185      258,854      250,304      236,480      229,621     
    Total$2,926,674      $2,931,559      $2,829,824      $2,733,145      $2,771,506     
    Taxable-equivalent net interest income / net interest spread  20,848  2.96%   22,122  3.15%   22,051  3.28%   23,920  3.63%   21,025  3.12%
    Taxable-equivalent net interest margin    3.03%     3.24%     3.38%     3.73%     3.24%
    Taxable-equivalent adjustment  (228)     (221)     (196)     (192)     (207)  
    Net interest income  $20,620      $21,901      $21,855      $23,728      $20,818   
    Ratio of average interest-earning assets to average interest-bearing liabilities    132%     131%     131%     124%     124%
                                  
    NOTES:                             
    (1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
    (2) Average balances include nonaccrual loans.
    (3) Interest income on loans includes prepayment and late fees, where applicable, prior periods have been adjusted to include these fees.
     


           
    ORRSTOWN FINANCIAL SERVICES, INC.      
    ANALYSIS OF NET INTEREST INCOME    
    Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
     Nine Months Ended
     September 30, 2021 September 30, 2020
       Taxable- Taxable-   Taxable- Taxable-
     Average Equivalent Equivalent Average Equivalent Equivalent
    (Dollars in thousands)Balance Interest Rate Balance Interest Rate
    Assets           
    Federal funds sold & interest-bearing bank balances$261,697  $255  0.13% $27,315  $101  0.49%
    Investment securities (1)456,919  7,272  2.13  496,977  9,797  2.63 
    Loans (1)(2)(3)1,988,834  62,895  4.23  1,899,186  63,940  4.50 
    Total interest-earning assets2,707,450  70,422  3.48  2,423,478  73,838  4.07 
    Other assets188,924      193,057     
    Total$2,896,374      $2,616,535     
    Liabilities and Shareholders' Equity           
    Interest-bearing demand deposits$1,380,241  1,014  0.10  $1,113,740  4,100  0.49 
    Savings deposits197,792  149  0.10  160,133  194  0.16 
    Time deposits376,142  2,247  0.80  466,032  5,853  1.68 
    Total interest-bearing deposits1,954,175  3,410  0.23  1,739,905  10,147  0.78 
    Securities sold under agreements to repurchase22,490  25  0.15  17,395  72  0.55 
    FHLB advances and other53,608  458  1.14  194,197  1,604  1.10 
    Subordinated notes31,924  1,507  6.29  31,867  1,504  6.29 
    Total interest-bearing liabilities2,062,197  5,400  0.35  1,983,364  13,327  0.90 
    Noninterest-bearing demand deposits537,247      373,614     
    Other37,413      35,874     
    Total Liabilities2,636,857      2,392,852     
    Shareholders' Equity259,517      223,683     
    Total$2,896,374      $2,616,535     
    Taxable-equivalent net interest income / net interest spread  65,022  3.13%   60,511  3.17%
    Taxable-equivalent net interest margin    3.21%     3.34%
    Taxable-equivalent adjustment  (646)     (633)  
    Net interest income  $64,376      $59,878   
    Ratio of average interest-earning assets to average interest-bearing liabilities    131%     122%
                
    NOTES TO ANALYSIS OF NET INTEREST INCOME:        
    (1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
    (2) Average balances include nonaccrual loans.
    (3) Interest income on loans includes prepayment and late fees, where applicable, prior periods have been adjusted to include these fees.
     


         
    ORRSTOWN FINANCIAL SERVICES, INC.    
    HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
              
    (In thousands, except per share amounts )September 30,
    2021
     June 30,
    2021
     March 31,
    2021
     December 31,
    2020
     September 30,
    2020
    Profitability for the quarter:         
    Net interest income$20,620  $21,901  $21,855   $23,729  $20,818 
    Provision for loan losses365  625  (1,000)  300  2,200 
    Noninterest income7,651  6,664  7,544   7,181  6,861 
    Noninterest expenses19,035  17,033  17,783   18,080  19,265 
    Income before income taxes8,871  10,907  12,616   12,530  6,214 
    Income tax expense1,679  2,131  2,409   2,471  1,237 
    Net income$7,192  $8,776  $10,207   $10,059  $4,977 
              
    Financial ratios:         
    Return on average assets (1)0.98% 1.20% 1.44 % 1.47% 0.72%
    Return on average equity (1)10.69% 13.56% 16.31 % 17.01% 8.67%
    Net interest margin (1)3.03% 3.24% 3.38 % 3.73% 3.24%
    Efficiency ratio67.3% 59.6% 60.5 % 58.5% 69.6%
              
    Per share information:         
    Income per common share:         
    Basic$0.66  $0.80  $0.93   $0.92  $0.45 
    Diluted0.65  0.79  0.92   0.91  0.45 
    Book value23.97  23.61  22.62   21.98  20.78 
    Tangible book value (2)21.98  21.61  20.59   19.93  18.70 
    Cash dividends paid0.19  0.18  0.18   0.17  0.17 
              
    Average basic shares10,979  10,975  10,975   10,953  10,941 
    Average diluted shares11,122  11,112  11,074   11,057  11,025 
    (1) Annualized.
    (2) Non-GAAP based financial measure. Please refer to Appendix B - Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein.
              


             
    ORRSTOWN FINANCIAL SERVICES, INC.        
    HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
    (continued)         
     September 30,
    2021
     June 30,
    2021
     March 31,
    2021
     December 31,
    2020
     September 30,
    2020
    Noninterest income:         
    Service charges$993  $880  $885  $999  $852 
    Interchange income1,030  1,064  955  916  900 
    Loan swap referral fees67  15  53  320  95 
    Wealth management income2,917  2,930  2,723  2,615  2,464 
    Mortgage banking activities1,333  1,162  2,189  1,348  1,985 
    Other income832  602  594  955  578 
    Investment securities gains (losses)479  11  145  28  (13)
    Total noninterest income$7,651  $6,664  $7,544  $7,181  $6,861 
              
    Noninterest expenses:         
    Salaries and employee benefits$11,498  $10,212  $10,197  $10,998  $10,695 
    Occupancy, furniture and equipment2,374  2,400  2,518  2,467  2,434 
    Data processing, telephone, and communication990  1,032  1,019  954  958 
    Advertising and bank promotions735  274  425  507  197 
    FDIC insurance218  158  194  195  230 
    Professional services562  579  721  780  603 
    Taxes other than income16  462  451  240  453 
    Intangible asset amortization314  324  334  345  357 
    Merger related and branch consolidation expenses        1,310 
    Other operating expenses2,328  1,592  1,924  1,594  2,028 
    Total noninterest expenses$19,035  $17,033  $17,783  $18,080  $19,265 
              


             
    ORRSTOWN FINANCIAL SERVICES, INC.        
    HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
    (continued)         
     September 30,
    2021
     June 30,
    2021
     March 31,
    2021
     December 31,
    2020
     September 30,
    2020
    Balance Sheet at quarter end:         
    Cash and cash equivalents$311,415  $336,762  $326,245  $125,258  $87,307 
    Restricted investments in bank stocks7,051  9,691  10,307  10,563  12,646 
    Securities available for sale445,018  450,402  407,690  466,465  478,288 
    Loans held for sale, at fair value6,412  8,092  11,449  11,734  12,804 
    Loans:         
    Commercial real estate:         
    Owner occupied196,585  191,595  177,934  174,908  166,623 
    Non-owner occupied509,703  471,541  415,219  409,567  403,138 
    Multi-family112,002  112,420  111,757  113,635  110,153 
    Non-owner occupied residential100,088  99,631  101,381  114,505  111,958 
    Commercial and industrial (1)540,205  599,123  750,831  647,368  690,330 
    Acquisition and development:         
    1-4 family residential construction12,246  9,686  12,138  9,486  9,627 
    Commercial and land development71,784  55,330  45,229  51,826  37,850 
    Municipal13,631  14,452  19,238  20,523  28,867 
    Total commercial loans1,556,244  1,553,778  1,633,727  1,541,818  1,558,546 
    Residential mortgage:         
    First lien203,360  211,918  225,247  244,321  273,149 
    Home equity – term7,079  8,321  9,183  10,169  11,108 
    Home equity – lines of credit154,004  149,601  153,169  157,021  158,106 
    Installment and other loans19,077  21,765  23,695  26,361  28,961 
    Total loans1,939,764  1,945,383  2,045,021  1,979,690  2,029,870 
    Allowance for loan losses(19,965) (19,381) (18,967) (20,151) (19,725)
    Net loans held-for-investment1,919,799  1,926,002  2,026,054  1,959,539  2,010,145 
    Goodwill18,724  18,724  18,724  18,724  18,724 
    Other intangible assets, net4,486  4,800  5,124  5,458  5,803 
    Total assets2,870,182  2,912,717  2,963,534  2,750,572  2,781,667 
    Total deposits2,502,108  2,494,100  2,547,089  2,356,880  2,279,483 
    Borrowings29,598  80,709  80,736  77,511  200,818 
    Subordinated notes31,948  31,932  31,918  31,903  31,889 
    Total shareholders' equity268,569  265,938  254,448  246,249  232,847 

    (1) This balance includes $259.9 million, $355.6 million, $504.3 million, $403.3 million and $458.1 million of SBA PPP loans, net of deferred fees and costs, at September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and September 30, 2020, respectively.

             
    ORRSTOWN FINANCIAL SERVICES, INC.        
    HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
    (continued)         
     September 30,
    2021
     June 30,
    2021
     March 31,
    2021
     December 31,
    2020
     September 30,
    2020
    Capital and credit quality measures (1):         
    Total risk-based capital:         
    Orrstown Financial Services, Inc15.6 % 15.6% 16.2% 15.6 % 15.0 %
    Orrstown Bank14.7 % 14.6% 15.3% 14.7 % 14.3 %
    Tier 1 risk-based capital:         
    Orrstown Financial Services, Inc12.8 % 12.7% 13.2% 12.5 % 12.0 %
    Orrstown Bank13.5 % 13.5% 14.1% 13.5 % 13.1 %
    Tier 1 common equity risk-based capital:         
    Orrstown Financial Services, Inc12.8 % 12.7% 13.2% 12.5 % 12.0 %
    Orrstown Bank13.5 % 13.5% 14.1% 13.5 % 13.1 %
    Tier 1 leverage capital:         
    Orrstown Financial Services, Inc8.3 % 8.0% 8.1% 8.1 % 7.8 %
    Orrstown Bank8.7 % 8.5% 8.6% 8.7 % 8.5 %
              
    Average equity to average assets9.20 % 8.83% 8.85% 8.65 % 8.29 %
    Allowance for loan losses to total loans1.03 % 1.00% 0.93% 1.02 % 0.97 %
    Total nonaccrual loans to total loans0.47 % 0.51% 0.48% 0.52 % 0.39 %
    Nonperforming assets to total assets0.32 % 0.34% 0.33% 0.37 % 0.28 %
    Allowance for loan losses to nonaccrual loans219 % 195% 192% 195 % 250 %
              
    Other information:         
    Net (recoveries) charge-offs$(219)  $211  $184  $(126)  $(8) 
    Classified loans26,910   28,731  32,408  33,147   36,408  
    Nonperforming and other risk assets:         
    Nonaccrual loans9,116   9,941  9,895  10,310   7,899  
    Other real estate owned            
    Total nonperforming assets9,116   9,941  9,895  10,310   7,899  
    Restructured loans still accruing839   852  921  934   945  
    Loans past due 90 days or more and still accruing (2)362   212  196  554   520  
    Total nonperforming and other risk assets$10,317   $11,005  $11,012  $11,798   $9,364  
    (1) Capital ratios are estimated, subject to regulatory filings.
    (2) Includes $0.4 million, $0.2 million, $0.2 million, $0.5 million and $0.5 million of purchased credit impaired loans at September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and September 30, 2020, respectively.
     

    Appendix A- Supplemental Reporting of Unusual Items

    The following table presents unusual items that impacted each period shown. These items are presented to enable investors to better understand the magnitude of certain significant items on reported GAAP results in the context of the Company's growth and acquisition activities.

     Three Months Ended Year To Date
     9/30/2021 6/30/2021 3/31/2021 12/31/2020 9/30/2020 9/30/2021 9/30/2020
    (In thousands)             
    Pretax Items             
    Branch consolidation expenses$  $  $  $  $1,310  $  $1,310 
    Net securities gains (losses)479  11  145  28  (13) 635  (44)
    (Loss) gain on swap termination(514)     226    (514)  
    Earnings on life insurance proceeds      58       
    Gains on sale of portfolio loans        294    2,803 
    Accretion - recoveries on purchased credit impaired loans15  23  256  779    294  1,526 
    Solar partnership credit income230      264    230   
    Insurance claim receivable recovery            486 
                         

    Appendix B- Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations

    As a result of acquisitions, the Company has intangible assets consisting of goodwill and core deposit and other intangible assets totaling $23.2 million and $24.2 million at September 30, 2021 and December 31, 2020, respectively. Additionally, the Company incurred approximately $1.3 million in charges associated with branch consolidation efforts during the three months ended September 30, 2020.

    Management believes providing certain “non-GAAP” financial information will assist investors in their understanding of the effect of acquisition activity on reported results, particularly to overcome comparability issues related to the influence of intangibles (principally goodwill) created in acquisitions. Management also believes providing certain other “non-GAAP” financial information will assist investors in their understanding of the effect on recent financial results of non-recurring charges associated with increasing operational efficiencies for the long-term, and provide investors with clarity on its allowance for loan losses to total loans ratio. The Company believes that excluding SBA PPP loans, due to its credit enhancement, from loans held for investment is useful to investors due to the size and effect on the total and ratio.

    Tangible book value per common share and allowance to non-SBA guaranteed loans, as used by the Company in this earnings release, are determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). While we believe this information is a useful supplement to GAAP based measures presented in this earnings release, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

    The following tables present the computation of each non-GAAP based measure:

    (dollars in thousands, except per share information)

    Tangible Book Value per Common Share September 30,
    2021
     June 30,
    2021
     March 31,
    2021
     December 31,
    2020
     September 30,
    2020
    Shareholders' equity $268,569  $265,938  $254,448  $246,249  $232,847 
    Less: Goodwill 18,724  18,724  18,724  18,724  18,724 
    Other intangible assets 4,486  4,800  5,124  5,458  5,803 
    Related tax effect (942) (1,008) (1,076) (1,146) (1,219)
    Tangible common equity (non-GAAP) $246,301  $243,422  $231,676  $223,213  $209,539 
               
    Common shares outstanding 11,205  11,263  11,251  11,201  11,204 
               
    Book value per share (most directly comparable GAAP based measure) $23.97  $23.61  $22.62  $21.98  $20.78 
    Intangible assets per share 1.99  2.00  2.03  2.05  2.08 
    Tangible book value per share (non-GAAP) $21.98  $21.61  $20.59  $19.93  $18.70 
                         


    Allowance to Non-SBA Guaranteed Loans:   
        
     September 30, 2021 June 30, 2021
    Allowance for loan losses$19,965   $19,381  
    Gross loans1,939,764   1,945,383  
    less: SBA guaranteed loans(261,138)  (356,905) 
    Non-SBA guaranteed loans$1,678,626   $1,588,478  
        
    Allowance to non-SBA guaranteed loans1.2 % 1.2 %
            

    Appendix C- Investment Portfolio Concentrations

    The following table summarizes the credit ratings and collateral associated with the Company's investment portfolio, excluding equity securities, at September 30, 2021:

    (dollars in thousands)

    SectorPortfolio Mix Amortized Book Fair Value Credit Enhancement AAA AA A BBB NR Collateral Type
    Unsecured ABS1% $3,103  $3,159  31% % % % % 100% Unsecured Consumer Debt
    Student Loan ABS2  9,385  9,367  18          100  Seasoned Student Loans
    Federal Family Education Loan ABS23  101,309  101,383  5  67  27  5      Federal Family Education Loan (1)
    PACE Loan ABS1  3,880  3,969  5  100          PACE Loans
    Non-Agency RMBS6  25,929  25,657  49  100          Reverse Mortgages (2)
    Municipal - General Obligation21  93,094  97,365    7  86  7       
    Municipal - Revenue18  81,145  84,156      76  12    13   
    SBA ReRemic2  9,049  9,029      100        SBA Guarantee (3)
    Agency MBS21  90,474  90,705      100        Residential Mortgages (3)
    U.S. Treasury securities5  20,087  19,831      100         
    Bank CDs  249  249            100  FDIC Insured CD
     100% $437,704  $444,870    24% 66% 5% % 5%  
                        
    (1) Minimum of 97% guaranteed by U.S. government
    (2) Reverse mortgages fund over time and credit enhancement is estimated based on prior experience
    (3) 100% guaranteed by U.S. government agencies
                        
    Note : Ratings in table are the lowest of the three rating agencies (Standard & Poor's, Moody's & Fitch). Standard & Poor's rates U.S. government obligations at AA+
    Note: S&P rates US government obligations at AA+
     

    About the Company

    With $2.9 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a wide range of consumer and business financial services in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, and Washington Counties, Maryland, as well as Baltimore City, Maryland. Orrstown Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. Orrstown Financial Services, Inc.’s common stock is traded on Nasdaq (ORRF). For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.com.

    Cautionary Note Regarding Forward-looking Statements:

    This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company's industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will be able to continue to successfully execute on its strategic growth plan into Dauphin, Lancaster, York and Berks counties, Pennsylvania, and the greater Baltimore market in Maryland, with newer markets continuing to be receptive to our community banking model; to take advantage of market disruption; to experience sustained growth in loans and deposits or maintain the momentum experienced to date from these actions. In addition to risks and uncertainties related to the COVID-19 pandemic (including those related to variants, such as the delta variant) and resulting governmental and societal responses, factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; the integration of the Company's strategic acquisitions; the inability to fully achieve expected savings, efficiencies or synergies from mergers and acquisitions, or taking longer than estimated for such savings, efficiencies and synergies to be realized; changes in laws and regulations; interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; the demand for our products and services; deteriorating economic conditions; expenses associated with pending litigation and legal proceedings; the failure of the SBA to honor its guarantee of loans issued under the SBA PPP; the timing of the repayment of SBA PPP loans and the impact it has on fee recognition; our ability to convert new relationships gained through the SBA PPP efforts to full banking relationships; and other risks and uncertainties, including those set forth under the heading "Risk Factors" in the Company's 2020 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission. The foregoing list of factors is not exhaustive.

    If one or more events related to these or other risks or uncertainties materializes, or if the Company's underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for the Company to predict those events or how they may affect it. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on the Company's behalf may issue.

    The review period for subsequent events extends up to and includes the filing date of a public company’s financial statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information presented in this announcement is subject to change.


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