Tuesday, July 5, 2022
HomeInvestmentOrrstown Financial Services, Inc. Reports First Quarter 2022 Results

Orrstown Financial Services, Inc. Reports First Quarter 2022 Results


  • Net income of $8.4 million and diluted earnings per share of $0.76 for the quarter ended March 31, 2022 compared to net income of $6.7 million and diluted earnings per share of $0.60 for the quarter ended December 31, 2021
  • Net interest margin increased to 3.49% in the first quarter of 2022 from 3.35% in the fourth quarter of 2021; excess liquidity continues to be deployed into commercial loan production and investment security purchases
  • First quarter commercial loan growth, excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, was $59.7 million, or 17% annualized; consumer loans increased by $6.0 million, or 6% annualized
  • Noninterest income of $7.5 million in the first quarter of 2022 compared to $7.3 million in the fourth quarter of 2021
  • Noninterest expenses decreased by $0.9 million to $19.4 million in the first quarter of 2022 from $20.3 million in the fourth quarter of 2021; efficiency ratio at 64% for the first quarter of 2022 compared to 68% for the fourth quarter of 2021
  • A provision for loan losses of $0.3 million was recorded in the first quarter of 2022 compared to $1.1 million in the fourth quarter of 2021
  • The SBA PPP loan portfolio averaged $155.3 million in the three months ended March 31, 2022 as compared to $232.2 million in the three months ended December 31, 2021
  • The Company repurchased 181,635 shares of its common stock at an average price of $24.27 per share during the three months ended March 31, 2022
  • The Board of Directors declared a cash dividend of $0.19 per common share, payable May 9, 2022, to shareholders of record as of May 2, 2022

SHIPPENSBURG, Pa., April 19, 2022 (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 March 31, 2022. Net income totaled $8.4 million for the three months ended March 31, 2022, compared with $6.7 million for the three months ended December 31, 2021 and $10.2 million for the three months ended March 31, 2021. Diluted earnings per share totaled $0.76 for the three months ended March 31, 2022, compared with $0.60 for the three months ended December 31, 2021 and $0.92 for the three months ended March 31, 2021.

Thomas R. Quinn, Jr., President & CEO, commented, “Our strong momentum from the second half of 2021 carried into the first quarter with increased net income and significant loan production from both our commercial and retail teams. We are deploying our excess liquidity responsibly to maximize our earning potential while recognizing the challenges of the shifting economic cycle. As interest rates increase and our balance sheet mix shifts from cash to higher yielding assets, we expect our core net interest margin to continue to grow.”

Mr. Quinn added, “Early in 2021, Orrstown’s Board of Directors and Management recognized that replenishing income from declining SBA PPP fee recognition over the long-term was critical to the growth of the Company. As a direct result of our organic growth strategy over the past few years, which included several key hires, we are progressively moving towards achieving that goal. While our mortgage and wealth management teams remain successful, we continue to seek alternate sources of earnings, such as swap fees, to offset the potential income reductions from those business lines due to increasing mortgage market challenges and a volatile stock market. In the first quarter of 2022, we were successful in generating fee income from other sources and are optimistic that this will be an ongoing trend throughout the year. We believe that we remain well positioned to grow our franchise.”

DISCUSSION OF RESULTS

Balance Sheet

Loans

Excluding SBA PPP loans, total loans increased by $65.7 million from December 31, 2021 to March 31, 2022, or 15% annualized. SBA PPP loans, net of deferred fees and costs, declined by $59.7 million to $122.5 million at March 31, 2022 from $189.9 million at December 31, 2021 due to forgiveness activity. Commercial loans, excluding SBA PPP loans, increased by $59.7 million, or 17% annualized, from December 31, 2021 to March 31, 2022. Loans held for investment, which includes SBA PPP loans, decreased by $1.7 million from December 31, 2021 to March 31, 2022, or 0.3% annualized, as the impact of SBA PPP loan forgiveness was offset by net commercial loan production.

The remaining gross balance of SBA PPP loans is $124.9 million at March 31, 2022. Net deferred SBA PPP fees of $2.4 million remain at March 31, 2022, substantially all of which are expected to be earned by the end of 2022.

The consumer portfolio grew as residential mortgage loans increased by $4.4 million, or 9% annualized, and home equity lines of credit increased by $4.1 million, or 10% annualized, in the three months ended March 31, 2022. Other installment loans decreased by $2.3 million, or 52% annualized, in the three months ended March 31, 2022.

Investment Securities

Investment securities increased by $56.8 million to $536.5 million at March 31, 2022 compared to $479.7 million at December 31, 2021. During the first quarter of 2022, the Bank purchased municipal securities totaling $62.9 million and agency mortgage-backed securities totaling $32.0 million. This increase in investment securities from purchases during the first quarter was partially offset by net unrealized losses due to market interest rate increases and a partial sale of a municipal security of $3.0 million. See Appendix B for a summary of the Bank’s investment securities at March 31, 2022, highlighting the concentrations, credit ratings and credit enhancement levels of the portfolio at such date.

Deposits

Deposits increased by $81.1 million, or 13% annualized, totaling approximately $2.5 billion at both March 31, 2022 and December 31, 2021. In the first quarter of 2022, interest-bearing demand deposits increased by $67.1 million, or 30% annualized, money market and savings deposits increased by $24.1 million, or 14% annualized, and non-interest bearing demand deposits increased by $4.5 million, or 3% annualized, in each case from December 31, 2021. These increases were partially offset by a decrease in certificates of deposits of $14.6 million, or 20% annualized. The increase in deposits resulted from continued high levels of excess liquidity in the system as well as seasonal increases from public fund clients. The Bank’s loan-to-deposit ratio was 78% at March 31, 2022, a decrease of 2% from December 31, 2021 due to deposit growth. On a longer-term basis, the Bank continues to target a loan-to-deposit ratio of 90%.

Income Statement

Net Interest Income and Margin

Net interest income remained constant at $22.6 million for the three months ended March 31, 2022 and the three months ended December 31, 2021. Net interest margin on a tax equivalent basis increased to 3.49% in the first quarter of 2022 from 3.35% in the fourth quarter of 2021. The increase in net interest margin was primarily a result of interest income from SBA PPP loan forgiveness on a lower average balance (five basis points), a decrease in average cash (five basis points) and increased accretion on acquired loans (three basis points).

For the three months ended March 31, 2022 and December 31, 2021, there were $73.2 million and $66.9 million of SBA PPP loans forgiven, respectively. Interest income recognized on SBA PPP loans totaled $3.5 million in the three months ended March 31, 2022 as compared to $3.8 million in the three months ended December 31, 2021. This decrease is due to the forgiveness of SBA PPP loans with lower amounts of unrecognized fees in the first quarter of 2022.

Accretion of interest on acquired loans increased by $0.2 million to $0.6 million for the three months ended March 31, 2022 from $0.4 million for the three months ended December 31, 2021. This increase was primarily from accelerated accretion on the payoff of three loans during the first quarter of 2022.

The average cost of deposits was 0.11% in the first quarter of 2022, which is down from 0.12% in the fourth quarter of 2021 and 0.23% in the first quarter of 2021. The maturity of higher yielding certificates of deposit continues to reduce the cost of funds.

Average cash and cash equivalents decreased from $250.3 million in the three months ended December 31, 2021 to $199.8 million in the three months ended March 31, 2022. The decrease reflects the deployment of excess cash balances into commercial loan production and purchases of investment securities.

Provision for Loan Losses

The Company recorded a provision for loan losses of $0.3 million in the three months ended March 31, 2022 compared to $1.1 million for the three months ended December 31, 2021. During the first quarter of 2022, the Company reduced certain qualitative factor assumptions in its allowance calculation. Net recoveries were $28 thousand for the three months ended March 31, 2022 compared to net recoveries of $115 thousand for the three months ended December 31, 2021. The allowance for loan losses totaled $21.5 million at March 31, 2022, compared with $21.2 million at December 31, 2021.

Asset quality metrics strengthened further in the first quarter of 2022. Nonperforming loans decreased by $0.9 million to $5.5 million at March 31, 2022 from $6.4 million at December 31, 2021 due to $0.6 million returning to accruing status and payoffs of $0.4 million. Nonperforming loans were 0.28% and 0.33% of gross loans at March 31, 2022 and December 31, 2021, respectively. As a result of reduced nonperforming loans, the ratio of the allowance for loan losses to nonaccrual loans was 390% at March 31, 2022 compared to 328% at December 31, 2021. The allowance for loan losses to non-SBA guaranteed loans(1) remained steady at 1.2% at March 31, 2022 and December 31, 2021. Management believes the allowance for loan losses to be adequate based on current asset quality metrics and economic conditions.

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

Noninterest Income

Noninterest income totaled $7.5 million in the three months ended March 31, 2022 compared with $7.3 million in the three months ended December 31, 2021.

Swap fee income increased by $0.8 million in the first quarter of 2022 due to increased client interest in locking in rates in the rising interest rate environment.

Mortgage banking income decreased by $0.5 million from $1.2 million in the fourth quarter of 2021 to $0.7 million in the first quarter of 2022. Current market conditions, including low housing inventory and a rising interest rate environment, caused a decline in residential mortgage loan production and corresponding reductions in the residential mortgage loan pipeline and secondary market sales during the first quarter of 2022. These changes resulted in a decrease in the gain on sale of residential mortgage loans of $0.7 million compared to the fourth quarter of 2021. Mortgage loans sold totaled $31.9 million in the first quarter of 2022 compared with $43.7 million in the fourth quarter of 2021. As of March 31, 2022, the Bank serviced $508.7 million of residential mortgage loans, an increase of $6.2 million compared to December 31, 2021.

For the three months ended March 31, 2022, net losses on investment securities were $146 thousand, which included an other-than-temporary impairment (“OTTI”) charge on one $14.7 million par value non-agency collateralized mortgage obligation (“CMO”). The security is expected to be called by the issuer in the second quarter of 2022 due to a default. The security was written down to the expected call value. The impairment charge of $171 thousand was partially offset by a realized gain of $21 thousand from the sale of one municipal security.

Other income equaled $1.0 million in both the first quarter of 2022 and the fourth quarter of 2021. The first quarter included a gain on the sale of an SBA loan of $0.3 million, while fourth quarter included $0.3 million in gains from the sales of two bank-owned properties.

Noninterest Expenses

Noninterest expenses decreased by $0.9 million to $19.4 million in the three months ended March 31, 2022 from $20.3 million in the three months ended December 31, 2021.

Salaries and benefits decreased by $0.8 million to $11.3 million for the three months ended March 31, 2022 from $12.1 million for the three months ended December 31, 2021. The decrease was attributed primarily to performance-based bonus and incentive compensation recognized during the fourth quarter of 2021, partially offset by an increase in employee benefit costs and employment taxes in the first quarter of 2022 as these costs typically are higher early in the year.

For the three months ended March 31, 2022, advertising and bank promotions decreased by $0.4 million to $0.3 million from $0.7 million in the fourth quarter of 2021 due to the contributions to the Pennsylvania Educational Improvement Tax Credit Program in the fourth quarter of 2021.

Income Taxes

The Company’s effective tax rate for the first quarter of 2022 was 19.4% compared with 21.1% for the fourth quarter of 2021. The Company’s effective tax rate for the three months ended March 31, 2022 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. The higher effective tax rate in the fourth quarter of 2021 is consistent with higher levels of pre-tax income during 2021 and the impact it had on our tax rate.

Capital

Shareholders’ equity totaled $254.8 million at March 31, 2022, a decrease of $16.9 million from $271.7 million at December 31, 2021. The decrease was primarily attributable to an increase in unrealized losses on available-for-sale securities due to a substantial increase in market interest rates, as well as dividends paid, partially offset by net income. Tangible book value per share(1) decreased by 6% from $22.32 per share at December 31, 2021 to $21.03 per share at March 31, 2022 as a result of the decrease in shareholders’ equity.

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

The Company’s tangible common equity ratio decreased to 8.1% at March 31, 2022 from 8.8% at December 31, 2021 due primarily to the decrease in tangible equity from the unrealized losses on available-for-sale securities. The Company’s Tier 1 leverage ratio was 8.8% at March 31, 2022 and 8.5% at December 31, 2021 due to the decrease in average assets caused primarily by the decrease in average cash. The Company’s total risk-based capital ratio was 14.3% at March 31, 2022 and 15.0% at December 31, 2021 as the Company has been deploying its cash into commercial lending and investment security purchases.

The Board of Directors approved a quarterly dividend of $0.19 per share, payable May 9, 2022, to shareholders of record as of May 2, 2022. The dividend payout ratio totaled 25% for the three months ended March 31, 2022 compared to 31% for the three months ended December 31, 2021. At this time, the Company continues to believe that capital is adequate to support the risks inherent in the balance sheet, as well as growth requirements.

Investor Relations Contact: Media Contact:
Neelesh Kalani Luke Bernstein
Chief Financial Officer Corporate Communications Officer
Phone (717) 510-7097 Phone (717) 510-7107
ORRSTOWN FINANCIAL SERVICES, INC.        
FINANCIAL HIGHLIGHTS (Unaudited)        
         
         
    Three Months Ended
    March 31,   March 31,
(Dollars in thousands, except per share amounts)     2022       2021  
         
Profitability for the period:        
Net interest income   $ 22,573     $ 21,855  
Provision for loan losses     300       (1,000 )
Noninterest income     7,474       7,544  
Noninterest expenses     19,364       17,783  
Income before income taxes     10,383       12,616  
Income tax expense     2,015       2,409  
Net income available to common shareholders   $ 8,368     $ 10,207  
         
Financial ratios:        
Return on average assets (1)     1.20 %     1.44 %
Return on average equity (1)     12.65 %     16.31 %
Net interest margin (1)     3.49 %     3.38 %
Efficiency ratio     64.4 %     60.5 %
Income per common share:        
Basic   $ 0.77     $ 0.93  
Diluted   $ 0.76     $ 0.92  
         
Average equity to average assets     9.47 %     8.85 %
         
(1) Annualized.        
ORRSTOWN FINANCIAL SERVICES, INC.      
FINANCIAL HIGHLIGHTS (Unaudited)      
(continued)      
  March 31,   December 31,
    2022       2021  
At period-end:      
Total assets $ 2,900,537     $ 2,834,565  
Total deposits   2,545,992       2,464,929  
Loans, net of allowance for loan losses   1,956,799       1,958,806  
Loans held-for-sale, at fair value   7,403       8,868  
Securities available for sale   529,730       472,438  
Borrowings   26,412       25,197  
Subordinated notes   31,978       31,963  
Shareholders’ equity   254,804       271,656  
       
Credit quality and capital ratios(1):      
Allowance for loan losses to total loans   1.09 %     1.07 %
Total nonaccrual loans to total loans   0.28 %     0.33 %
Nonperforming assets to total assets   0.19 %     0.23 %
Allowance for loan losses to nonaccrual loans   390 %     328 %
Total risk-based capital:      
Orrstown Financial Services, Inc.   14.3 %     15.0 %
Orrstown Bank   13.8 %     14.0 %
Tier 1 risk-based capital:      
Orrstown Financial Services, Inc.   11.7 %     12.2 %
Orrstown Bank   12.7 %     12.9 %
Tier 1 common equity risk-based capital:      
Orrstown Financial Services, Inc.   11.7 %     12.2 %
Orrstown Bank   12.7 %     12.9 %
Tier 1 leverage capital:      
Orrstown Financial Services, Inc.   8.8 %     8.5 %
Orrstown Bank   9.5 %     8.9 %
       
Book value per common share $ 23.00     $ 24.29  
       
(1) Capital ratios are estimated, subject to regulatory filings      
ORRSTOWN FINANCIAL SERVICES, INC.      
CONSOLIDATED BALANCE SHEETS (Unaudited)      
       
(Dollars in thousands, except per share amounts) March 31, 2022   December 31, 2021
Assets      
Cash and due from banks $ 26,446     $ 21,217  
Interest-bearing deposits with banks   187,792       187,493  
Cash and cash equivalents   214,238       208,710  
Restricted investments in bank stocks   6,791       7,252  
Securities available for sale (amortized cost of $548,305 and $466,806 at March 31, 2022 and December 31, 2021, respectively)   529,730       472,438  
Loans held for sale, at fair value   7,403       8,868  
Loans   1,978,307       1,979,986  
Less: Allowance for loan losses   (21,508 )     (21,180 )
Net loans   1,956,799       1,958,806  
Premises and equipment, net   33,704       34,045  
Cash surrender value of life insurance   70,622       70,217  
Goodwill   18,724       18,724  
Other intangible assets, net   3,891       4,183  
Accrued interest receivable   8,642       8,234  
Other assets   49,993       43,088  
Total assets $ 2,900,537     $ 2,834,565  
Liabilities      
Deposits:      
Noninterest-bearing $ 557,756     $ 553,238  
Interest-bearing   1,988,236       1,911,691  
Total deposits   2,545,992       2,464,929  
Securities sold under agreements to repurchase   24,624       23,301  
FHLB advances and other   1,788       1,896  
Subordinated notes   31,978       31,963  
Accrued interest and other liabilities   41,351       40,820  
Total liabilities   2,645,733       2,562,909  
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; 11,247,545 shares issued and 11,078,990 outstanding at March 31, 2022; 11,258,167 shares issued and 11,183,050 outstanding at December 31, 2021   585       586  
Additional paid—in capital   188,033       189,689  
Retained earnings   84,943       78,700  
Accumulated other comprehensive (loss) income   (14,674 )     4,449  
Treasury stock— 168,555 and 75,117 shares, at cost at March 31, 2022 and December 31, 2021, respectively   (4,083 )     (1,768 )
Total shareholders’ equity   254,804       271,656  
Total liabilities and shareholders’ equity $ 2,900,537     $ 2,834,565  
ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
           
      Three Months Ended
      March 31,   March 31,
(In thousands, except per share amounts)       2022       2021  
Interest income          
Loans     $ 21,369     $ 21,511  
Investment securities – taxable       1,598       1,879  
Investment securities – tax-exempt       722       500  
Short-term investments       101       39  
Total interest income       23,790       23,929  
Interest expense          
Deposits       685       1,392  
Securities sold under agreements to repurchase       7       9  
FHLB advances and other       22       171  
Subordinated notes       503       502  
Total interest expense       1,217       2,074  
Net interest income       22,573       21,855  
Provision for loan losses       300       (1,000 )
Net interest income after provision for loan losses       22,273       22,855  
Noninterest income          
Service charges       1,073       885  
Interchange income       981       955  
Swap fee income       953       53  
Wealth management income       2,869       2,723  
Mortgage banking activities       721       2,189  
Investment securities (losses) gains       (146 )     145  
Other income       1,023       594  
Total noninterest income       7,474       7,544  
Noninterest expenses          
Salaries and employee benefits       11,337       10,197  
Occupancy, furniture and equipment       2,567       2,518  
Data processing       1,053       1,019  
Advertising and bank promotions       355       425  
FDIC insurance       283       194  
Professional services       808       721  
Taxes other than income       564       451  
Intangible asset amortization       292       334  
Other operating expenses       2,105       1,924  
Total noninterest expenses       19,364       17,783  
Income before income tax expense       10,383       12,616  
Income tax expense       2,015       2,409  
Net income     $ 8,368     $ 10,207  
           
Share information:          
Basic earnings per share     $ 0.77     $ 0.93  
Diluted earnings per share     $ 0.76     $ 0.92  
Weighted average shares – basic       10,860       10,975  
Weighted average shares – diluted       11,008       11,074  
ORRSTOWN FINANCIAL SERVICES, INC.        
ANALYSIS OF NET INTEREST INCOME        
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)    
  Three Months Ended
  3/31/2022   12/31/2021   9/30/2021   6/30/2021   3/31/2021
      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 $ 199,788   $ 101     0.20 %   $ 250,336   $ 98     0.16 %   $ 347,242   $ 135     0.15 %   $ 290,039   $ 81     0.11 %   $ 145,595   $ 39     0.11 %
Investment securities (1)   472,195     2,512     2.13       477,217     2,506     2.08       464,417     2,339     2.00       438,110     2,421     2.22       468,273     2,512     2.18  
Loans (1)(2)(3)   1,974,804     21,429     4.39       1,975,014     21,559     4.33       1,919,926     19,945     4.12       2,014,600     21,375     4.26       2,033,219     21,574     4.30  
Total interest-earning assets   2,646,787     24,042     3.67       2,702,567     24,163     3.55       2,731,585     22,419     3.26       2,742,749     23,877     3.49       2,647,087     24,125     3.70  
Other assets   184,300             187,622             195,089             188,810             182,737        
Total $ 2,831,087           $ 2,890,189           $ 2,926,674           $ 2,931,559           $ 2,829,824        
Liabilities and Shareholders’ Equity                                                          
Interest-bearing demand deposits $ 1,398,182     256     0.07     $ 1,430,845     273     0.08     $ 1,411,243     286     0.08     $ 1,394,384     292     0.08     $ 1,334,219     438     0.13  
Savings deposits   227,676     57     0.10       215,957     55     0.10       209,112     53     0.10       200,439     50     0.10       183,576     45     0.10  
Time deposits   298,618     372     0.51       313,148     461     0.58       349,215     598     0.68       382,467     739     0.78       397,271     909     0.93  
Total interest-bearing deposits   1,924,476     685     0.14       1,959,950     789     0.16       1,969,570     937     0.19       1,977,290     1,081     0.22       1,915,066     1,392     0.29  
Securities sold under agreements to repurchase   23,530     7     0.12       24,069     7     0.12       23,578     8     0.13       22,417     8     0.14       21,452     9     0.17  
FHLB advances and other   1,850     22     4.74       1,956     23     4.70       45,071     123     1.09       57,896     164     1.14       58,000     171     1.20  
Subordinated notes   31,969     503     6.29       31,954     503     6.29       31,938     503     6.29       31,924     502     6.29       31,909     502     6.29  
Total interest-bearing liabilities   1,981,825     1,217     0.25       2,017,929     1,322     0.26       2,070,157     1,571     0.30       2,089,527     1,755     0.34       2,026,427     2,074     0.42  
Noninterest-bearing demand deposits   540,139             559,882             548,923             545,617             516,849        
Other   40,919             42,380             38,409             37,561             36,244        
Total Liabilities   2,562,883             2,620,191             2,657,489             2,672,705             2,579,520        
Shareholders’ Equity   268,204             269,998             269,185             258,854             250,304        
Total $ 2,831,087           $ 2,890,189           $ 2,926,674           $ 2,931,559           $ 2,829,824        
Taxable-equivalent net interest income / net interest spread       22,825     3.42 %         22,841     3.29 %         20,848     2.96 %         22,122     3.15 %         22,051     3.28 %
Taxable-equivalent net interest margin         3.49 %           3.35 %           3.03 %           3.24 %           3.38 %
Taxable-equivalent adjustment       (252 )             (243 )             (228 )             (221 )             (196 )    
Net interest income     $ 22,573             $ 22,598             $ 20,620             $ 21,901             $ 21,855      
Ratio of average interest-earning assets to average interest-bearing liabilities         134 %           134 %           132 %           131 %           131 %
                                                           
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
 
ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)        
                   
(In thousands, except per share amounts ) March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
Profitability for the quarter:                  
Net interest income $ 22,573     $ 22,598     $ 20,620     $ 21,901     $ 21,855  
Provision for loan losses   300       1,100       365       625       (1,000 )
Noninterest income   7,474       7,293       7,651       6,664       7,544  
Noninterest expenses   19,364       20,290       19,035       17,033       17,783  
Income before income taxes   10,383       8,501       8,871       10,907       12,616  
Income tax expense   2,015       1,795       1,679       2,131       2,409  
Net income $ 8,368     $ 6,706     $ 7,192     $ 8,776     $ 10,207  
                   
Financial ratios:                  
Return on average assets(1)   1.20 %     0.93 %     0.98 %     1.20 %     1.44 %
Return on average equity(1)   12.65 %     9.93 %     10.69 %     13.56 %     16.31 %
Net interest margin(1)   3.49 %     3.35 %     3.03 %     3.24 %     3.38 %
Efficiency ratio   64.4 %     67.9 %     67.3 %     59.6 %     60.5 %
                   
Per share information:                  
Income per common share:                  
   Basic $ 0.77     $ 0.61     $ 0.66     $ 0.80     $ 0.93  
   Diluted   0.76       0.60       0.65       0.79       0.92  
Book value   23.00       24.29       23.97       23.61       22.62  
Tangible book value(2)   21.03       22.32       21.98       21.61       20.59  
Cash dividends paid   0.19       0.19       0.19       0.18       0.18  
                   
Average basic shares   10,860       10,939       10,979       10,975       10,975  
Average diluted shares   11,008       11,113       11,122       11,112       11,074  
 
(1)Annualized.
(2)Non-GAAP based financial measure. Please refer to Appendix A – 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)                  
  March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
Noninterest income:                  
Service charges $ 1,073     $ 935   $ 993   $ 880   $ 885
Interchange income   981       1,080     1,030     1,064     955
Swap fee income   953       158     67     15     53
Wealth management income   2,869       2,897     2,917     2,930     2,723
Mortgage banking activities   721       1,225     1,333     1,162     2,189
Other income   1,023       995     832     602     594
Investment securities (losses) gains   (146 )     3     479     11     145
Total noninterest income $ 7,474     $ 7,293   $ 7,651   $ 6,664   $ 7,544
                   
Noninterest expenses:                  
Salaries and employee benefits $ 11,337     $ 12,095   $ 11,498   $ 10,212   $ 10,197
Occupancy, furniture and equipment   2,567       2,554     2,374     2,400     2,518
Data processing   1,053       1,020     990     1,032     1,019
Advertising and bank promotions   355       744     735     274     425
FDIC insurance   283       246     218     158     194
Professional services   808       693     562     579     721
Taxes other than income   564       392     16     462     451
Intangible asset amortization   292       303     314     324     334
Other operating expenses   2,105       2,243     2,328     1,592     1,924
Total noninterest expenses $ 19,364     $ 20,290   $ 19,035   $ 17,033   $ 17,783
                   
ORRSTOWN FINANCIAL SERVICES, INC.                
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)            
(continued)                  
  March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
Balance Sheet at quarter end:                  
Cash and cash equivalents $ 214,238     $ 208,710     $ 311,415     $ 336,762     $ 326,245  
Restricted investments in bank stocks   6,791       7,252       7,051       9,691       10,307  
Securities available for sale   529,730       472,438       445,018       450,402       407,690  
Loans held for sale, at fair value   7,403       8,868       6,412       8,092       11,449  
Loans:                  
Commercial real estate:                  
    Owner occupied   256,526       238,668       196,585       191,595       177,934  
    Non-owner occupied   558,999       551,783       509,703       471,541       415,219  
    Multi-family   93,158       93,255       112,002       112,420       111,757  
    Non-owner occupied residential   102,269       106,112       100,088       99,631       101,381  
Commercial and industrial(1)   443,170       485,728       540,205       599,123       750,831  
Acquisition and development:                  
    1-4 family residential construction   15,115       12,279       12,246       9,686       12,138  
    Commercial and land development   105,204       93,925       71,784       55,330       45,229  
Municipal   14,626       14,989       13,631       14,452       19,238  
    Total commercial loans   1,589,067       1,596,739       1,556,244       1,553,778       1,633,727  
Residential mortgage:                  
    First lien   203,231       198,831       203,360       211,918       225,247  
    Home equity – term   5,820       6,081       7,079       8,321       9,183  
    Home equity – lines of credit   164,818       160,705       154,004       149,601       153,169  
Installment and other loans   15,371       17,630       19,077       21,765       23,695  
  Total loans   1,978,307       1,979,986       1,939,764       1,945,383       2,045,021  
  Allowance for loan losses   (21,508 )     (21,180 )     (19,965 )     (19,381 )     (18,967 )
  Net loans held-for-investment   1,956,799       1,958,806       1,919,799       1,926,002       2,026,054  
Goodwill   18,724       18,724       18,724       18,724       18,724  
Other intangible assets, net   3,891       4,183       4,486       4,800       5,124  
Total assets   2,900,537       2,834,565       2,870,182       2,912,717       2,963,534  
Total deposits   2,545,992       2,464,929       2,502,108       2,494,100       2,547,089  
Borrowings   26,412       25,197       29,598       80,709       80,736  
Subordinated notes   31,978       31,963       31,948       31,932       31,918  
Total shareholders’ equity   254,804       271,656       268,569       265,938       254,448  

(1) This balance includes $122.5 million, $189.9 million, $259.9 million, $355.6 million and $504.3 million of SBA PPP loans, net of deferred fees and costs, at March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively.

ORRSTOWN FINANCIAL SERVICES, INC.                
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)            
(continued)                  
  March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
Capital and credit quality measures (1):                  
Total risk-based capital:                  
Orrstown Financial Services, Inc   14.3 %     15.0 %     15.6 %     15.6 %     16.2 %
Orrstown Bank   13.8 %     14.0 %     14.7 %     14.6 %     15.3 %
Tier 1 risk-based capital:                  
Orrstown Financial Services, Inc   11.7 %     12.2 %     12.8 %     12.7 %     13.2 %
Orrstown Bank   12.7 %     12.9 %     13.5 %     13.5 %     14.1 %
Tier 1 common equity risk-based capital:                  
Orrstown Financial Services, Inc   11.7 %     12.2 %     12.8 %     12.7 %     13.2 %
Orrstown Bank   12.7 %     12.9 %     13.5 %     13.5 %     14.1 %
Tier 1 leverage capital:                  
Orrstown Financial Services, Inc   8.8 %     8.5 %     8.3 %     8.0 %     8.1 %
Orrstown Bank   9.5 %     8.9 %     8.7 %     8.5 %     8.6 %
                   
Average equity to average assets   9.47 %     9.34 %     9.20 %     8.83 %     8.85 %
Allowance for loan losses to total loans   1.09 %     1.07 %     1.03 %     1.00 %     0.93 %
Total nonaccrual loans to total loans   0.28 %     0.33 %     0.47 %     0.51 %     0.48 %
Nonperforming assets to total assets   0.19 %     0.23 %     0.32 %     0.34 %     0.33 %
Allowance for loan losses to nonaccrual loans   390 %     328 %     219 %     195 %     192 %
                   
Other information:                  
Net (recoveries) charge-offs $ (28 )   $ (115 )   $ (219 )   $ 211     $ 184  
Classified loans   23,421       23,050       26,910       28,731       32,408  
Nonperforming and other risk assets:                  
Nonaccrual loans   5,510       6,449       9,116       9,941       9,895  
Other real estate owned                            
Total nonperforming assets   5,510       6,449       9,116       9,941       9,895  
Restructured loans still accruing   575       804       839       852       921  
Loans past due 90 days or more and still accruing(2)   238       1,201       362       212       196  
Total nonperforming and other risk assets $ 6,323     $ 8,454     $ 10,317     $ 11,005     $ 11,012  
(1) Capital ratios are estimated, subject to regulatory filings.
(2) Includes $0.2 million, $0.3 million, $0.4 million, $0.2 million and $0.2 million of purchased credit impaired loans at March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021, respectively. As of December 31, 2021, there was one loan for $0.9 million, which was in the process of collection and guaranteed by the SBA.

Appendix A- 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, which totaled $22.6 million and $22.9 million at March 31, 2022 and December 31, 2021, respectively.

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 guaranteed loans, due to their 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 for loan losses 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   March 31,
2022
  December 31,
2021
  September 30,
2021
  June 30,
2021
  March 31,
2021
Shareholders’ equity   $ 254,804     $ 271,656     $ 268,569     $ 265,938     $ 254,448  
Less: Goodwill     18,724       18,724       18,724       18,724       18,724  
Other intangible assets     3,891       4,183       4,486       4,800       5,124  
Related tax effect     (817 )     (878 )     (942 )     (1,008 )     (1,076 )
Tangible common equity (non-GAAP)   $ 233,006     $ 249,627     $ 246,301     $ 243,422     $ 231,676  
                     
Common shares outstanding     11,079       11,183       11,205       11,263       11,251  
                     
Book value per share (most directly comparable GAAP based measure)   $ 23.00     $ 24.29     $ 23.97     $ 23.61     $ 22.62  
Intangible assets per share     1.97       1.97       1.99       2.00       2.03  
Tangible book value per share (non-GAAP)   $ 21.03     $ 22.32     $ 21.98     $ 21.61     $ 20.59  
Allowance for Loan Losses to Non-SBA Guaranteed Loans:      
       
  March 31, 2022   December 31, 2021
Allowance for loan losses $ 21,508     $ 21,180  
Gross loans   1,978,307       1,979,986  
less: SBA guaranteed loans   (124,545 )     (195,585 )
    Non-SBA guaranteed loans $ 1,853,762     $ 1,784,401  
       
Allowance for loan losses to non-SBA guaranteed loans   1.2 %     1.2 %

Appendix B- Investment Portfolio Concentrations

The following table summarizes the credit ratings and collateral associated with the Company’s investment security portfolio, excluding equity securities, at March 31, 2022:

(dollars in thousands)

Sector Portfolio Mix   Amortized Book   Fair Value   Credit Enhancement   AAA   AA   A   BBB   NR   Collateral Type
Unsecured ABS 1 %   $ 6,548   $ 6,549   33 %   %   %   %   %   100 %   Unsecured Consumer Debt
Student Loan ABS 1       8,228     8,124   26                     100     Seasoned Student Loans
Federal Family Education Loan ABS 18       97,140     95,572   6     85     15                 Federal Family Education Loan (1)
PACE Loan ABS 1       3,350     3,267   5     100                     PACE Loans (4)
Non-Agency RMBS 5       25,135     22,303   31     44                 56     Reverse Mortgages (2)
Municipal – General Obligation 20       112,387     109,100       6     88     6              
Municipal – Revenue 24       132,534     128,460           83     12         5      
SBA ReRemic (5) 1       7,237     7,157           100                 SBA Guarantee (3)
Agency MBS 25       135,262     130,257           100                 Residential Mortgages (3)
U.S. Treasury securities 4       20,081     18,538           100                  
Bank CDs       249     249                       100     FDIC Insured CD
  100 %   $ 548,151   $ 529,576       19 %   70 %   4 %   %   7 %    
                                       
(1) Minimum of 18% guaranteed by U.S. government
(2) Reverse mortgages fund over time and credit enhancement is estimated based on prior experience
(3) 74% guaranteed by U.S. government agencies
(4) PACE acronym represents Property Assessed Clean Energy loans
(5) SBA ReRemic acronym represents Re-Securitization of Real Estate Mortgage Investment Conduits
                                       
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+

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. Forward-looking statements are statements that include projections, predictions, expectations, estimates or beliefs about events or results or otherwise are not statements of historical factors, many of which, by their nature, are inherently uncertain and beyond the Company’s control, and include, but are not limited to, statements related to new business development, new loan opportunities, growth in the balance sheet and fee-based revenue lines of business, merger and acquisition activity, reducing risk assets and mitigating losses in the future. 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 achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, successful merger and acquisition activity and continued reductions in risk assets or mitigate losses in the future. In addition to risks and uncertainties related to the COVID-19 pandemic (including those related to variants) 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 2021 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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