• Net income of $32.9 million and diluted earnings per share of $2.96 for the year ended December 31, 2021 compared to $26.5 million and diluted earnings per share of $2.40 for the year ended December 31, 2020; net income of $6.7 million for the quarter; diluted fourth quarter 2021 earnings per share of $0.60 compared to diluted earnings per share of $0.65 in the third quarter of 2021 and $0.91 in the fourth quarter of 2020
  • Fourth quarter commercial loan growth, excluding Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans, was $110.5 million, or 34% annualized; full year commercial loan growth, excluding SBA PPP loans, was $268.3 million, or 24%
  • Net interest margin increased to 3.35% in the fourth quarter of 2021 from 3.03% in the third quarter of 2021; some excess liquidity was deployed into commercial loan production and the cost of funds continued to decline
  • Tangible book value per share(1) increased to $22.32 at December 31, 2021 from $21.98 at September 30, 2021, and $19.93 at December 31, 2020
  • Noninterest income of $7.3 million in the fourth quarter of 2021 compared to $7.7 million in the third quarter of 2021; the third quarter included $0.5 million in gains from the sales of asset-backed securities
  • A provision for loan losses of $1.1 million was recorded in the fourth quarter of 2021 compared to $0.4 million in the third quarter of 2021 reflecting continued commercial loan growth in both periods; the provision for loan losses in the third quarter of 2021 included a COVID-19 reserve reversal of $1.0 million
  • The SBA PPP loan portfolio averaged $232.2 million in the three months ended December 31, 2021 as compared to $303.2 million in the three months ended September 30, 2021
  • Noninterest expenses increased by $1.3 million to $20.3 million in the fourth quarter of 2021 from $19.0 million in the third quarter of 2021; performance-based compensation increases were earned in the period due to individual production, the Company's performance exceeding targets and other employee incentives
  • The Company repurchased 32,652 shares of its common stock at an average price of $24.17 per share during the three months ended December 31, 2021
  • The Board of Directors declared a cash dividend of $0.19 per common share, payable February 8, 2022, to shareholders of record as of February 1, 2022

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

SHIPPENSBURG, Pa., Jan. 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 December 31, 2021. Net income totaled $6.7 million for the three months ended December 31, 2021, compared with $7.2 million for the three months ended September 30, 2021 and $10.1 million for the three months ended December 31, 2020. Diluted earnings per share totaled $0.60 for the three months ended December 31, 2021, compared with $0.65 for the three months ended September 30, 2021 and $0.91 for the three months ended December 31, 2020.

Thomas R. Quinn, Jr., President & CEO, commented, “Orrstown generated record earnings in 2021 in a challenging and unprecedented operating environment. The past two years have highlighted the dedication and commitment of our employees to both the Company and the communities we serve. In the fourth quarter, our exceptional commercial lending team continued to originate loans at a tremendous pace with the momentum expected to continue into 2022. The deployment of excess cash into higher earning assets drove a substantial improvement in our net interest margin. We expect that commercial loan production will contribute significantly towards offsetting a decline in PPP income in 2022. Orrstown continues to benefit from the new relationships formed through the SBA PPP program. Our team will be rewarded for our record performance in 2021 and this resulted in elevated expenses in the fourth quarter. We will continue to invest in our people and infrastructure as opportunities arise to build on the growth trajectory of the Company.”

Mr. Quinn continued, “Despite a strong economic recovery in 2021 and anticipated market interest rate increases over the next year, many challenges remain nationwide including the continued impact of COVID-19, wage pressures and inflation. In this unique environment, Orrstown is making every effort to ensure the safety and well-being of our employees and clients. As we proactively work through these concerns, the Company remains well positioned for a rising rate environment and we anticipate another successful year in 2022. This should further enable us to transform the Company through an increased focus on automation and digital banking.”

DISCUSSION OF RESULTS

Balance Sheet

Loans

Loans held for investment, which includes SBA PPP loans, increased by $40.2 million from September 30, 2021 to December 31, 2021, or 8% annualized, as the impact of SBA PPP loan forgiveness was offset by net commercial loan production. Excluding SBA PPP loans, total loans increased by $110.2 million from September 30, 2021 to December 31, 2021, or 26% annualized. SBA PPP loans, net of deferred fees and costs, declined by $70.0 million to $189.9 million at December 31, 2021 from $259.9 million at September 30, 2021 due to forgiveness activity. Commercial loans, excluding SBA PPP loans, increased by $110.5 million, or 34% annualized, from September 30, 2021 to December 31, 2021. The commercial loan pipeline is strong heading into the first quarter of 2022.

The remaining gross balance of SBA PPP loans is $195.3 million at December 31, 2021. Net deferred SBA PPP fees of $5.5 million remain at December 31, 2021, which are expected to mostly be earned by the end of 2022.

Home equity lines of credit increased by $6.7 million, or 17% annualized, in the fourth quarter of 2021. Residential mortgage loans declined by $4.5 million, or 9% annualized, in the three months ended December 31, 2021. Other installment loans decreased by $1.5 million, or 30% annualized, in the three months ended December 31, 2021. Consumer portfolio net runoff has slowed since the beginning of 2021. Overall loan growth, excluding SBA PPP loans, was 14% for the year ended December 31, 2021.

Investment Securities

Investment securities increased by $27.6 million to $479.7 million at December 31, 2021 compared to $452.1 million at September 30, 2021. During the fourth quarter of 2021, the Bank purchased mortgage-backed securities and municipal securities totaling $38.1 million. See Appendix C for a summary of the Bank's investment securities at December 31, 2021, highlighting the concentrations, credit ratings and credit enhancement levels of the portfolio at such date.

Deposits

Deposits decreased by $37.2 million, or 6% annualized, remaining at $2.5 billion at December 31, 2021 compared to September 30, 2021. In the fourth quarter of 2021, interest-bearing demand deposits decreased by $33.1 million, or 14.0% annualized and certificates of deposit decreased by $25.4 million, or 31% annualized. These decreases were partially offset by increases in noninterest-bearing demand deposits of $7.9 million, or 6% annualized and money market and savings deposits of $13.4 million, or 8% annualized. Deposits rose by $108.0 million, or 5%, from December 31, 2020 to December 31, 2021 due primarily to SBA PPP loan funding combined with clients continuing to maintain deposit balances in excess of historical norms. The Bank's loan-to-deposit ratio was 80% at December 31, 2021, an increase of 2% from September 30, 2021. On a longer-term basis, the Bank is targeting a loan-to-deposit ratio of 90%.

Income Statement

Net Interest Income and Margin

Net interest income increased by $2.0 million to $22.6 million for the three months ended December 31, 2021 compared to the three months ended September 30, 2021. The net interest margin increased to 3.35% in the fourth quarter of 2021 from 3.03% in the third quarter of 2021. The increase in net interest margin was a result of an increase in interest income from SBA PPP loan forgiveness (12 basis points) and commercial loan production (4 basis points), a decrease in average cash (11 basis points) and a decrease in cost of funds (3 basis points).

For the three months ended December 31, 2021 and September 30, 2021, there were $66.9 million and $98.2 million of SBA PPP loans forgiven, respectively. Interest income recognized on SBA PPP loans totaled $3.8 million in the three months ended December 31, 2021 as compared to $3.4 million in the three months ended September 30, 2021. This increase is due to the accretion and forgiveness of the remaining SBA PPP loans with higher fees.

The cost of deposits was 0.12% in the fourth quarter of 2021, which is down from 0.15% in the third quarter of 2021 and 0.33% in the fourth quarter of 2020. Rate reductions in the first and third quarters of 2021 combined with the continued maturity of higher yielding certificates of deposit drove this decrease.

Average cash and cash equivalents decreased from $347.2 million in the three months ended September 30, 2021 to $250.3 million in the three months ended December 31, 2021. The decrease reflects the Company’s strategy to reduce excess cash balances through increased commercial loan production.

Provision for Loan Losses

Asset quality metrics remained strong and trended positively in the fourth quarter. The allowance for loan losses totaled $21.2 million at December 31, 2021, compared with $20.0 million at September 30, 2021, due to continued commercial loan growth. Total classified loans decreased by $3.8 million, or 14%, to $23.1 million at December 31, 2021 from $26.9 million at September 30, 2021.

Net recoveries were $0.1 million for the three months ended December 31, 2021 compared to net recoveries of $0.2 million for the three months ended September 30, 2021. Nonperforming loans decreased by $2.6 million to $6.5 million at December 31, 2021 from $9.1 million at September 30, 2021 due to the payoff of one loan. Nonperforming loans were 0.33% of gross loans at December 31, 2021 and 0.47% of gross loans at September 30, 2021. The ratio of the allowance for loan losses to nonaccrual loans was 328% at December 31, 2021 compared to 219% at September 30, 2021. The allowance for loan losses to non-SBA guaranteed loans(1) remained steady at 1.2% at December 31, 2021 and September 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 $1.1 million in the three months ended December 31, 2021. This compares to provision expense of $0.4 million and $0.3 million recorded in the three months ended September 30, 2021 and December 31, 2020, respectively. The provision for loan losses in the third quarter of 2021 included a COVID-19 reserve reversal of $1.0 million.

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

Noninterest Income

Noninterest income totaled $7.3 million in the three months ended December 31, 2021 compared with $7.7 million in the three months ended September 30, 2021 and $7.2 million in the three months ended December 31, 2020.

Investment securities gains decreased by $0.5 million in the fourth quarter of 2021. The decrease reflects gains on the sales of $72.8 million of asset-backed securities in the third quarter of 2021 compared to no such sales during the fourth quarter of 2021.

Total wealth management income was $2.9 million for both the three months ended December 31, 2021 and September 30, 2021 compared to $2.6 million in the fourth quarter of 2020. Assets under management have increased by $149.1 million to $1.9 billion at December 31, 2021 from $1.7 billion at December 31, 2020.

Mortgage banking income decreased by $0.1 million from the third quarter of 2021 to $1.2 million in the fourth quarter of 2021. There was a decrease of $0.3 million in the fair value of the residential mortgage loans held for sale and interest rate lock commitments due a reduced pipeline during the fourth quarter. Offsetting this was a reduction of $0.3 million in the mortgage servicing rights valuation allowance. Mortgage loans sold totaled $43.7 million in the fourth quarter of 2021 compared with $48.0 million in the third quarter of 2021 and $60.7 million in the fourth quarter of 2020. As of December 31, 2021, the Bank serviced $502.5 million of residential mortgage loans, which is up by $13.9 million from September 30, 2021. Mortgage banking income was $5.9 million for the year ended December 31, 2021 compared to $5.3 million for the year ended December 31, 2020.

Other income increased by $0.2 million to $1.0 million in the fourth quarter of 2021 compared to the third quarter of 2021. The fourth quarter included $0.3 million in gains from the sales of two properties, while the third quarter included $0.2 million in tax credits from the Bank's investment in solar renewable energy partnerships.

Noninterest Expenses

Noninterest expenses increased by $1.3 million to $20.3 million in the three months ended December 31, 2021 from the three months ended September 30, 2021.

Salaries and benefits increased by $0.6 million to $12.1 million for the three months ended December 31, 2021 from the three months ended September 30, 2021. The increase was primarily attributed to performance-based incentive compensation earned in the period of $0.5 million resulting from strong individual production, Company performance exceeding targets and other employee incentives, and a liability of $0.3 million recorded for the carryover of paid time off, which increases were partially offset by a decrease of $0.3 million in employee benefit costs.

For the three months ended December 31, 2021, professional services expense increased $0.1 million to $0.7 million from the three months ended September 30, 2021 due to legal and consulting services.

Taxes other than income increased by $0.4 million for the three months ended December 31, 2021 from the three months ended September 30, 2021 due to an increase in Pennsylvania Bank Shares Tax expense and decrease in tax credits associated with contributions to the Pennsylvania Educational Improvement Tax Credit Program.

Other operating expenses decreased by $0.1 million to $2.2 million for the three months ended December 31, 2021 from the three months ended September 30, 2021. During the third quarter of 2021, the Company recognized a $0.5 million loss from the termination of a cash flow hedge derivative. For the three months ended December 31, 2021, there was an increase in the unfunded commitment reserve of $0.2 million due to the increase in commercial construction lines compared to no reserve in the three months ended September 30, 2021.

Income Taxes

The Company's effective tax rate for the fourth quarter of 2021 was 21.1% compared with 18.9% for the third quarter of 2021. For the years ended December 31, 2021 and 2020, the effective tax rates were 19.6% and 18.6%, respectively. The Company's effective tax rate for the year ended December 31, 2021 and 2020 are 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 is consistent with higher levels of pre-tax income and the impact it had on our tax rate for the year.

Capital

Shareholders’ equity totaled $271.7 million at December 31, 2021, an increase of $3.1 million from $268.6 million at September 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 $22.32 per share at December 31, 2021, an increase of 12.0%.

The Company's tangible common equity ratio increased to 8.8% at December 31, 2021 from 8.6% at September 30, 2021. The Company's Tier 1 leverage ratio was 8.5% at December 31, 2021 and 8.3% at September 30, 2021. The Company's total risk-based capital ratio was 15.0% at December 31, 2021 and 15.6% at September 30, 2021 as the Company has been deploying its cash into commercial lending.

The Board of Directors approved a quarterly dividend of $0.19 per share, payable February 8, 2022, to shareholders of record as of February 1, 2022. The dividend payout ratio totaled 31% for the three months ended December 31, 2021 compared to 29% for the three months ended September 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.

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

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 Year Ended
 December 31, December 31, December 31, December 31,
(Dollars in thousands, except per share amounts) 2021   2020   2021   2020 
        
Profitability for the period:       
Net interest income$22,598  $23,729  $86,974  $83,607 
Provision for loan losses 1,100   300   1,090   5,325 
Noninterest income 7,293   7,181   29,152   28,309 
Noninterest expenses 20,290   18,080   74,141   74,080 
Income before income taxes 8,501   12,530   40,895   32,511 
Income tax expense 1,795   2,471   8,014   6,048 
Net income available to common shareholders$6,706  $10,059  $32,881  $26,463 
        
Financial ratios:       
Return on average assets (1) 0.93%  1.47%  1.14%  1.00%
Return on average equity (1) 9.93%  17.01%  12.54%  11.66%
Net interest margin (1) 3.35%  3.73%  3.25%  3.44%
Efficiency ratio 67.9%  58.5%  63.8%  66.2%
Income per common share:       
Basic$0.61  $0.92  $3.00  $2.42 
Diluted$0.60  $0.91  $2.96  $2.40 
        
Average equity to average assets 9.34%  8.65%  9.06%  8.58%
        
(1) Annualized.       


ORRSTOWN FINANCIAL SERVICES, INC.   
FINANCIAL HIGHLIGHTS (Unaudited)   
(continued)   
 December 31, December 31,
  2021   2020 
At period-end:   
Total assets$2,834,565  $2,750,572 
Total deposits 2,464,929   2,356,880 
Loans, net of allowance for loan losses 1,958,806   1,959,539 
Loans held-for-sale, at fair value 8,868   11,734 
Securities available for sale 472,438   466,465 
Borrowings 25,197   77,511 
Subordinated notes 31,963   31,903 
Shareholders' equity 271,656   246,249 
    
Credit quality and capital ratios (1):   
Allowance for loan losses to total loans 1.07%  1.02%
Total nonaccrual loans to total loans 0.33%  0.52%
Nonperforming assets to total assets 0.23%  0.37%
Allowance for loan losses to nonaccrual loans 328%  195%
Total risk-based capital:   
Orrstown Financial Services, Inc. 15.0%  15.6%
Orrstown Bank 14.0%  14.7%
Tier 1 risk-based capital:   
Orrstown Financial Services, Inc. 12.2%  12.5%
Orrstown Bank 12.9%  13.5%
Tier 1 common equity risk-based capital:   
Orrstown Financial Services, Inc. 12.2%  12.5%
Orrstown Bank 12.9%  13.5%
Tier 1 leverage capital:   
Orrstown Financial Services, Inc. 8.5%  8.1%
Orrstown Bank 8.9%  8.7%
    
Book value per common share$24.29  $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)December 31, 2021 December 31, 2020
Assets   
Cash and due from banks$21,217  $26,203 
Interest-bearing deposits with banks 187,493   99,055 
Cash and cash equivalents 208,710   125,258 
Restricted investments in bank stocks 7,252   10,563 
Securities available for sale (amortized cost of $466,806 and $460,999 at December 31, 2021 and December 31, 2020, respectively) 472,438   466,465 
Loans held for sale, at fair value 8,868   11,734 
Loans 1,979,986   1,979,690 
Less: Allowance for loan losses (21,180)  (20,151)
Net loans 1,958,806   1,959,539 
Premises and equipment, net 34,045   35,149 
Cash surrender value of life insurance 70,217   68,554 
Goodwill 18,724   18,724 
Other intangible assets, net 4,183   5,458 
Accrued interest receivable 8,234   8,927 
Other assets 43,088   40,201 
Total assets$2,834,565  $2,750,572 
Liabilities   
Deposits:   
Noninterest-bearing$553,238  $456,778 
Interest-bearing 1,911,691   1,900,102 
Total deposits 2,464,929   2,356,880 
Securities sold under agreements to repurchase 23,301   19,466 
FHLB advances and other 1,896   58,045 
Subordinated notes 31,963   31,903 
Accrued interest and other liabilities 40,820   38,029 
Total liabilities 2,562,909   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; 11,258,167 shares issued and 11,183,050 outstanding at December 31, 2021; 11,257,046 shares issued and 11,201,317 outstanding at December 31, 2020 586   586 
Additional paid—in capital 189,689   189,066 
Retained earnings 78,700   54,099 
Accumulated other comprehensive income 4,449   3,346 
Treasury stock— 75,117 and 55,729 shares, at cost at December 31, 2021 and December 31, 2020, respectively (1,768)  (848)
Total shareholders’ equity 271,656   246,249 
Total liabilities and shareholders’ equity$2,834,565  $2,750,572 


ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
         
  Three Months Ended Twelve Months Ended
  December 31, December 31, December 31, December 31,
(In thousands, except per share amounts)  2021  2020  2021  2020 
Interest income        
Loans $21,503 $23,887 $84,227 $87,492 
Investment securities - taxable  1,615  2,080  6,622  10,458 
Investment securities - tax-exempt  703  445  2,493  1,566 
Short-term investments  98  14  353  115 
Total interest income  23,919  26,426  93,695  99,631 
Interest expense        
Deposits  789  1,862  4,199  12,009 
Securities sold under agreements to repurchase  7  13  31  85 
FHLB advances and other  23  320  482  1,924 
Subordinated notes  502  502  2,009  2,006 
Total interest expense  1,321  2,697  6,721  16,024 
Net interest income  22,598  23,729  86,974  83,607 
Provision for loan losses  1,100  300  1,090  5,325 
Net interest income after provision for loan losses  21,498  23,429  85,884  78,282 
Noninterest income        
Service charges  960  999  3,718  3,557 
Interchange income  1,080  916  4,129  3,423 
Swap fee income  158  320  293  847 
Wealth management income  2,897  2,615  11,467  9,733 
Mortgage banking activities  1,225  1,348  5,909  5,274 
Gains on sale of portfolio loans  —  —  —  2,803 
Investment securities gains (losses)  3  28  638  (16)
Other income  970  955  2,998  2,688 
Total noninterest income  7,293  7,181  29,152  28,309 
Noninterest expenses        
Salaries and employee benefits  12,095  10,998  44,002  43,350 
Occupancy, furniture and equipment  2,554  2,467  9,846  9,516 
Data processing, telephone, and communication  1,020  954  4,061  3,574 
Advertising and bank promotions  744  507  2,178  1,660 
FDIC insurance  246  195  816  686 
Professional services  693  780  2,555  3,120 
Taxes other than income  392  240  1,321  1,144 
Intangible asset amortization  303  345  1,275  1,569 
Merger related and branch consolidation expenses  —  —  —  1,310 
Insurance claim recovery  —  —  —  (486)
Other operating expenses  2,243  1,594  8,087  8,637 
Total noninterest expenses  20,290  18,080  74,141  74,080 
Income before income tax expense  8,501  12,530  40,895  32,511 
Income tax expense  1,795  2,471  8,014  6,048 
Net income $6,706 $10,059 $32,881 $26,463 
         
Share information:        
Basic earnings per share $0.61 $0.92 $3.00 $2.42 
Diluted earnings per share $0.60 $0.91 $2.96 $2.40 
Weighted average shares - basic  10,939  10,953  10,967  10,942 
Weighted average shares - diluted  11,113  11,057  11,106  11,034 


ORRSTOWN FINANCIAL SERVICES, INC.    
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
 Three Months Ended
 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020
   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-
(Dollars in thousands)Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets                             
Federal funds sold & interest-bearing bank balances$250,336 $98  0.16% $347,242 $135  0.15% $290,039 $81  0.11% $145,595 $39  0.11% $48,019 $14  0.12%
Investment securities (1) 477,217  2,506  2.08   464,417  2,339  2.00   438,110  2,421  2.22   468,273  2,512  2.18   486,613  2,643  2.16 
Loans (1)(2)(3) 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   2,015,749  23,960  4.73 
Total interest-earning assets 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   2,550,381  26,617  4.15 
Other assets 187,622      195,089      188,810      182,737      182,764    
Total$2,890,189     $2,926,674     $2,931,559     $2,829,824     $2,733,145    
Liabilities and Shareholders' Equity                             
Interest-bearing demand deposits$1,430,845  273  0.08  $1,411,243  286  0.08  $1,394,384  292  0.08  $1,334,219  438  0.13  $1,283,024  655  0.20 
Savings deposits 215,957  55  0.10   209,112  53  0.10   200,439  50  0.10   183,576  45  0.10   172,068  52  0.12 
Time deposits 313,148  461  0.58   349,215  598  0.68   382,467  739  0.78   397,271  909  0.93   411,395  1,155  1.12 
Total interest-bearing deposits 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   1,866,487  1,862  0.40 
Securities sold under agreements to repurchase 24,069  7  0.12   23,578  8  0.13   22,417  8  0.14   21,452  9  0.17   20,055  13  0.26 
FHLB advances and other 1,956  23  4.70   45,071  123  1.09   57,896  164  1.14   58,000  171  1.20   135,558  320  0.94 
Subordinated notes 31,954  503  6.29   31,938  503  6.29   31,924  502  6.29   31,909  502  6.29   31,895  502  6.29 
Total interest-bearing liabilities 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   2,053,995  2,697  0.52 
Noninterest-bearing demand deposits 559,882      548,923      545,617      516,849      406,454    
Other 42,380      38,409      37,561      36,244      36,216    
Total Liabilities 2,620,191      2,657,489      2,672,705      2,579,520      2,496,665    
Shareholders' Equity 269,998      269,185      258,854      250,304      236,480    
Total$2,890,189     $2,926,674     $2,931,559     $2,829,824     $2,733,145    
Taxable-equivalent net interest income / net interest spread   22,841  3.29%    20,848  2.96%    22,122  3.15%    22,051  3.28%    23,920  3.63%
Taxable-equivalent net interest margin    3.35%     3.03%     3.24%     3.38%     3.73%
Taxable-equivalent adjustment   (243)      (228)      (221)      (196)      (192)  
Net interest income  $22,598      $20,620      $21,901      $21,855      $23,728   
Ratio of average interest-earning assets to average interest-bearing liabilities    134%     132%     131%     131%     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
 


ORRSTOWN FINANCIAL SERVICES, INC.      
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
 Twelve Months Ended
 December 31, 2021 December 31, 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$258,834 $353  0.14% $32,519 $115  0.35%
Investment securities (1) 462,035  9,779  2.12   494,372  12,440  2.52 
Loans (1)(2)(3) 1,985,350  84,453  4.25   1,928,486  87,900  4.56 
Total interest-earning assets 2,706,219  94,585  3.50   2,455,377  100,455  4.09 
Other assets 188,596      190,470    
Total$2,894,815     $2,645,847    
Liabilities and Shareholders' Equity           
Interest-bearing demand deposits$1,392,996  1,287  0.09  $1,156,292  4,755  0.41 
Savings deposits 202,371  203  0.10   163,133  246  0.15 
Time deposits 360,264  2,709  0.75   452,298  7,008  1.55 
Total interest-bearing deposits 1,955,631  4,199  0.21   1,771,723  12,009  0.68 
Securities sold under agreements to repurchase 22,888  32  0.14   18,064  86  0.48 
FHLB advances and other 40,589  482  1.19   179,457  1,923  1.07 
Subordinated notes 31,931  2,009  6.29   31,874  2,006  6.29 
Total interest-bearing liabilities 2,051,039  6,722  0.33   2,001,118  16,024  0.80 
Noninterest-bearing demand deposits 542,952      381,869    
Other 38,665      35,960    
Total Liabilities 2,632,656      2,418,947    
Shareholders' Equity 262,159      226,900    
Total$2,894,815     $2,645,847    
Taxable-equivalent net interest income / net interest spread   87,863  3.17%    84,431  3.29%
Taxable-equivalent net interest margin    3.25%     3.44%
Taxable-equivalent adjustment   (889)      (824)  
Net interest income  $86,974      $83,607   
Ratio of average interest-earning assets to average interest-bearing liabilities    132%     123%
            
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


ORRSTOWN FINANCIAL SERVICES, INC.    
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
          
(In thousands, except per share amounts )December 31,
2021		 September 30,
2021		 June 30,
2021		 March 31,
2021		 December 31,
2020
Profitability for the quarter:         
Net interest income$22,598  $20,620  $21,901  $21,855  $23,729 
Provision for loan losses 1,100   365   625   (1,000)  300 
Noninterest income 7,293   7,651   6,664   7,544   7,181 
Noninterest expenses 20,290   19,035   17,033   17,783   18,080 
Income before income taxes 8,501   8,871   10,907   12,616   12,530 
Income tax expense 1,795   1,679   2,131   2,409   2,471 
Net income$6,706  $7,192  $8,776  $10,207  $10,059 
          
Financial ratios:         
Return on average assets (1) 0.93%  0.98%  1.20%  1.44%  1.47%
Return on average equity (1) 9.93%  10.69%  13.56%  16.31%  17.01%
Net interest margin (1) 3.35%  3.03%  3.24%  3.38%  3.73%
Efficiency ratio 67.9%  67.3%  59.6%  60.5%  58.5%
          
Per share information:         
Income per common share:         
Basic$0.61  $0.66  $0.80  $0.93  $0.92 
Diluted 0.60   0.65   0.79   0.92   0.91 
Book value 24.29   23.97   23.61   22.62   21.98 
Tangible book value (2) 22.32   21.98   21.61   20.59   19.93 
Cash dividends paid 0.19   0.19   0.18   0.18   0.17 
          
Average basic shares 10,939   10,979   10,975   10,975   10,953 
Average diluted shares 11,113   11,122   11,112   11,074   11,057 
(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)         
 December 31,
2021		 September 30,
2021		 June 30,
2021		 March 31,
2021		 December 31,
2020
Noninterest income:         
Service charges$960 $993 $880 $885 $999
Interchange income 1,080  1,030  1,064  955  916
Loan swap referral fees 158  67  15  53  320
Wealth management income 2,897  2,917  2,930  2,723  2,615
Mortgage banking activities 1,225  1,333  1,162  2,189  1,348
Other income 970  832  602  594  955
Investment securities gains 3  479  11  145  28
Total noninterest income$7,293 $7,651 $6,664 $7,544 $7,181
          
Noninterest expenses:         
Salaries and employee benefits$12,095 $11,498 $10,212 $10,197 $10,998
Occupancy, furniture and equipment 2,554  2,374  2,400  2,518  2,467
Data processing, telephone, and communication 1,020  990  1,032  1,019  954
Advertising and bank promotions 744  735  274  425  507
FDIC insurance 246  218  158  194  195
Professional services 693  562  579  721  780
Taxes other than income 392  16  462  451  240
Intangible asset amortization 303  314  324  334  345
Other operating expenses 2,243  2,328  1,592  1,924  1,594
Total noninterest expenses$20,290 $19,035 $17,033 $17,783 $18,080
          
 


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
 December 31,
2021		 September 30,
2021		 June 30,
2021		 March 31,
2021		 December 31,
2020
Balance Sheet at quarter end:         
Cash and cash equivalents$208,710  $311,415  $336,762  $326,245  $125,258 
Restricted investments in bank stocks 7,252   7,051   9,691   10,307   10,563 
Securities available for sale 472,438   445,018   450,402   407,690   466,465 
Loans held for sale, at fair value 8,868   6,412   8,092   11,449   11,734 
Loans:         
Commercial real estate:         
    Owner occupied 238,668   196,585   191,595   177,934   174,908 
    Non-owner occupied 551,783   509,703   471,541   415,219   409,567 
    Multi-family 93,255   112,002   112,420   111,757   113,635 
    Non-owner occupied residential 106,112   100,088   99,631   101,381   114,505 
Commercial and industrial (1) 485,728   540,205   599,123   750,831   647,368 
Acquisition and development:         
    1-4 family residential construction 12,279   12,246   9,686   12,138   9,486 
    Commercial and land development 93,925   71,784   55,330   45,229   51,826 
Municipal 14,989   13,631   14,452   19,238   20,523 
    Total commercial loans 1,596,739   1,556,244   1,553,778   1,633,727   1,541,818 
Residential mortgage:         
    First lien 198,831   203,360   211,918   225,247   244,321 
    Home equity – term 6,081   7,079   8,321   9,183   10,169 
    Home equity – lines of credit 160,705   154,004   149,601   153,169   157,021 
Installment and other loans 17,630   19,077   21,765   23,695   26,361 
Total loans 1,979,986   1,939,764   1,945,383   2,045,021   1,979,690 
Allowance for loan losses (21,180)  (19,965)  (19,381)  (18,967)  (20,151)
Net loans held-for-investment 1,958,806   1,919,799   1,926,002   2,026,054   1,959,539 
Goodwill 18,724   18,724   18,724   18,724   18,724 
Other intangible assets, net 4,183   4,486   4,800   5,124   5,458 
Total assets 2,834,565   2,870,182   2,912,717   2,963,534   2,750,572 
Total deposits 2,464,929   2,502,108   2,494,100   2,547,089   2,356,880 
Borrowings 25,197   29,598   80,709   80,736   77,511 
Subordinated notes 31,963   31,948   31,932   31,918   31,903 
Total shareholders' equity 271,656   268,569   265,938   254,448   246,249 

(1) This balance includes $189.9 million, $259.9 million, $355.6 million, $504.3 million and $403.3 million of SBA PPP loans, net of deferred fees and costs, at December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively.

ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
 December 31,
2021		 September 30,
2021		 June 30,
2021		 March 31,
2021		 December 31,
2020
Capital and credit quality measures (1):         
Total risk-based capital:         
Orrstown Financial Services, Inc 15.0%  15.6%  15.6%  16.2%  15.6%
Orrstown Bank 14.0%  14.7%  14.6%  15.3%  14.7%
Tier 1 risk-based capital:         
Orrstown Financial Services, Inc 12.2%  12.8%  12.7%  13.2%  12.5%
Orrstown Bank 12.9%  13.5%  13.5%  14.1%  13.5%
Tier 1 common equity risk-based capital:         
Orrstown Financial Services, Inc 12.2%  12.8%  12.7%  13.2%  12.5%
Orrstown Bank 12.9%  13.5%  13.5%  14.1%  13.5%
Tier 1 leverage capital:         
Orrstown Financial Services, Inc 8.5%  8.3%  8.0%  8.1%  8.1%
Orrstown Bank 8.9%  8.7%  8.5%  8.6%  8.7%
          
Average equity to average assets 9.34%  9.20%  8.83%  8.85%  8.65%
Allowance for loan losses to total loans 1.07%  1.03%  1.00%  0.93%  1.02%
Total nonaccrual loans to total loans 0.33%  0.47%  0.51%  0.48%  0.52%
Nonperforming assets to total assets 0.23%  0.32%  0.34%  0.33%  0.37%
Allowance for loan losses to nonaccrual loans 328%  219%  195%  192%  195%
          
Other information:         
Net (recoveries) charge-offs$(115) $(219) $211  $184  $(126)
Classified loans 23,050   26,910   28,731   32,408   33,147 
Nonperforming and other risk assets:         
Nonaccrual loans 6,449   9,116   9,941   9,895   10,310 
Other real estate owned —   —   —   —   — 
Total nonperforming assets 6,449   9,116   9,941   9,895   10,310 
Restructured loans still accruing 804   839   852   921   934 
Loans past due 90 days or more and still accruing (2) 1,201   362   212   196   554 
    Total nonperforming and other risk assets$8,454  $10,317  $11,005  $11,012  $11,798 
(1) Capital ratios are estimated, subject to regulatory filings.
(2) Includes $0.3 million, $0.4 million, $0.2 million, $0.2 million and $0.5 million of purchased credit impaired loans at December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021, and December 31, 2020, 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 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
 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 12/31/2021 12/31/2020
(In thousands)             
Pretax Items             
Branch consolidation expenses$— $—  $— $— $— $—  $1,310 
Gains (losses) on sale of properties 327  —   —  —  13  327   (170)
Net securities gains (losses) 3  479   11  145  28  638   (16)
(Loss) gain on swap termination —  (514)  —  —  226  (514)  226 
Earnings on life insurance proceeds —  —   —  —  58  —   58 
Gains on sale of portfolio loans —  —   —  —  —  —   2,803 
Accretion - recoveries on purchased credit impaired loans 34  15   23  256  779  328   2,304 
Solar partnership credit income —  230   —  —  264  230   264 
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 $22.9 million and $24.2 million at December 31, 2021 and December 31, 2020, respectively. Additionally, the Company incurred approximately $1.3 million in charges associated with branch consolidation efforts during the year ended December 31, 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 December 31,
2021		 September 30,
2021		 June 30,
2021		 March 31,
2021		 December 31,
2020
Shareholders' equity $271,656  $268,569  $265,938  $254,448  $246,249 
Less: Goodwill  18,724   18,724   18,724   18,724   18,724 
Other intangible assets  4,183   4,486   4,800   5,124   5,458 
Related tax effect  (878)  (942)  (1,008)  (1,076)  (1,146)
Tangible common equity (non-GAAP) $249,627  $246,301  $243,422  $231,676  $223,213 
           
Common shares outstanding  11,183   11,205   11,263   11,251   11,201 
           
Book value per share (most directly comparable GAAP based measure) $24.29  $23.97  $23.61  $22.62  $21.98 
Intangible assets per share  1.97   1.99   2.00   2.03   2.05 
Tangible book value per share (non-GAAP) $22.32  $21.98  $21.61  $20.59  $19.93 


Allowance to Non-SBA Guaranteed Loans:   
    
 December 31, 2021 September 30, 2021
Allowance for loan losses$21,180  $19,965 
Gross loans 1,979,986   1,939,764 
less: SBA guaranteed loans (195,585)  (261,138)
Non-SBA guaranteed loans$1,784,401  $1,678,626 
    
Allowance to non-SBA guaranteed loans 1.2%  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 December 31, 2021:

(dollars in thousands)

SectorPortfolio Mix Amortized Book Fair Value Credit Enhancement AAA AA A BBB NR Collateral Type
Unsecured ABS2% $7,458 $7,489 33% —% —% —% —% 100% Unsecured Consumer Debt
Student Loan ABS2   8,785  8,762 26  —  —  —  —  100  Seasoned Student Loans
Federal Family Education Loan ABS21   99,631  99,702 6  85  15  —  —  —  Federal Family Education Loan (1)
PACE Loan ABS1   3,591  3,636 6  100  —  —  —  —  PACE Loans
Non-Agency RMBS5   25,639  24,661 31  45  —  —  —  55  Reverse Mortgages (2)
Municipal - General Obligation20   92,895  97,696   7  86  7  —  —   
Municipal - Revenue20   92,542  95,674   —  73  16  —  11   
SBA ReRemic2   8,092  8,068   —  100  —  —  —  SBA Guarantee (3)
Agency MBS23   107,690  106,649   —  100  —  —  —  Residential Mortgages (3)
U.S. Treasury securities4   20,084  19,702   —  100  —  —  —   
Bank CDs—   249  249   —  —  —  —  100  FDIC Insured CD
 100% $466,656 $472,288   23% 64% 4% —% 9%  
                    
(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 $2.8 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; take advantage of market disruption; 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 omicron and delta 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 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.