Orrstown Financial Services, Inc. Reports Earnings for the

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  • Net income of $9.6 million and diluted earnings per share of $0.91 for the three months ended December 31, 2022 compared to a net loss of $4.8 million and diluted loss per share of $0.47 for the three months ended September 30, 2022; net income of $22.0 million and diluted earnings per share of $2.06 for the year ended December 31, 2022 compared to net income of $32.9 million and diluted earnings per share of $2.96 for the year ended December 31, 2021;
  • Excluding the impact from the third quarter provision for legal settlement (“legal settlement”) and restructuring charge, net income and diluted earnings per share were $34.8 million(1) and $3.25(1), respectively, for the year ended December 31, 2022;
  • Fourth quarter return on average assets of 1.33% and return on average equity of 17.28%;
  • Net interest income increased to $27.5 million for the three months ended December 31, 2022 compared to $25.5 million for the three months ended September 30, 2022 reflecting net interest margin expansion over that period;
  • Net interest margin, on a tax equivalent basis, increased to 4.14% in the fourth quarter of 2022 from 3.92% in the third quarter of 2022; net interest margin has increased as a result of loan growth and the rising interest rate environment;
  • Fourth quarter commercial loan growth, excluding SBA PPP loans, was $56.6 million, or 14% annualized; full year commercial loan growth, excluding SBA PPP loans, was $299.9 million, or 21%; consumer loans increased by $9.9 million, or 9% annualized, during the fourth quarter of 2022 compared to the third quarter of 2022; full year consumer loan growth was $47.3 million, or 12%;
  • Noninterest expenses decreased by $15.2 million to $21.2 million in the three months ended December 31, 2022 from $36.4 million in the three months ended September 30, 2022; excluding the impact of the restructuring charge and legal settlement, noninterest expenses were $21.2 million in the fourth quarter of 2022 compared to $20.3 million(1) during the third quarter of 2022;
  • Provision for loan losses was $0.6 million in the fourth quarter of 2022 compared to $1.5 million in the third quarter of 2022;
  • The Board of Directors increased the Company’s quarterly cash dividend, declaring a cash dividend of $0.20 per common share, payable February 14, 2023, to shareholders of record as of February 7, 2023.

SHIPPENSBURG, Pa., Jan. 24, 2023 (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 and year ended December 31, 2022. Net income totaled $9.6 million for the three months ended December 31, 2022, compared to a net loss of $4.8 million for the three months ended September 30, 2022 and net income of $6.7 million for the three months ended December 31, 2021. Diluted earnings per share totaled $0.91 for the three months ended December 31, 2022, compared to diluted loss per share of $0.47 for the three months ended September 30, 2022 and diluted earnings per share of $0.60 for the three months ended December 31, 2021. For the third quarter of 2022, excluding the impact from the restructuring charge and legal settlement, net income and diluted earnings per share were $7.9 million(1) and $0.751), respectively.

Net income totaled $22.0 million and $32.9 million for the years ended December 31, 2022 and 2021, respectively. Diluted earnings per share totaled $2.06 for the year ended December 31, 2022, compared to diluted earnings per share of $2.96 for the year ended December 31, 2021. Excluding the impact from the restructuring charge and legal settlement, net income and diluted earnings per share were $34.8 million(1) and $3.25(1) for the year ended December 31, 2022, respectively.

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

“Despite a decline of approximately $10.7 million in SBA PPP income from 2021 to 2022, Orrstown recorded net income of $34.8 million in 2022, excluding the impact of restructuring and legal settlement charges in the third quarter, compared to $32.9 million in 2021. Our performance demonstrates the payoff from the foundation that we have built over the past several years. Orrstown’s strong earnings power and the impact of past investments were further illustrated by our fourth quarter 2022 performance as we recorded a return on average assets of 1.33% and a return on average equity of 17.3%. We expect that the strategic actions taken in the third quarter will enable us to continue on our growth trajectory into 2023. We anticipate that the expected efficiencies from these actions will begin to positively impact the Company’s performance in 2023 and that the benefits of the reinvestment of resources into our digital footprint will be seen over time,” commented Thomas R. Quinn, Jr., President and Chief Executive Officer.

“We experienced net interest margin expansion to 4.14% in the fourth quarter due to the continued strong growth in our loan portfolio as well as the impact of interest rate increases. However, we do expect some margin contraction going forward due to competitive pressures on deposit pricing and increased usage of borrowings to fund growth. We are confident in the ability of our commercial and retail teams to continue to grow our balance sheet in the challenging economic environment that is anticipated in 2023. We believe that our disciplined approach to growth positions us for continued success.”

DISCUSSION OF RESULTS

Balance Sheet

Loans

Excluding SBA PPP loans, total loans increased by $66.5 million from September 30, 2022 to December 31, 2022, or 13% annualized. SBA PPP loans, net of deferred fees and costs, declined by $3.2 million to $13.8 million at December 31, 2022 from $17.0 million at September 30, 2022 due to forgiveness activity. Net deferred SBA PPP fees of $0.3 million remain at December 31, 2022. Commercial loans, excluding SBA PPP loans, increased by $56.6 million, or 14% annualized, from September 30, 2022 to December 31, 2022. Loans held for investment, which includes SBA PPP loans, increased by $63.3 million from September 30, 2022 to December 31, 2022, or 12% annualized, due to continued strong sales efforts.

The first lien residential mortgage portfolio grew by $8.9 million, or 16% annualized, in the three months ended December 31, 2022 from jumbo and adjustable-rate mortgage production. Home equity lines of credit increased by $3.0 million, or 7% annualized, in the three months ended December 31, 2022.

Investment Securities

Investment securities increased by $14.3 million to $524.4 million at December 31, 2022 compared to $510.1 million at September 30, 2022. During the fourth quarter of 2022, the Bank sold municipal securities totaling $28.2 million, which were offset by purchases of higher yielding securities totaling $42.0 million. These purchases were also offset by normal paydown activity of $7.7 million. Due to changes in market interest rates, net unrealized losses on investment securities declined by $4.9 million. In addition, FHLB stock increased $4.2 million due to an increase in borrowings during the fourth quarter of 2022. See Appendix B for a summary of the Bank’s investment securities at December 31, 2022, highlighting the concentrations, credit ratings and credit enhancement levels of the investment securities portfolio at such date.

Deposits

Deposits decreased by $29.6 million, or 5% annualized, totaling approximately $2.5 billion at both December 31, 2022 and September 30, 2022. In the fourth quarter of 2022, noninterest-bearing demand deposits and time deposits decreased by $60.1 million, or 42% annualized, and $2.9 million, or 5% annualized, respectively. These decreases were partially offset by increases in interest-bearing demand deposits by $14.2 million, or 6% annualized, and money market and savings deposits of $19.2 million, or 11% annualized. The decrease in deposits resulted primarily from clients utilizing their funds at a higher frequency and certificate of deposit runoff. The Bank’s loan-to-deposit ratio was 87% at December 31, 2022.

During the fourth quarter of 2022, the Bank announced that it had entered into a Purchase and Assumption Agreement providing for the sale of its Path Valley branch and associated deposit liabilities. Deposits held for assumption of approximately $31.7 million are reported within total deposits at cost and are comprised of $24.3 million in interest-bearing deposits and $7.4 million in non-interest bearing deposits. The transaction is expected to close in the second quarter of 2023.

Borrowings

FHLB advances and other borrowings increased by $104.5 million to $106.1 million at December 31, 2022 compared to $1.6 million at September 30, 2022. As utilization of excess liquidity by individuals and businesses and competition for deposits have increased, the Bank’s deposit balances declined slightly during the fourth quarter of 2022. The Bank opted to borrow funds to provide additional liquidity to meet the credit needs of its clients.

Income Statement

Net Interest Income and Margin

Net interest income increased by $2.0 million to $27.5 million for the three months ended December 31, 2022 compared to $25.5 million for the three months ended September 30, 2022. The net interest margin, on a tax equivalent basis, increased to 4.14% in the fourth quarter of 2022 from 3.92% in the third quarter of 2022. The increase in net interest margin was the result of growth in, and the impact of the rising interest rates on the loan and investment securities portfolios, partially offset by an increase in the cost of funds.

Interest income on loans increased by $3.8 million to $27.0 million for the three months ended December 31, 2022 compared to $23.2 million for the three months ended September 30, 2022. Loan growth and higher interest rates were the primary drivers of this increase. Interest income on loans for the three months ended December 31, 2022 included prepayment fee income of $0.4 million, an increase of $0.3 million, from $0.1 million for the three months ended September 30, 2022.

Interest income recognized on SBA PPP loans totaled $0.2 million in the three months ended December 31, 2022 compared to $0.5 million in the three months ended September 30, 2022.

Interest income on investment securities increased by $0.6 million to $4.9 million for the three months ended December 31, 2022 from $4.3 million for the third quarter of 2022. The increase reflects the impact of rising interest rates on investments for which resets occur at various frequencies and the additional yield generated from investments purchased during the third and fourth quarters of 2022.

Interest expense on interest-bearing liabilities increased by $2.6 million to $4.6 million for the three months ended December 31, 2022 compared to $2.0 million for the three months ended September 30, 2022 due to the increase in average interest-bearing deposits and borrowings and rising interest rates.

Provision for Loan Losses

The Company recorded a provision for loan losses of $0.6 million for the three months ended December 31, 2022 compared to $1.5 million for the three months ended September 30, 2022. Net charge-offs were $0.1 million for the three months ended December 31, 2022. The allowance for loan losses totaled $25.2 million at December 31, 2022, compared to $24.7 million at September 30, 2022. The allowance for loan losses to total loans remained relatively consistent at 1.17% at December 31, 2022 compared to 1.18% at September 30, 2022.

During the fourth quarter of 2022, the Bank downgraded one commercial construction loan with an outstanding balance of $15.4 million to substandard and placed it into non-accrual status. Although the loan is not past due, management determined that it was appropriate to place the loan on non-accrual status due to other relevant factors. At this time, management deems the value of underlying collateral sufficient to cover any potential losses on this loan. Management does not believe that this credit is indicative of overall stress in the loan portfolio. As a result of this downgrade, total nonaccrual loans to total loans increased to 0.96% at December 31, 2022 from 0.25% at September 30, 2022. Management believes the allowance for loan losses to be adequate based on current asset quality metrics and economic conditions.

Noninterest Income

Noninterest income totaled $6.2 million in the three months ended December 31, 2022 compared to $6.1 million in the three months ended September 30, 2022.

Mortgage banking income increased by $1.2 million from a loss of $1.0 million in the third quarter of 2022 to income of $0.2 million in the fourth quarter of 2022. Market conditions negatively impacted mortgage production in the second half of the year, initially resulting from low housing inventory. In the fourth quarter of 2022, while inventory improved, higher interest rates drove a further drop in mortgage demand, which caused additional declines in in the residential mortgage loan pipeline and secondary market sales during the three months ended December 31, 2022. Mortgage loans sold totaled $8.6 million in the fourth quarter of 2022 compared to $12.7 million in the third quarter of 2022 and $43.7 million in the fourth quarter of 2021. The Company experienced marginal improvement in the fair value of held-for-sale loans during the fourth quarter of 2022 as compared to a loss of $1.4 million from a fair value reduction in the third quarter of 2022.

Swap fee income increased by $0.5 million to $0.7 million for the three months ended December 31, 2022 compared to $0.2 million for the three months ended September 30, 2022. Swap fee income fluctuates based on market conditions and client demand.

Wealth management income decreased by $0.5 million to $2.5 million during the fourth quarter of 2022 from $3.0 million during the third quarter of 2022 due to unfavorable conditions in the stock and bond markets.

Other income decreased by $1.0 million to $0.7 million for the three months ended December 31, 2022 from $1.7 million during the three months ended September 30, 2022. The third quarter of 2022 included income from distributions on investments in non-housing limited partnerships totaling $1.0 million.

Noninterest Expenses

Noninterest expenses decreased by $15.2 million to $21.2 million in the three months ended December 31, 2022 from $36.4 million in the three months ended September 30, 2022. During the third quarter of 2022, the Company recorded a restructuring charge of $3.2 million and a provision for legal settlement of $13.0 million. Excluding the impact from the restructuring charge and legal settlement, noninterest expenses increased by $0.9 million to $21.2 million in the fourth quarter of 2022 from $20.3 million(1) during the third quarter of 2022.

Advertising and bank promotions expense increased by $0.5 million to $0.8 million in the three months ended December 31, 2022 from $0.3 million for the three months ended September 30, 2022 due to $0.4 million in contributions to tax credit programs during the fourth quarter of 2022. Taxes other than income decreased by $0.3 million to $0.2 million in the three months ended December 31, 2022 compared to $0.5 million in the three months ended September 30, 2022. This decrease reflects the tax credits recognized on these contributions during the fourth quarter of 2022.

Other operating expenses increased $0.8 million to $2.6 million during the fourth quarter of 2022 compared to $1.8 million during the third quarter of 2022. This increase was primarily caused by an increase in mark-to-market losses on derivatives of $0.4 million and customer fraud losses of $0.2 million. The remaining fluctuation of approximately $0.2 million is attributable to normal business operations.

Salaries and benefits expense was $12.7 million for both the three months ended December 31, 2022 and September 30, 2022, which remained elevated in the latter part of 2022 due to incentive compensation increases, the filling of several vacancies, and higher healthcare costs.

Income Taxes

The Company’s effective tax rate for the fourth quarter of 2022 was 19.0% compared to 24.6% for the third quarter of 2022. The net loss incurred during the third quarter of 2022, due to the restructuring charge and legal settlement, resulted in an income tax benefit. The Company’s effective tax rate for the three months ended December 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 effective tax rate for the year ended December 31, 2022 is 17.2% compared to 19.6% for the year ended December 31, 2021. The decrease in the effective tax rate was primarily due to a decrease in taxable income resulting from the restructuring charge and legal settlement, an increase in tax-exempt interest income on loans and investment securities due to the rising interest rates, and additional tax credits.

Capital

Shareholders’ equity totaled $228.9 million at December 31, 2022, an increase of $11.5 million from $217.4 million at September 30, 2022. The increase was primarily attributable to net income of $9.6 million and other comprehensive income of $3.6 million, partially offset by dividends paid of $2.0 million for the three months ended December 31, 2022. Other comprehensive income increased primarily due to a decline of $3.9 million in net unrealized losses on investment securities. Tangible book value per share(1) increased from $18.34 per share at September 30, 2022 to $19.47 per share at December 31, 2022 primarily as a result of the increase in shareholders’ equity.

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

The Company’s tangible common equity ratio increased to 7.1% at December 31, 2022 from 6.9% at September 30, 2022 primarily due to an increase in tangible equity from net income and the decrease in unrealized losses on available-for-sale securities. The Company’s total risk-based capital ratio was 12.7% at both December 31, 2022 and September 30, 2022. An increase in risk-based capital from net income was offset by an increase in risk weighted assets primarily caused by loan growth. The Company’s Tier 1 leverage ratio increased to 8.5% at December 31, 2022 from 8.4% at September 30, 2022 primarily due to net income partially offset by the increase in average assets caused by loan growth. At December 31, 2022, all four capital ratios applicable to the Company were above regulatory minimum levels to be deemed “well capitalized” under current bank regulatory guidelines.

The Board of Directors approved an increase to the quarterly dividend to $0.20 per share, payable on February 14, 2023, to shareholders of record as of February 7, 2023. The dividend payout ratio totaled 21% for the three months ended December 31, 2022. 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.

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Investor Relations Contact:
Neelesh Kalani
Executive Vice President, Chief Financial Officer
Phone (717) 510-7097
ORRSTOWN FINANCIAL SERVICES, INC.              
FINANCIAL HIGHLIGHTS (Unaudited)              
               
               
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,   December 31,   December 31,
(Dollars in thousands)   2022       2021       2022       2021  
               
Profitability for the period:              
Net interest income $ 27,484     $ 22,598     $ 99,630     $ 86,974  
Provision for loan losses   585       1,100       4,160       1,090  
Noninterest income   6,226       7,293       26,952       29,152  
Noninterest expenses   21,236       20,290       95,806       74,141  
Income before income tax expense   11,889       8,501       26,616       40,895  
Income tax expense   2,263       1,795       4,579       8,014  
Net income available to common shareholders $ 9,626     $ 6,706     $ 22,037     $ 32,881  
               
Financial ratios:              
Return on average assets(1)   1.33 %     0.93 %     0.77 %     1.14 %
Return on average assets, adjusted(1) (2) (3)   1.33 %     0.93 %     1.22 %     1.14 %
Return on average equity(1)   17.28 %     9.93 %     9.02 %     12.54 %
Return on average equity, adjusted(1) (2) (3)   17.28 %     9.93 %     14.25 %     12.54 %
Net interest margin(1)   4.14 %     3.35 %     3.81 %     3.25 %
Efficiency ratio   63.0 %     67.9 %     75.7 %     63.8 %
Efficiency ratio, adjusted(2) (3)   63.0 %     67.9 %     62.9 %     63.8 %
Income per common share:              
Basic $ 0.93     $ 0.61     $ 2.09     $ 3.00  
Basic, adjusted(2) (3) $ 0.93     $ 0.61     $ 3.30     $ 3.00  
Diluted $ 0.91     $ 0.60     $ 2.06     $ 2.96  
Diluted, adjusted(2) (3) $ 0.91     $ 0.60     $ 3.25     $ 2.96  
               
Average equity to average assets   7.68 %     9.34 %     8.59 %     9.06 %
               
(1)Annualized.              
(2)Ratio has been adjusted for the restructuring charge and provision for legal settlement for the twelve months ended December 31, 2022.
(3)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.      
FINANCIAL HIGHLIGHTS(Unaudited)      
(continued)      
  December 31,   December 31,
(Dollars in thousands, except per share amounts)   2022       2021  
At period-end:      
Total assets $ 2,922,408     $ 2,834,565  
Total deposits   2,476,246       2,464,929  
Loans, net of allowance for loan losses   2,126,054       1,958,806  
Loans held-for-sale, at fair value   10,880       8,868  
Securities available for sale   513,728       472,438  
Borrowings   123,390       25,197  
Subordinated notes   32,026       31,963  
Shareholders’ equity   228,896       271,656  
       
Credit quality and capital ratios(1):      
Allowance for loan losses to total loans   1.17 %     1.07 %
Total nonaccrual loans to total loans   0.96 %     0.33 %
Nonperforming assets to total assets   0.70 %     0.23 %
Allowance for loan losses to nonaccrual loans   122 %     328 %
Total risk-based capital:      
Orrstown Financial Services, Inc.   12.7 %     15.0 %
Orrstown Bank   12.3 %     14.0 %
Tier 1 risk-based capital:      
Orrstown Financial Services, Inc.   10.3 %     12.2 %
Orrstown Bank   11.2 %     12.9 %
Tier 1 common equity risk-based capital:      
Orrstown Financial Services, Inc.   10.3 %     12.2 %
Orrstown Bank   11.2 %     12.9 %
Tier 1 leverage capital:      
Orrstown Financial Services, Inc.   8.5 %     8.5 %
Orrstown Bank   9.2 %     8.9 %
       
Book value per common share $ 21.45     $ 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) December 31, 2022   December 31, 2021
Assets      
Cash and due from banks $ 28,477     $ 21,217  
Interest-bearing deposits with banks   32,346       187,493  
Cash and cash equivalents   60,823       208,710  
Restricted investments in bank stocks   10,642       7,252  
Securities available for sale (amortized cost of $563,278 and $466,806 at December 31, 2022 and December 31, 2021, respectively)   513,728       472,438  
Loans held for sale, at fair value   10,880       8,868  
Loans   2,151,232       1,979,986  
Less: Allowance for loan losses   (25,178 )     (21,180 )
Net loans   2,126,054       1,958,806  
Premises and equipment, net   29,328       34,045  
Cash surrender value of life insurance   71,760       70,217  
Goodwill   18,724       18,724  
Other intangible assets, net   3,078       4,183  
Accrued interest receivable   11,027       8,234  
Deferred tax assets, net   24,031       11,648  
Other assets   42,333       31,440  
Total assets $ 2,922,408     $ 2,834,565  
Liabilities      
Deposits:      
Noninterest-bearing $ 501,963     $ 553,238  
Interest-bearing   1,974,283       1,911,691  
Total deposits   2,476,246       2,464,929  
Securities sold under agreements to repurchase   17,251       23,301  
FHLB advances and other   106,139       1,896  
Subordinated notes   32,026       31,963  
Accrued interest and other liabilities   61,850       40,820  
Total liabilities   2,693,512       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; 11,229,242 shares issued and 10,671,413 outstanding at December 31, 2022; 11,258,167 shares issued and 11,183,050 outstanding at December 31, 2021   584       586  
Additional paid—in capital   189,264       189,689  
Retained earnings   92,473       78,700  
Accumulated other comprehensive (loss) income   (39,913 )     4,449  
Treasury stock— 557,829 and 75,117 shares, at cost at December 31, 2022 and December 31, 2021, respectively   (13,512 )     (1,768 )
Total shareholders’ equity   228,896       271,656  
Total liabilities and shareholders’ equity $ 2,922,408     $ 2,834,565  
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)     2022     2021     2022       2021
Interest income                
Loans   $ 26,980   $ 21,503   $ 93,528     $ 84,227
Investment securities – taxable     3,775     1,615     10,237       6,622
Investment securities – tax-exempt     1,102     703     4,115       2,493
Short-term investments     238     98     774       353
Total interest income     32,095     23,919     108,654       93,695
Interest expense                
Deposits     3,579     789     6,337       4,199
Securities sold under agreements to repurchase     20     7     44       31
FHLB advances and other     509     23     630       482
Subordinated notes     503     502     2,013       2,009
Total interest expense     4,611     1,321     9,024       6,721
Net interest income     27,484     22,598     99,630       86,974
Provision for loan losses     585     1,100     4,160       1,090
Net interest income after provision for loan losses     26,899     21,498     95,470       85,884
Noninterest income                
Service charges     1,131     935     4,614       3,693
Interchange income     996     1,080     4,055       4,129
Swap fee income     697     158     2,632       293
Wealth management income     2,535     2,897     11,251       11,467
Mortgage banking activities     202     1,225     407       5,909
Investment securities gains (losses)     3     3     (160 )     638
Other income     662     995     4,153       3,023
Total noninterest income     6,226     7,293     26,952       29,152
Noninterest expenses                
Salaries and employee benefits     12,650     12,095     48,004       44,002
Occupancy, furniture and equipment     2,442     2,554     9,812       9,846
Data processing     1,150     1,020     4,560       4,061
Advertising and bank promotions     750     744     2,264       2,178
FDIC insurance     316     246     1,083       816
Professional services     837     693     3,254       2,555
Taxes other than income     231     392     1,391       1,321
Intangible asset amortization     260     303     1,105       1,275
Provision for legal settlement             13,000      
Restructuring expenses             3,155      
Other operating expenses     2,600     2,243     8,178       8,087
Total noninterest expenses     21,236     20,290     95,806       74,141
Income before income tax expense     11,889     8,501     26,616       40,895
Income tax expense     2,263     1,795     4,579       8,014
Net income   $ 9,626   $ 6,706   $ 22,037     $ 32,881
                 
Share information:                
Basic earnings per share   $ 0.93   $ 0.61   $ 2.09     $ 3.00
Diluted earnings per share   $ 0.91   $ 0.60   $ 2.06     $ 2.96
Weighted average shares – basic     10,382     10,939     10,553       10,967
Weighted average shares – diluted     10,550     11,113     10,706       11,106
ORRSTOWN FINANCIAL SERVICES, INC.        
ANALYSIS OF NET INTEREST INCOME        
Average Balances and Interest Rates, Taxable-Equivalent Basis(Unaudited)    
  Three Months Ended
  12/31/2022   9/30/2022   6/30/2022   3/31/2022   12/31/2021
      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 $ 28,419   $ 238     3.31 %   $ 38,068   $ 200     2.08 %   $ 131,449   $ 235     0.72 %   $ 199,788   $ 101     0.20 %   $ 250,336   $ 98     0.16 %
Investment securities(1)   512,779     5,170     4.03       528,988     4,377     3.31       523,940     3,388     2.59       472,195     2,512     2.13       477,217     2,506     2.08  
Loans(1)(2)(3)   2,133,052     27,061     5.04       2,051,707     23,219     4.49       2,008,283     22,090     4.41       1,974,804     21,429     4.39       1,975,014     21,559     4.33  
Total interest-earning assets   2,674,250     32,469     4.83       2,618,763     27,796     4.22       2,663,672     25,713     3.87       2,646,787     24,042     3.67       2,702,567     24,163     3.55  
Other assets   202,384             196,277             192,561             184,300             187,622        
Total $ 2,876,634           $ 2,815,040           $ 2,856,233           $ 2,831,087           $ 2,890,189        
Liabilities and Shareholders’ Equity                                                
Interest-bearing demand deposits $ 1,459,109     2,838     0.77     $ 1,379,082     912     0.26     $ 1,420,051     301     0.09     $ 1,398,182     256     0.07     $ 1,430,845     273     0.08  
Savings deposits   228,521     132     0.23       237,462     90     0.15       236,916     63     0.11       227,676     57     0.10       215,957     55     0.10  
Time deposits   254,637     609     0.95       265,015     370     0.55       275,408     337     0.49       298,618     372     0.51       313,148     461     0.58  
Total interest-bearing deposits   1,942,267     3,579     0.73       1,881,559     1,372     0.29       1,932,375     701     0.15       1,924,476     685     0.14       1,959,950     789     0.16  
Securities sold under agreements to repurchase   18,211     20     0.46       23,480     10     0.18       24,045     7     0.11       23,530     7     0.12       24,069     7     0.12  
FHLB advances and other   48,276     509     4.21       10,394     78     3.02       1,741     21     4.74       1,850     22     4.74       1,956     23     4.70  
Subordinated notes   32,016     503     6.29       32,000     504     6.29       31,985     503     6.29       31,969     503     6.29       31,954     503     6.29  
Total interest-bearing liabilities   2,040,770     4,611     0.90       1,947,433     1,964     0.40       1,990,146     1,232     0.25       1,981,825     1,217     0.25       2,017,929     1,322     0.26  
Noninterest-bearing demand deposits   540,275             575,777             572,171             540,139             559,882        
Other   74,602             49,964             47,190             40,919             42,380        
Total Liabilities   2,655,647             2,573,174             2,609,507             2,562,883             2,620,191        
Shareholders’ Equity   220,987             241,866             246,726             268,204             269,998        
Total $ 2,876,634           $ 2,815,040           $ 2,856,233           $ 2,831,087           $ 2,890,189        
Taxable-equivalent net interest income / net interest spread       27,858     3.93 %         25,832     3.82 %         24,481     3.62 %         22,825     3.42 %         22,841     3.29 %
Taxable-equivalent net interest margin         4.14 %           3.92 %           3.68 %           3.49 %           3.35 %
Taxable-equivalent adjustment       (374 )             (377 )             (363 )             (252 )             (243 )    
Net interest income     $ 27,484             $ 25,455             $ 24,118             $ 22,573             $ 22,598      
Ratio of average interest-earning assets to average interest-bearing liabilities         131 %           134 %           134 %           134 %           134 %
                                                           
                                                           
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
 
See also  Reserve Bank of India - Press Releases
ORRSTOWN FINANCIAL SERVICES, INC.            
ANALYSIS OF NET INTEREST INCOME        
Average Balances and Interest Rates, Taxable-Equivalent Basis(Unaudited)    
  Twelve Months Ended
  December 31, 2022   December 31, 2021
      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 $ 98,793   $ 774     0.78 %   $ 258,834   $ 353     0.14 %
Investment securities(1)   509,640     15,446     3.03       462,035     9,779     2.12  
Loans(1)(2)(3)   2,042,422     93,799     4.59       1,985,350     84,453     4.25  
Total interest-earning assets   2,650,855     110,019     4.15       2,706,219     94,585     3.50  
Other assets   193,945             188,596        
Total $ 2,844,800           $ 2,894,815        
Liabilities and Shareholders’ Equity                      
Interest-bearing demand deposits $ 1,414,177     4,308     0.30     $ 1,392,996     1,287     0.09  
Savings deposits   232,660     341     0.15       202,371     203     0.10  
Time deposits   273,276     1,688     0.62       360,264     2,709     0.75  
Total interest-bearing deposits   1,920,113     6,337     0.33       1,955,631     4,199     0.21  
Securities sold under agreements to repurchase   22,305     44     0.20       22,888     32     0.14  
FHLB advances and other   15,678     630     4.01       40,589     482     1.19  
Subordinated notes   31,993     2,013     6.29       31,931     2,009     6.29  
Total interest-bearing liabilities   1,990,089     9,024     0.45       2,051,039     6,722     0.33  
Noninterest-bearing demand deposits   557,142             542,952        
Other   53,288             38,665        
Total Liabilities   2,600,519             2,632,656        
Shareholders’ equity   244,281             262,159        
Total $ 2,844,800           $ 2,894,815        
Taxable-equivalent net interest income / net interest spread       100,995     3.70 %         87,863     3.17 %
Taxable-equivalent net interest margin         3.81 %           3.25 %
Taxable-equivalent adjustment       (1,365 )             (889 )    
Net interest income     $ 99,630             $ 86,974      
Ratio of average interest-earning assets to average interest-bearing liabilities         133 %           132 %
                       
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) December 31,
2022
  September 30,
2022
  June 30,
2022
  March 31,
2022
  December 31,
2021
Profitability for the quarter:                  
Net interest income $ 27,484     $ 25,455     $ 24,118     $ 22,573     $ 22,598  
Provision for loan losses   585       1,500       1,775       300       1,100  
Noninterest income   6,226       6,058       7,194       7,474       7,293  
Noninterest expenses   21,236       36,412       18,794       19,364       20,290  
Income (loss) before income taxes   11,889       (6,399 )     10,743       10,383       8,501  
Income tax expense (benefit)   2,263       (1,571 )     1,872       2,015       1,795  
Net income (loss) $ 9,626     $ (4,828 )   $ 8,871     $ 8,368     $ 6,706  
                   
Financial ratios:                  
Return on average assets(1)   1.33 %   (0.68 )%     1.25 %     1.20 %     0.93 %
Return on average equity(1)   17.28 %   (7.92 )%     14.42 %     12.65 %     9.93 %
Net interest margin(1)   4.14 %     3.92 %     3.68 %     3.49 %     3.35 %
Efficiency ratio   63.0 %     115.5 %     60.0 %     64.4 %     67.9 %
                   
Per share information:                  
Income (loss) per common share:                  
Basic $ 0.93     $ (0.47 )   $ 0.84     $ 0.77     $ 0.61  
Diluted   0.91       (0.47 )     0.83       0.76       0.60  
Book value   21.45       20.34       22.25       23.00       24.29  
Tangible book value(2)   19.47       18.34       20.23       21.03       22.32  
Cash dividends paid   0.19       0.19       0.19       0.19       0.19  
                   
Average basic shares   10,382       10,369       10,610       10,860       10,939  
Average diluted shares   10,550       10,529       10,744       11,007       11,113  
(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)                  
  December 31,
2022
  September 30,
2022
  June 30,
2022
  March 31,
2022
  December 31,
2021
Noninterest income:                  
Service charges $ 1,131   $ 1,216     $ 1,194     $ 1,073     $ 935
Interchange income   996     1,014       1,064       981       1,080
Swap fee income   697     197       785       953       158
Wealth management income   2,535     2,953       2,894       2,869       2,897
Mortgage banking activities   202     (1,014 )     498       721       1,225
Other income   662     1,706       762       1,023       995
Investment securities gains (losses)   3     (14 )     (3 )     (146 )     3
Total noninterest income $ 6,226   $ 6,058     $ 7,194     $ 7,474     $ 7,293
                   
Noninterest expenses:                  
Salaries and employee benefits $ 12,650   $ 12,705     $ 11,312     $ 11,337     $ 12,095
Occupancy, furniture and equipment   2,442     2,380       2,423       2,567       2,554
Data processing   1,150     1,192       1,165       1,053       1,020
Advertising and bank promotions   750     278       881       355       744
FDIC insurance   316     294       190       283       246
Professional services   837     887       722       808       693
Taxes other than income   231     488       108       564       392
Intangible asset amortization   260     272       281       292       303
Provision for legal settlement       13,000                  
Restructuring expenses       3,155                  
Other operating expenses   2,600     1,761       1,712       2,105       2,243
Total noninterest expenses $ 21,236   $ 36,412     $ 18,794     $ 19,364     $ 20,290
                   
 
ORRSTOWN FINANCIAL SERVICES, INC.                
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA(Unaudited)            
(continued)                  
  December 31,
2022
  September 30,
2022
  June 30,
2022
  March 31,
2022
  December 31,
2021
Balance Sheet at quarter end:                  
Cash and cash equivalents $ 60,823     $ 66,927     $ 111,906     $ 214,238     $ 208,710  
Restricted investments in bank stocks   10,642       6,469       6,500       6,791       7,252  
Securities available for sale   513,728       503,596       512,698       529,730       472,438  
Loans held for sale, at fair value   10,880       10,175       7,824       7,403       8,868  
Loans:                  
Commercial real estate:                  
Owner occupied   315,770       313,125       287,825       256,526       238,668  
Non-owner occupied   608,043       573,605       559,309       558,999       551,783  
Multi-family   138,832       114,561       116,110       93,158       93,255  
Non-owner occupied residential   104,604       105,267       109,141       102,269       106,112  
Commercial and industrial(1)   357,774       378,574       379,729       443,170       485,728  
Acquisition and development:                  
1-4 family residential construction   25,068       20,810       22,650       15,115       12,279  
Commercial and land development   158,308       148,512       134,947       105,204       93,925  
Municipal   12,173       12,683       12,957       14,626       14,989  
Total commercial loans   1,720,572       1,667,137       1,622,668       1,589,067       1,596,739  
Residential mortgage:                  
First lien   229,849       220,970       202,787       203,231       198,831  
Home equity – term   5,505       5,869       5,996       5,820       6,081  
Home equity – lines of credit   183,241       180,267       171,269       164,818       160,705  
Installment and other loans   12,065       13,684       14,909       15,371       17,630  
Total loans   2,151,232       2,087,927       2,017,629       1,978,307       1,979,986  
Allowance for loan losses   (25,178 )     (24,709 )     (23,279 )     (21,508 )     (21,180 )
Net loans held-for-investment   2,126,054       2,063,218       1,994,350       1,956,799       1,958,806  
Goodwill   18,724       18,724       18,724       18,724       18,724  
Other intangible assets, net   3,078       3,338       3,610       3,891       4,183  
Total assets   2,922,408       2,852,092       2,824,201       2,900,537       2,834,565  
Total deposits(2)   2,476,246       2,505,853       2,478,616       2,545,992       2,464,929  
Borrowings   123,390       22,632       25,965       26,412       25,197  
Subordinated notes   32,026       32,010       31,994       31,978       31,963  
Total shareholders’ equity   228,896       217,378       237,527       254,804       271,656  

(1) This balance includes $13.8 million, $17.0 million, $30.2 million, $122.5 million and $189.9 million of SBA PPP loans, net of deferred fees and costs, at December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

(2) This balance includes deposits held for assumption in connection with the sale of a bank branch of approximately $31.7 million, which is comprised of $24.3 million in interest-bearing deposits and $7.4 million in non-interest bearing deposits at December 31, 2022.

ORRSTOWN FINANCIAL SERVICES, INC.                
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA(Unaudited)            
(continued)                  
  December 31,
2022
  September 30,
2022
  June 30,
2022
  March 31,
2022
  December 31,
2021
Capital and credit quality measures(1):                  
Total risk-based capital:                  
Orrstown Financial Services, Inc   12.7 %     12.7 %     13.5 %     14.3 %     15.0 %
Orrstown Bank   12.3 %     12.9 %     13.3 %     13.8 %     14.0 %
Tier 1 risk-based capital:                  
Orrstown Financial Services, Inc   10.3 %     10.2 %     10.9 %     11.7 %     12.2 %
Orrstown Bank   11.2 %     11.8 %     12.2 %     12.7 %     12.9 %
Tier 1 common equity risk-based capital:                  
Orrstown Financial Services, Inc   10.3 %     10.2 %     10.9 %     11.7 %     12.2 %
Orrstown Bank   11.2 %     11.8 %     12.2 %     12.7 %     12.9 %
Tier 1 leverage capital:                  
Orrstown Financial Services, Inc   8.5 %     8.4 %     8.5 %     8.8 %     8.5 %
Orrstown Bank   9.2 %     9.6 %     9.5 %     9.5 %     8.9 %
                   
Average equity to average assets   7.68 %     8.59 %     8.64 %     9.47 %     9.34 %
Allowance for loan losses to total loans   1.17 %     1.18 %     1.15 %     1.09 %     1.07 %
Total nonaccrual loans to total loans   0.96 %     0.25 %     0.27 %     0.28 %     0.33 %
Nonperforming assets to total assets   0.70 %     0.19 %     0.19 %     0.19 %     0.23 %
Allowance for loan losses to nonaccrual loans   122 %     466 %     432 %     390 %     328 %
                   
Other information:                  
Net charge-offs (recoveries) $ 116     $ 70     $ 4     $ (28 )   $ (115 )
Classified loans   36,325       19,576       19,682       23,421       23,050  
Nonperforming and other risk assets:                  
Nonaccrual loans   20,583       5,303       5,387       5,510       6,449  
Other real estate owned                            
Total nonperforming assets   20,583       5,303       5,387       5,510       6,449  
Restructured loans still accruing   682       689       568