Orrstown Financial Services, Inc. Reports Third Quarter

• Net earnings of $5.4 million and diluted earnings per share of $0.52 for the quarter ended September 30, 2022 in comparison with web earnings of $8.9 million and diluted earnings per share of $0.83 for the quarter ended June 30, 2022;
• Excluding the influence from the beforehand introduced restructuring cost of $3.2 million, web earnings and diluted earnings per share had been $7.9 million and $0.75⁽¹⁾ for the third quarter of 2022, respectively;
• Net curiosity earnings elevated to $25.5 million for the three months ended September 30, 2022 in comparison with $24.1 million for the three months ended June 30, 2022 regardless of a decline of $1.4 million in Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) mortgage earnings over the identical interval;
• Net curiosity margin on a tax equal foundation elevated to three.92% within the third quarter of 2022 from 3.68% within the second quarter of 2022; web curiosity margin has elevated for 5 consecutive quarters; sturdy margin momentum continues because of mortgage progress and the rising rate of interest surroundings;
• Third quarter industrial mortgage progress, excluding SBA PPP loans, was $57.7 million, or 14% annualized;
• Deposits grew by $27.2 million, or 4% annualized, throughout the third quarter of 2022;
• Noninterest earnings of $6.1 million within the third quarter of 2022 in comparison with $7.2 million within the second quarter of 2022; important will increase in mortgage charges triggered a lower within the truthful worth of residential mortgages held-for-sale; additionally contributing to the decline was a discount in secondary market exercise;
• Noninterest bills elevated by $4.6 million to $23.4 million within the third quarter of 2022 from $18.8 million within the second quarter of 2022; excluding the influence from the restructuring cost, noninterest bills elevated to $20.3 million⁽¹⁾ throughout the third quarter of 2022; salaries and advantages elevated throughout the third quarter of 2022 due primarily to the influence of wage pressures and incentive compensation, however are anticipated to say no in 2023 because of the staffing mannequin changes made throughout the quarter;
• Provision for mortgage losses of $1.5 million within the third quarter of 2022 in comparison with $1.8 million within the second quarter of 2022;
• The Board of Directors declared a money dividend of $0.19 per widespread share, payable November 7, 2022, to shareholders of report as of October 31, 2022;
• Strategic initiatives had been beforehand introduced to drive long-term progress and enhance working efficiencies via department closures and staffing mannequin changes, which resulted in a pre-tax restructuring cost of $3.2 million throughout the third quarter of 2022.

SHIPPENSBURG, Pa., Oct. 18, 2022 (GLOBE NEWSWIRE) — Orrstown Financial Services, Inc. (“Orrstown” or the “Company”) (NASDAQ: ORRF), the father or mother firm of Orrstown Bank (the “Bank”), introduced earnings for the three months ended September 30, 2022. Net earnings totaled $5.4 million for the three months ended September 30, 2022, in contrast with $8.9 million for the three months ended June 30, 2022 and $7.2 million for the three months ended September 30, 2021. Diluted earnings per share totaled $0.52 for the three months ended September 30, 2022, in contrast with $0.83 for the three months ended June 30, 2022 and $0.65 for the three months ended September 30, 2021. Excluding the influence from the restructuring cost, web earnings and diluted earnings per share had been $7.9 million and $0.75, respectively, for the third quarter of 2022⁽¹⁾.

“Late in the third quarter, we announced initiatives designed to focus the organization on the rapidly changing banking environment and improve operating efficiencies. These initiatives included the closing of five branch locations and staffing model adjustments. We intend to utilize a portion of the savings generated from these initiatives to make additional investments in technology to further optimize the Bank’s digital banking experience and address ongoing wage pressures. We expect that these initiatives will generate meaningful efficiencies in 2023 and forward to drive Orrstown’s long-term growth,” commented Thomas R. Quinn, Jr., President and Chief Executive Officer.

⁽¹⁾ Non-GAAP measures. See Appendix A for extra info.

“As expected, these initiatives negatively affected our third quarter results. However, we believe that our core operating results remained strong and expect to continue to benefit from the current interest rate environment. Net interest margin has expanded for several quarters and commercial and consumer loan growth continued during the quarter. Our asset quality metrics compare favorably to historical measurements. While our mortgage banking operations have been negatively impacted by rapid interest rate increases, we continue to focus on strengthening other fee income sources. For example, our wealth management team has sustained its level of income generation despite a significant downturn in the equity markets. The diversification of revenue sources will be critical going forward. We remain focused on enhancing our earnings power through measured growth in an economic environment that is expected to be challenging.”

DISCUSSION OF RESULTS

Balance Sheet

Loans

Excluding SBA PPP loans, complete loans elevated by $83.5 million from June 30, 2022 to September 30, 2022, or 17% annualized. SBA PPP loans, web of deferred charges and prices, declined by $13.2 million to $17.0 million at September 30, 2022 from $30.2 million at June 30, 2022 because of forgiveness exercise. Net deferred SBA PPP charges of $0.3 million stay at September 30, 2022. Commercial loans, excluding SBA PPP loans, elevated by $57.7 million, or 14% annualized, from June 30, 2022 to September 30, 2022. Loans held for funding, which incorporates SBA PPP loans, elevated by $70.3 million from June 30, 2022 to September 30, 2022, or 14% annualized, because of web industrial and shopper mortgage progress.

The first lien residential mortgage portfolio grew by $18.2 million, or 36% annualized, within the three months ended September 30, 2022 from jumbo and adjustable-rate mortgage manufacturing. Home fairness strains of credit score elevated by $9.0 million, or 21% annualized, within the three months ended September 30, 2022.

Investment Securities

Investment securities decreased by $9.1 million to $510.1 million at September 30, 2022 in comparison with $519.2 million at June 30, 2022. During the third quarter of 2022, the Bank bought mortgage-backed securities totaling $10.1 million and asset-backed securities totaling $8.0 million. These purchases had been greater than offset by a rise in web unrealized losses of $17.3 million, which resulted from market rate of interest will increase, and regular paydown exercise of $9.0 million. See Appendix B for a abstract of the Bank’s funding securities at September 30, 2022, highlighting the concentrations, credit score scores and credit score enhancement ranges of the funding securities portfolio at such date.

Deposits

Deposits elevated by $27.2 million, or 4% annualized, totaling roughly $2.5 billion at each September 30, 2022 and June 30, 2022. This improve resulted primarily from seasonality of public fund balances in addition to retail deposit era partially offset by certificates of deposit runoff. In the third quarter of 2022, interest-bearing demand deposits elevated by $49.0 million, or 21% annualized. There had been decreases in certificates of deposits of $12.1 million, or 18% annualized, non-interest-bearing demand deposits of $7.2 million, or 5% annualized, and cash market and financial savings deposits of $2.5 million, or 1% annualized. The Bank’s loan-to-deposit ratio was 83% at September 30, 2022, a rise of two% from June 30, 2022 because of mortgage progress.

Income Statement

Net Interest Income and Margin

Net curiosity earnings elevated by $1.4 million to $25.5 million for the three months ended September 30, 2022 in comparison with $24.1 million for the three months ended June 30, 2022. Net curiosity margin on a tax equal foundation elevated to three.92% within the third quarter of 2022 from 3.68% within the second quarter of 2022. The improve in web curiosity margin was a results of additional deployment of money into loans and investments in addition to the influence of the rising rates of interest on the mortgage and funding securities portfolios, partially offset by the rise in the price of funds.

Interest earnings on loans, for the three months ended September 30, 2022, elevated by $1.1 million to $23.2 million in comparison with $22.1 million for the three months ended June 30, 2022. Loan progress and better rates of interest had been the first drivers of this improve. Interest earnings on loans for the three months ended September 30, 2022 included prepayment price earnings of $0.1 million, a lower of $0.3 million, from the three months ended June 30, 2022. Similarly, accretion on acquired loans decreased by $0.3 million to $0.1 million for the three months ended September 30, 2022 in comparison with the three months ended June 30, 2022 because of fewer payoffs and declining prepayment pace assumptions.

Interest earnings acknowledged on SBA PPP loans totaled $0.5 million within the three months ended September 30, 2022 in comparison with $1.9 million within the three months ended June 30, 2022. The SBA PPP mortgage portfolio averaged $25.0 million within the three months ended September 30, 2022 in comparison with $72.5 million within the three months ended June 30, 2022, which displays continued forgiveness from the SBA.

Interest earnings on funding securities elevated by $1.0 million to $4.4 million within the three months ended September 30, 2022 from $3.4 million for the second quarter of 2022. The improve displays the influence from rising rates of interest on investments for which resets happen at varied frequencies and the extra yield generated from investments bought on the finish of the second quarter and into the third quarter of 2022.

Average money and money equivalents decreased from $131.4 million within the three months ended June 30, 2022 to $38.1 million within the three months ended September 30, 2022. The lower displays the deployment of extra money balances into loans and funding securities.

Provision for Loan Losses

The Company recorded a provision for mortgage losses of $1.5 million for the three months ended September 30, 2022 in comparison with $1.8 million for the three months ended June 30, 2022 primarily because of will increase in each industrial and shopper loans throughout the third quarter of 2022. Net charge-offs had been $70 thousand for the three months ended September 30, 2022 in comparison with web charge-offs of $4 thousand for the three months ended June 30, 2022. The allowance for mortgage losses totaled $24.7 million at September 30, 2022, in contrast with $23.3 million at June 30, 2022, and the allowance for mortgage losses to complete loans elevated to 1.18% at September 30, 2022 from 1.15% from June 30, 2022.

Asset high quality metrics within the third quarter of 2022 evaluate favorably to historic measurements. The ratio of nonperforming loans to gross loans improved to 0.25% at September 30, 2022, a lower of 0.02%, from 0.27% at June 30, 2022. Classified loans remained constant at $19.6 million at each September 30, 2022 and June 30, 2022. Criticized loans elevated from $34.1 million at June 30, 2022 to $54.9 million at September 30, 2022 primarily because of downgrades for one borrower inside Acquisition and Development and the opposite borrower inside the Commercial and Industrial mortgage classes. The ratio of the allowance for mortgage losses to nonaccrual loans elevated to 466% at September 30, 2022 from 432% at June 30, 2022. Management believes the allowance for mortgage losses to be satisfactory based mostly on present asset high quality metrics and financial circumstances.

Noninterest Income

Noninterest earnings totaled $6.1 million within the three months ended September 30, 2022 in contrast with $7.2 million within the three months ended June 30, 2022.

Mortgage banking earnings decreased by $1.5 million from earnings of $0.5 million within the second quarter of 2022 to a lack of $1.0 million within the third quarter of 2022. Market circumstances, together with quickly rising mortgage rates of interest and low housing stock, triggered a major decline within the truthful worth of the held-for-sale mortgages. In addition, building has been extended partly because of provide chain challenges, which have delayed the marketability of mortgages on the market. The influence was a good worth discount of $1.4 million within the three months ended September 30, 2022. The troublesome mortgage market additionally slowed residential mortgage mortgage manufacturing, thereby inflicting corresponding reductions within the residential mortgage mortgage pipeline and secondary market gross sales throughout the three months ended September 30, 2022. Mortgage loans bought totaled $12.7 million within the third quarter of 2022 in contrast with $22.9 million within the second quarter of 2022.

Swap price earnings decreased by $0.6 million to $0.2 million for the three months ended September 30, 2022 in comparison with $0.8 million for the three months ended June 30, 2022. Swap price earnings fluctuates based mostly on market circumstances and shopper demand.

Other earnings elevated by $0.9 million to $1.1 million for the three months ended September 30, 2022 from $0.2 million throughout the three months ended June 30, 2022. The third quarter of 2022 included earnings from distributions on investments in non-housing restricted partnerships totaling $1.0 million.

Noninterest Expenses

Noninterest bills elevated by $4.6 million to $23.4 million within the three months ended September 30, 2022 from $18.8 million within the three months ended June 30, 2022. During the third quarter of 2022, the Company introduced that 5 department places could be closing and staffing mannequin changes could be made to drive long-term progress and enhance working efficiencies in 2023 and ahead. As a results of these initiatives, the Company recorded a pre-tax restructuring cost of $3.2 million, which consisted of constructing and stuck asset write-offs of $1.9 million and early retirement/severance prices of $1.3 million.

Salaries and advantages expense elevated by $1.4 million to $12.7 million within the three months ended September 30, 2022 from $11.3 million within the three months ended June 30, 2022 because of the filling of a number of vacancies, larger healthcare prices and merit-based wage and incentive compensation will increase. These bills are anticipated to say no in 2023 because of the staffing mannequin changes made throughout the quarter.

Advertising and financial institution promotions expense decreased by $0.6 million to $0.3 million within the three months ended September 30, 2022 from $0.9 million for the three months ended June 30, 2022 because of $0.5 million in contributions to the Pennsylvania Educational Improvement Tax Credit Program throughout the second quarter of 2022. Taxes apart from earnings elevated by $0.4 million to $0.5 million within the three months ended September 30, 2022. This improve displays the tax credit acknowledged on these contributions throughout the second quarter of 2022.

Income Taxes

The Company’s efficient tax charge for the second quarter of 2022 was 17.6% in contrast with 17.4% for the second quarter of 2022. The Company’s efficient tax charge for the three months ended September 30, 2022 is lower than the 21% federal statutory charge because of tax-exempt earnings, together with curiosity earned on tax-exempt loans and securities and earnings from life insurance insurance policies, in addition to tax credit. The efficient tax charge for the 9 months ended September 30, 2022 is eighteen.2%.

Capital

Shareholders’ fairness totaled $227.6 million at September 30, 2022, a lower of $9.9 million from $237.5 million at June 30, 2022. The lower was primarily attributable to a discount of $14.1 million in collected different complete earnings as unrealized losses on available-for-sale securities elevated from larger market rates of interest and dividends paid of $2.0 million, partially offset by web earnings of $5.4 million for the three months ended September 30, 2022. Tangible e-book worth per share⁽¹⁾ decreased from $20.23 per share at June 30, 2022 to $19.30 per share at September 30, 2022 primarily because of the lower in shareholders’ fairness.

The Company’s tangible widespread fairness ratio decreased to 7.3% at September 30, 2022 from 7.7% at June 30, 2022 primarily because of a lower in tangible fairness from the rise in unrealized losses on available-for-sale securities. The Company’s complete risk-based capital ratio decreased to 13.2% at September 30, 2022 from 13.5% at June 30, 2022 because of deployment of money into industrial loans and a rise in deferred tax belongings ensuing primarily from the rise in unrealized losses on available-for-sale securities, each leading to will increase to threat weighted belongings. The Company’s Tier 1 leverage ratio elevated to eight.8% at September 30, 2022 from 8.5% at June 30, 2022 primarily because of the influence of the lower in common belongings brought on by the lower in common deposits over that interval.

The Board of Directors accepted a quarterly dividend of $0.19 per share, payable on November 7, 2022, to shareholders of report as of October 31, 2022. The dividend payout ratio totaled 37% for the three months ended September 30, 2022 in comparison with 23% for the three months ended June 30, 2022. The improve is partially attributable to the influence of the restructuring cost. At this time, the Company continues to consider that capital is satisfactory to assist the dangers inherent within the stability sheet, in addition to progress necessities.

⁽¹⁾ Non-GAAP measure. See Appendix A for extra info.

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

As a results of acquisitions, the Company has intangible belongings consisting of goodwill and core deposit and different intangible belongings, which totaled $22.1 million and $22.9 million at September 30, 2022 and December 31, 2021, respectively. Additionally, the Company incurred $3.2 million in restructuring fees throughout the three months ended September 30, 2022.

Management believes offering sure “non-GAAP” monetary info will help traders of their understanding of the impact of acquisition exercise on reported outcomes, notably to beat comparability points associated to the affect of intangibles (principally goodwill) created in acquisitions. Management additionally believes offering sure different “non-GAAP” monetary info will help traders of their understanding of the impact on current monetary outcomes from non-recurring fees related to rising working efficiencies for the long-term.

Tangible e-book worth per widespread share and adjusted web earnings and related ratios from the restructuring cost, as utilized by the Company on this earnings launch, are decided by strategies apart from in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). While we consider this info is a helpful complement to GAAP based mostly measures introduced on this earnings launch, readers are cautioned that this non-GAAP disclosure has limitations as an analytical software, shouldn’t be seen as an alternative to monetary measures decided in accordance with GAAP, and shouldn’t be thought-about in isolation or as an alternative to evaluation of our outcomes and monetary situation as reported underneath GAAP, nor are such measures essentially corresponding to non-GAAP efficiency measures which may be introduced by different corporations. This supplemental presentation shouldn’t be construed as an inference that our future outcomes will probably be unaffected by related changes to be decided in accordance with GAAP.

The following tables current the computation of every non-GAAP based mostly measure:

({dollars} and shares in hundreds)

Appendix B- Investment Portfolio Concentrations

The following desk summarizes the credit score scores and collateral related to the Company’s funding safety portfolio, excluding fairness securities, at September 30, 2022:

({dollars} in hundreds)

About the Company

With $2.8 billion in belongings, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, present a variety of shopper and business monetary providers in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, Kent and Washington Counties, Maryland, in addition to Baltimore City, Maryland. Orrstown Bank is an Equal Housing Lender and its deposits are insured as much as the authorized most by the FDIC. Orrstown Financial Services, Inc.’s widespread inventory is traded on Nasdaq (ORRF). For extra details about Orrstown Financial Services, Inc. and Orrstown Bank, go to www.orrstown.com. 

Cautionary Note Regarding Forward-Looking Statements:

This press launch comprises “forward-looking statements” inside the which means of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements replicate the present views of the Company’s administration with respect to, amongst different issues, future occasions and the Company’s monetary efficiency. These statements are sometimes, however not all the time, made via using phrases or phrases resembling “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 unfavourable variations of these phrases or different comparable phrases of a future or forward-looking nature. These forward-looking statements aren’t historic information, and are based mostly on present expectations, estimates and projections in regards to the Company’s trade, administration’s beliefs and sure assumptions made by administration, a lot of which, by their nature, are inherently unsure and past the Company’s management. Forward-looking statements are statements that embody projections, predictions, expectations, estimates or beliefs about occasions or outcomes or in any other case aren’t statements of historic components, a lot of which, by their nature, are inherently unsure and past the Company’s management, and embody, however aren’t restricted to, statements associated to new business growth, new mortgage alternatives, progress within the stability sheet and fee-based income strains of business, merger and acquisition exercise, lowering threat belongings and mitigating losses sooner or later. Accordingly, the Company cautions you that any such forward-looking statements aren’t ensures of future efficiency and are topic to dangers, assumptions and uncertainties which can be troublesome to foretell. Although the Company believes that the expectations mirrored in these forward-looking statements are affordable as of the date made, precise outcomes could show to be materially totally different from the outcomes expressed or implied by the forward-looking statements and there will be no assurances that the Company will obtain the specified stage of recent business growth and new loans, progress within the stability sheet and fee-based income strains of business, profitable merger and acquisition exercise and price financial savings initiatives and continued reductions in threat belongings or mitigate losses sooner or later. In addition to dangers and uncertainties associated to the COVID-19 pandemic (together with these associated to variants) and ensuing governmental and societal responses, components which might trigger the precise outcomes of the Company’s operations to vary materially from expectations embody, however aren’t restricted to: ineffectiveness of the Company’s strategic progress plan because of modifications in present or future market circumstances; the results of competitors and the way it could influence our neighborhood banking mannequin, together with trade consolidation and growth of competing monetary services and products; the combination of the Company’s strategic acquisitions; the shortcoming to totally obtain anticipated financial savings, efficiencies or synergies from mergers and acquisitions and price financial savings initiatives, or taking longer than estimated for such financial savings, efficiencies and synergies to be realized; modifications in legal guidelines and laws; rate of interest actions; modifications in credit score high quality; incapacity to lift capital, if obligatory, underneath favorable circumstances; volatility within the securities markets; the demand for our services and products; deteriorating financial circumstances; geopolitical tensions; operational dangers together with, however not restricted to, cybersecurity incidents, fraud, pure disasters and future pandemics; bills related to pending litigation and authorized proceedings; the failure of the SBA to honor its assure of loans issued underneath the SBA PPP; the timing of the reimbursement of SBA PPP loans and the influence it has on price recognition; our potential to transform new relationships gained via the SBA PPP efforts to full banking relationships; and different dangers and uncertainties, together with these detailed in our Annual Report on Form 10-Ok for the yr ended December 31, 2021, and our Quarterly Reports on Form 10-Q underneath the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in different filings made with the SEC. The statements are legitimate solely as of the date hereof and we disclaim any obligation to replace this info. The foregoing record of things just isn’t exhaustive.

If a number of occasions associated to those or different dangers or uncertainties materializes, or if the Company’s underlying assumptions show to be incorrect, precise outcomes could differ materially from what the Company anticipates. Accordingly, you shouldn’t place undue reliance on any such forward-looking statements. Any forward-looking assertion speaks solely as of the date on which it’s made, and the Company doesn’t undertake any obligation to publicly replace or assessment any forward-looking assertion, whether or not because of new info, future developments or in any other case. New dangers and uncertainties come up every so often, and it’s not attainable for the Company to foretell these occasions or how they might have an effect on it. In addition, the Company can not assess the influence of every issue on its business or the extent to which any issue, or mixture of things, could trigger precise outcomes to vary materially from these contained in any forward-looking statements. All forward-looking statements, expressed or implied, included on this press launch are expressly certified of their entirety by this cautionary assertion. This cautionary assertion also needs to be thought-about in reference to any subsequent written or oral forward-looking statements that the Company or individuals performing on the Company’s behalf could problem.

The assessment interval for subsequent occasions extends as much as and consists of the submitting date of a public firm’s monetary statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated monetary info introduced on this announcement is topic to alter.