Orrstown Financial Services, Inc. Reports Second Quarter 2022 Results

Rhea-AI Summary

Orrstown Financial Services reported a net income of $8.9 million for Q2 2022, up from $8.4 million in the previous quarter, with diluted earnings per share rising to $0.83.

Key metrics include a return on average assets of 1.25% and a net interest margin of 3.68%. Commercial loan growth reached $125.9 million, a 34% annualized increase. Noninterest income dropped slightly to $7.2 million, while noninterest expenses decreased to $18.8 million.

The company repurchased 407,824 shares and declared a cash dividend of $0.19, payable August 8, 2022.

Positive

• Net income increased to $8.9 million, a rise from $8.4 million in Q1 2022.
• Diluted earnings per share improved to $0.83 from $0.76 in Q1 2022.
• Return on average assets increased to 1.25% from 1.20% in Q1 2022.
• Net interest margin rose to 3.68%, reflecting effective balance sheet management.
• Commercial loan growth was strong, totaling $125.9 million, or 34% annualized.

Negative

• Provision for loan losses increased to $1.8 million from $0.3 million, indicating higher risk.
• Noninterest income decreased to $7.2 million from $7.5 million in Q1 2022, signaling potential revenue challenges.
• Total deposits decreased by $67.4 million, or 11% annualized, reflecting liquidity concerns.

• Net income of $8.9 million and diluted earnings per share of $0.83 for the quarter ended June 30, 2022 compared to net income of $8.4 million and diluted earnings per share of $0.76 for the quarter ended March 31, 2022; earnings grew despite a significant reduction in Small Business Administration ("SBA") Paycheck Protection Program ("PPP") income and a higher provision for loan losses in the second quarter of 2022
• Return on average assets of 1.25% in the second quarter of 2022 compared to 1.20% in the first quarter of 2022
• Net interest margin on a tax equivalent basis increased to 3.68% in the second quarter of 2022 from 3.49% in the first quarter of 2022; reflects the deployment of excess liquidity into commercial loans and investments as well as the favorable impact of our asset-sensitive balance sheet in a rising interest rate environment
• Second quarter commercial loan growth, excluding SBA PPP loans, was $125.9 million, or 34% annualized
• Noninterest income of $7.2 million in the second quarter of 2022 compared to $7.5 million in the first quarter of 2022; swap fee income opportunities continue with commercial clients
• Noninterest expenses decreased by $0.6 million to $18.8 million in the second quarter of 2022 from $19.4 million in the first quarter of 2022; efficiency ratio improved to 60% in the second quarter of 2022 from 64% in the first quarter of 2022
• Provision for loan losses of $1.8 million in the second quarter of 2022 compared to $0.3 million in the first quarter of 2022; increase due to combined impact of higher loan production during the three months ended June 30, 2022 compared to the three months ended March 31, 2022 and the reduction of certain qualitative factor assumptions during the first quarter of 2022
• The Company repurchased 407,824 shares of its common stock at an average price of $24.25 per share during the three months ended June 30, 2022
• The Board of Directors declared a cash dividend of $0.19 per common share, payable August 8, 2022, to shareholders of record as of August 1, 2022

SHIPPENSBURG, Pa., July 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 June 30, 2022. Net income totaled $8.9 million for the three months ended June 30, 2022, compared with $8.4 million for the three months ended March 31, 2022 and $8.8 million for the three months ended June 30, 2021. Diluted earnings per share totaled $0.83 for the three months ended June 30, 2022, compared with $0.76 for the three months ended March 31, 2022 and $0.79 for the three months ended June 30, 2021.

Thomas R. Quinn, Jr., President & CEO, commented, “The Orrstown growth story was accelerated with key hires and acquisitions in 2018 and 2019 and resonated throughout 2020 and 2021 with our PPP success and significant loan production. This has led to strong profitability in 2022. In the second quarter of 2022, despite a $1.6 million reduction in PPP-related interest income and a $1.5 million increase in provision for loan losses, our net income and earnings per share grew on a linked quarter basis. This occurred as a result of the growth in the loan portfolio since 2020, strategic balance sheet management efforts and expense reductions. We have also benefited from three interest rate increases so far in 2022 and any future increases are expected to further enhance our net interest margin.”

Mr. Quinn added, “Our focus for the second half of 2022 is on navigating through an uncertain economic environment to enhance shareholder value. We will continue to adjust our balance sheet strategy while considering economic data in an effort to counteract the impact of a potential downturn. While we have experienced strong headwinds in mortgage banking, our wealth management team continues to generate steady earnings despite a steep market decline. We continue to seek opportunities to maintain or improve non-interest income from swaps and other relationship-based fees. Orrstown also plans to continue to make investments in technology to enhance its digital platform. Despite the uncertainty of the operating environment, we believe that Orrstown is well positioned for success."

DISCUSSION OF RESULTS

Balance Sheet

Loans

Excluding SBA PPP loans, total loans increased by $131.7 million from March 31, 2022 to June 30, 2022, or 29% annualized. SBA PPP loans, net of deferred fees and costs, declined by $92.3 million to $30.2 million at June 30, 2022 from $122.5 million at March 31, 2022 due to forgiveness activity. Commercial loans, excluding SBA PPP loans, increased by $125.9 million, or 34% annualized, from March 31, 2022 to June 30, 2022. Loans held for investment, which includes SBA PPP loans, increased by $39.3 million from March 31, 2022 to June 30, 2022, or 8% annualized, as the impact of SBA PPP loan forgiveness was offset by net commercial and home equity loan production.

The remaining gross balance of SBA PPP loans is $30.9 million at June 30, 2022. Net deferred SBA PPP fees of $0.7 million remain at June 30, 2022, substantially all of which are expected to be earned by the end of 2022.

The consumer portfolio grew by $5.7 million, or 6% annualized, in the three months ended June 30, 2022. Home equity lines of credit increased by $6.5 million, or 16% annualized, in the three months ended June 30, 2022.

Investment Securities

Investment securities decreased by $17.3 million to $519.2 million at June 30, 2022 compared to $536.5 million at March 31, 2022. During the second quarter of 2022, the Bank purchased municipal securities totaling $10.8 million and mortgage-backed securities totaling $15.8 million. These purchases were offset by net unrealized losses of $18.6 million, which resulted from market interest rate increases, the call of a non-agency collateralized mortgage obligation ("CMO") security of $13.5 million and normal paydown activity. With the rise in interest rates, the Company purchased certain investment securities, which have enhanced interest income, while still maintaining an acceptable interest rate risk profile. See Appendix B for a summary of the Bank's investment securities at June 30, 2022, highlighting the concentrations, credit ratings and credit enhancement levels of the investment securities portfolio at such date.

Deposits

Deposits decreased by $67.4 million, or 11% annualized, totaling approximately $2.5 billion at both June 30, 2022 and March 31, 2022. In the second quarter of 2022, interest-bearing demand deposits decreased by $46.3 million, or 19% annualized, certificates of deposits decreased by $21.4 million, or 30% annualized, and money market and savings deposits decreased by $11.1 million, or 6% annualized, in each case from March 31, 2022. These decreases were partially offset by an increase in non-interest bearing demand deposits of $11.5 million, or 8% annualized. The decrease in deposits resulted primarily from seasonality from public fund balances and certificate of deposit runoff. The Bank's loan-to-deposit ratio was 81% at June 30, 2022, an increase of 3% from March 31, 2022 due to the combination of loan growth and lower deposit balances.

Net Interest Income and Margin

Net interest income increased by $1.5 million to $24.1 million for the three months ended June 30, 2022 compared to $22.6 million for the three months ended March 31, 2022. Net interest margin on a tax equivalent basis increased to 3.68% in the second quarter of 2022 from 3.49% in the first quarter of 2022. The increase in net interest margin was primarily a result of the investment of cash into higher yielding commercial loans and investment securities and the rising interest rates that positively impacted interest-earning assets.

Interest income on loans, for the three months ended June 30, 2022, included prepayment fee income of $0.4 million, an increase of $0.3 million, compared to $0.1 million for the three months ended March 31, 2022.

Interest income recognized on SBA PPP loans totaled $1.9 million in the three months ended June 30, 2022 compared to $3.5 million in the three months ended March 31, 2022. The SBA PPP loan portfolio averaged $72.5 million in the three months ended June 30, 2022 compared to $155.3 million in the three months ended March 31, 2022, which reflects continued forgiveness from the SBA.

Average cash and cash equivalents decreased from $199.8 million in the three months ended March 31, 2022 to $131.4 million in the three months ended June 30, 2022. The decrease reflects the deployment of excess cash balances into commercial loans and investment securities, as well as a decrease in deposits.

Provision for Loan Losses

The Company recorded a provision for loan losses of $1.8 million for the three months ended June 30, 2022 compared to $0.3 million for the three months ended March 31, 2022 due to increased loan production during the second quarter of 2022 compared to the first quarter of 2022, and the reduction of certain qualitative factor assumptions for the three months ended March 31, 2022. Net charge-offs were $4 thousand for the three months ended June 30, 2022 compared to net recoveries of $28 thousand for the three months ended March 31, 2022. The allowance for loan losses totaled $23.3 million at June 30, 2022, compared with $21.5 million at March 31, 2022, and the allowance for loan losses to total loans increased to 1.15% at June 30, 2022 from 1.09% from March 31, 2022.

Asset quality metrics strengthened further in the second quarter of 2022. Classified loans decreased by $3.7 million, or 16%, to $19.6 million at June 30, 2022 from $23.4 million at March 31, 2022 due primarily to risk rating upgrades. Nonperforming loans remained relatively flat at 0.27% and 0.28% of gross loans at June 30, 2022 and March 31, 2022, respectively. As a result of the increase in the allowance for loan losses, the ratio of the allowance for loan losses to nonaccrual loans increased to 432% at June 30, 2022 from 390% at March 31, 2022. The allowance for loan losses to non-SBA guaranteed loans⁽¹⁾ remained at 1.2% at June 30, 2022 and March 31, 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 $7.2 million in the three months ended June 30, 2022 compared with $7.5 million in the three months ended March 31, 2022.

Swap fee income remained strong at $0.8 million for the three months ended June 30, 2022 compared to $1.0 million for the three months ended March 31, 2022.

Mortgage banking income decreased by $0.2 million from $0.7 million in the first quarter of 2022 to $0.5 million in the second quarter of 2022. Market conditions during the first half of 2022, including low housing inventory and a rising interest rate environment, caused a further decline in residential mortgage loan production and corresponding reductions in the residential mortgage loan pipeline and secondary market sales during the three months ended June 30, 2022,. These changes resulted in a decrease in the gain on sale of residential mortgage loans of $0.3 million compared to the first quarter of 2022. Mortgage loans sold totaled $22.6 million in the second quarter of 2022 compared with $31.9 million in the first quarter of 2022.

Other income decreased by $0.2 million to $0.8 million for the three months ended June 30, 2022 from $1.0 million during the three months ended March 31, 2022. The second quarter included a gain on the sale of an SBA loan of $35 thousand compared to a gain on the sale of an SBA loan of $271 thousand in the three months ended March 31, 2022.

For the three months ended June 30, 2022, net losses on investment securities decreased by $146 thousand to $3 thousand from the first quarter of 2022. During the three months ended March 31, 2022, there was an impairment charge of $171 thousand on a non-agency CMO, which was subsequently called in the three months ended June 30, 2022.

Noninterest Expenses

Noninterest expenses decreased by $0.6 million to $18.8 million in the three months ended June 30, 2022 from $19.4 million in the three months ended March 31, 2022.

Advertising and bank promotions increased by $0.5 million to $0.9 million for the three months ended June 30, 2022 from $0.4 million for the three months ended March 31, 2022 due to $0.5 million in contributions to the Pennsylvania Educational Improvement Tax Credit Program. The related tax credit on these contributions caused taxes other than income to decrease by $0.5 million to $0.1 million for the second quarter of 2022 from $0.6 million for the first quarter of 2022.

Other expenses decreased by $0.4 million from $2.1 million for the three months ended March 31, 2022 to $1.7 million for the three months ended June 30, 2022 due to a decline in loan-related costs incurred by the Bank of $0.3 million and improvement in the market value of derivatives of $0.1 million. FDIC insurance expense decreased from $0.3 million during the first quarter of 2022 to $0.2 million for the second quarter of 2022 due to a decline in both the assessment base and rate for the Bank.

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

Income Taxes

The Company's effective tax rate for the second quarter of 2022 was 17.4% compared with 19.4% for the first quarter of 2022. The Company's effective tax rate for the three months ended June 30, 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 lower effective tax rate in the second quarter of 2022 resulted from an increase in non-taxable investment securities and loans, which lowered projected taxable income for the full year.

Capital

Shareholders’ equity totaled $237.5 million at June 30, 2022, a decrease of $17.3 million from $254.8 million at March 31, 2022. The decrease was primarily attributable to a decrease of $14.7 million in accumulated other comprehensive income due primarily to an increase in unrealized losses on available-for-sale securities resulting from higher market interest rates, share repurchases of $9.9 million, and dividends paid of $2.1 million, partially offset by net income of $8.9 million for the three months ended June 30, 2022. Tangible book value per share⁽¹⁾ decreased by 3.8% from $21.03 per share at March 31, 2022 to $20.23 per share at June 30, 2022 as a result of the decrease in shareholders' equity from the increase in unrealized losses on available-for-sale securities and share repurchases.

The Company's tangible common equity ratio decreased to 7.7% at June 30, 2022 from 8.1% at March 31, 2022 due primarily to the decrease in tangible equity from share repurchases and the unrealized losses on available-for-sale securities. The Company's Tier 1 leverage ratio decreased to 8.5% at June 30, 2022 from 8.8% at March 31, 2022 due to the impact of share repurchases on shareholders' equity and the increase in average assets caused primarily by an increase in average deposits over that period. The Company's total risk-based capital ratio decreased to 13.5% at June 30, 2022 from 14.3% at March 31, 2022 due to deployment of cash into commercial loans, a decrease in capital from the share repurchases and an increase in deferred tax assets resulting from the increase in unrealized losses on available-for-sale securities.

The Board of Directors approved a quarterly dividend of $0.19 per share, payable August 8, 2022, to shareholders of record as of August 1, 2022. The dividend payout ratio totaled 23% for the three months ended June 30, 2022 compared to 25% for the three months ended March 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.

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

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								Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(Dollars in thousands, except per share amounts)		2022				2021				2022				2021
Profitability for the period:
Net interest income	$	24,118			$	21,901			$	46,691			$	43,756
Provision for loan losses		1,775				625				2,075				(375	)
Noninterest income		7,194				6,664				14,668				14,208
Noninterest expenses		18,794				17,033				38,158				34,816
Income before income taxes		10,743				10,907				21,126				23,523
Income tax expense		1,872				2,131				3,887				4,540
Net income available to common shareholders	$	8,871			$	8,776			$	17,239			$	18,983
Financial ratios:
Return on average assets (1)		1.25	%			1.20	%			1.22	%			1.33	%
Return on average equity (1)		14.42	%			13.56	%			13.51	%			15.04	%
Net interest margin (1)		3.68	%			3.24	%			3.59	%			3.31	%
Efficiency ratio		60.0	%			59.6	%			62.2	%			60.1	%
Income per common share:
Basic	$	0.84			$	0.80			$	1.61			$	1.73
Diluted	$	0.83			$	0.79			$	1.59			$	1.71
Average equity to average assets		8.64	%			8.83	%			9.05	%			8.84	%
(1) Annualized.

ORRSTOWN FINANCIAL SERVICES, INC.
FINANCIAL HIGHLIGHTS (Unaudited)
(continued)
	June 30,				December 31,
		2022				2021
At period-end:
Total assets	$	2,824,201			$	2,834,565
Total deposits		2,478,616				2,464,929
Loans, net of allowance for loan losses		1,994,350				1,958,806
Loans held-for-sale, at fair value		7,824				8,868
Securities available for sale		512,698				472,438
Borrowings		25,965				25,197
Subordinated notes		31,994				31,963
Shareholders' equity		237,527				271,656
Credit quality and capital ratios (1):
Allowance for loan losses to total loans		1.15	%			1.07	%
Total nonaccrual loans to total loans		0.27	%			0.33	%
Nonperforming assets to total assets		0.19	%			0.23	%
Allowance for loan losses to nonaccrual loans		432	%			328	%
Total risk-based capital:
Orrstown Financial Services, Inc.		13.5	%			15.0	%
Orrstown Bank		13.3	%			14.0	%
Tier 1 risk-based capital:
Orrstown Financial Services, Inc.		10.9	%			12.2	%
Orrstown Bank		12.2	%			12.9	%
Tier 1 common equity risk-based capital:
Orrstown Financial Services, Inc.		10.9	%			12.2	%
Orrstown Bank		12.2	%			12.9	%
Tier 1 leverage capital:
Orrstown Financial Services, Inc.		8.5	%			8.5	%
Orrstown Bank		9.5	%			8.9	%
Book value per common share	$	22.25			$	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)		June 30, 2022				December 31, 2021
Assets
Cash and due from banks		$	25,825			$	21,217
Interest-bearing deposits with banks			86,081				187,493
Cash and cash equivalents			111,906				208,710
Restricted investments in bank stocks			6,500				7,252
Securities available for sale (amortized cost of $549,876 and $466,806 at June 30, 2022 and December 31, 2021, respectively)			512,698				472,438
Loans held for sale, at fair value			7,824				8,868
Loans			2,017,629				1,979,986
Less: Allowance for loan losses			(23,279	)			(21,180	)
Net loans			1,994,350				1,958,806
Premises and equipment, net			33,429				34,045
Cash surrender value of life insurance			70,912				70,217
Goodwill			18,724				18,724
Other intangible assets, net			3,610				4,183
Accrued interest receivable			8,425				8,234
Other assets			55,823				43,088
Total assets		$	2,824,201			$	2,834,565
Liabilities
Deposits:
Noninterest-bearing		$	569,231			$	553,238
Interest-bearing			1,909,385				1,911,691
Total deposits			2,478,616				2,464,929
Securities sold under agreements to repurchase			24,287				23,301
FHLB advances and other			1,678				1,896
Subordinated notes			31,994				31,963
Accrued interest and other liabilities			50,099				40,820
Total liabilities			2,586,674				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; 11,236,558 shares issued and 10,675,679 outstanding at June 30, 2022; 11,258,167 shares issued and 11,183,050 outstanding at December 31, 2021			585				586
Additional paid—in capital			188,178				189,689
Retained earnings			91,723				78,700
Accumulated other comprehensive (loss) income			(29,370	)			4,449
Treasury stock— 560,879 and 75,117 shares, at cost at June 30, 2022 and December 31, 2021, respectively			(13,589	)			(1,768	)
Total shareholders’ equity			237,527				271,656
Total liabilities and shareholders’ equity		$	2,824,201			$	2,834,565

ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
(In thousands, except per share amounts)			2022				2021				2022				2021
Interest income
Loans		$	22,027			$	21,323			$	43,396			$	42,834
Investment securities - taxable			1,957				1,614				3,555				3,493
Investment securities - tax-exempt			1,131				638				1,853				1,138
Short-term investments			235				81				336				120
Total interest income			25,350				23,656				49,140				47,585
Interest expense
Deposits			701				1,081				1,386				2,473
Securities sold under agreements to repurchase			7				8				14				17
FHLB advances and other			21				164				43				335
Subordinated notes			503				502				1,006				1,004
Total interest expense			1,232				1,755				2,449				3,829
Net interest income			24,118				21,901				46,691				43,756
Provision for loan losses			1,775				625				2,075				(375	)
Net interest income after provision for loan losses			22,343				21,276				44,616				44,131
Noninterest income
Service charges			1,194				880				2,267				1,765
Interchange income			1,064				1,064				2,045				2,019
Swap fee income			785				15				1,738				68
Wealth management income			2,894				2,930				5,763				5,653
Mortgage banking activities			498				1,162				1,219				3,351
Investment securities (losses) gains			(3	)			11				(149	)			156
Other income			762				602				1,785				1,196
Total noninterest income			7,194				6,664				14,668				14,208
Noninterest expenses
Salaries and employee benefits			11,312				10,212				22,649				20,409
Occupancy, furniture and equipment			2,423				2,400				4,990				4,918
Data processing			1,165				1,032				2,218				2,051
Advertising and bank promotions			881				274				1,236				699
FDIC insurance			190				158				473				352
Professional services			722				579				1,530				1,300
Taxes other than income			108				462				672				913
Intangible asset amortization			281				324				573				658
Other operating expenses			1,712				1,592				3,817				3,516
Total noninterest expenses			18,794				17,033				38,158				34,816
Income before income tax expense			10,743				10,907				21,126				23,523
Income tax expense			1,872				2,131				3,887				4,540
Net income		$	8,871			$	8,776			$	17,239			$	18,983
Share information:
Basic earnings per share		$	0.84			$	0.80			$	1.61			$	1.73
Diluted earnings per share		$	0.83			$	0.79			$	1.59			$	1.71
Weighted average shares - basic			10,610				10,975				10,735				10,975
Weighted average shares - diluted			10,744				11,112				10,875				11,093

ORRSTOWN FINANCIAL SERVICES, INC.
ANALYSIS OF NET INTEREST INCOME
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)
	Three Months Ended
	6/30/2022										3/31/2022										12/31/2021										9/30/2021										6/30/2021
				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	$	131,449		$	235			0.72	%		$	199,788		$	101			0.20	%		$	250,336		$	98			0.16	%		$	347,242		$	135			0.15	%		$	290,039		$	81			0.11	%
Investment securities (1)		523,940			3,388			2.59				472,195			2,512			2.13				477,217			2,506			2.08				464,417			2,339			2.00				438,110			2,421			2.22
Loans (1)(2)(3)		2,008,283			22,090			4.41				1,974,804			21,429			4.39				1,975,014			21,559			4.33				1,919,926			19,945			4.12				2,014,600			21,375			4.26
Total interest-earning assets		2,663,672			25,713			3.87				2,646,787			24,042			3.67				2,702,567			24,163			3.55				2,731,585			22,419			3.26				2,742,749			23,877			3.49
Other assets		192,561										184,300										187,622										195,089										188,810
Total	$	2,856,233									$	2,831,087									$	2,890,189									$	2,926,674									$	2,931,559
Liabilities and Shareholders' Equity
Interest-bearing demand deposits	$	1,420,051			301			0.09			$	1,398,182			256			0.07			$	1,430,845			273			0.08			$	1,411,243			286			0.08			$	1,394,384			292			0.08
Savings deposits		236,916			63			0.11				227,676			57			0.10				215,957			55			0.10				209,112			53			0.10				200,439			50			0.10
Time deposits		275,408			337			0.49				298,618			372			0.51				313,148			461			0.58				349,215			598			0.68				382,467			739			0.78
Total interest-bearing deposits		1,932,375			701			0.15				1,924,476			685			0.14				1,959,950			789			0.16				1,969,570			937			0.19				1,977,290			1,081			0.22
Securities sold under agreements to repurchase		24,045			7			0.11				23,530			7			0.12				24,069			7			0.12				23,578			8			0.13				22,417			8			0.14
FHLB advances and other		1,741			21			4.74				1,850			22			4.74				1,956			23			4.70				45,071			123			1.09				57,896			164			1.14
Subordinated notes		31,985			503			6.29				31,969			503			6.29				31,954			503			6.29				31,938			503			6.29				31,924			502			6.29
Total interest-bearing liabilities		1,990,146			1,232			0.25				1,981,825			1,217			0.25				2,017,929			1,322			0.26				2,070,157			1,571			0.30				2,089,527			1,755			0.34
Noninterest-bearing demand deposits		572,171										540,139										559,882										548,923										545,617
Other		47,190										40,919										42,380										38,409										37,561
Total Liabilities		2,609,507										2,562,883										2,620,191										2,657,489										2,672,705
Shareholders' Equity		246,726										268,204										269,998										269,185										258,854
Total	$	2,856,233									$	2,831,087									$	2,890,189									$	2,926,674									$	2,931,559
Taxable-equivalent net interest income / net interest spread					24,481			3.62	%						22,825			3.42	%						22,841			3.29	%						20,848			2.96	%						22,122			3.15	%
Taxable-equivalent net interest margin								3.68	%									3.49	%									3.35	%									3.03	%									3.24	%
Taxable-equivalent adjustment					(363	)									(252	)									(243	)									(228	)									(221	)
Net interest income				$	24,118									$	22,573									$	22,598									$	20,620									$	21,901
Ratio of average interest-earning assets to average interest-bearing liabilities								134	%									134	%									134	%									132	%									131	%
NOTES:
(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2) Average balances include nonaccrual loans.
(3) Interest income on loans includes prepayment and late fees, where applicable

ORRSTOWN FINANCIAL SERVICES, INC.
ANALYSIS OF NET INTEREST INCOME
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)
	Six Months Ended
	June 30, 2022											June 30, 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	$	165,430			$	336			0.41	%		$	218,216			$	120			0.11	%
Investment securities (1)		498,210				5,900			2.37				453,108				4,933			2.20
Loans (1)(2)(3)		1,991,636				43,519			4.40				2,023,858				42,949			4.28
Total interest-earning assets		2,655,276				49,755			3.77				2,695,182				48,002			3.59
Other assets		188,454											185,791
Total	$	2,843,730										$	2,880,973
Liabilities and Shareholders' Equity
Interest-bearing demand deposits	$	1,409,177				557			0.08			$	1,364,483				728			0.11
Savings deposits		232,322				120			0.10				192,039				96			0.10
Time deposits		286,949				709			0.50				389,828				1,649			0.85
Total interest-bearing deposits		1,928,448				1,386			0.14				1,946,350				2,473			0.26
Securities sold under agreements to repurchase		23,789				14			0.12				21,937				17			0.16
FHLB advances and other		1,795				43			4.74				57,948				335			1.17
Subordinated notes		31,977				1,006			6.29				31,916				1,004			6.29
Total interest-bearing liabilities		1,986,009				2,448			0.25				2,058,151				3,829			0.38
Noninterest-bearing demand deposits		556,243											531,313
Other		44,072											36,906
Total Liabilities		2,586,324											2,626,370
Shareholders' Equity		257,406											254,603
Total	$	2,843,730										$	2,880,973
Taxable-equivalent net interest income / net interest spread						47,307			3.52	%							44,173			3.22	%
Taxable-equivalent net interest margin									3.59	%										3.31	%
Taxable-equivalent adjustment						(615	)										(417	)
Net interest income					$	46,692										$	43,756
Ratio of average interest-earning assets to average interest-bearing liabilities									134	%										131	%
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 )	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Profitability for the quarter:
Net interest income	$	24,118			$	22,573			$	22,598			$	20,620			$	21,901
Provision for loan losses		1,775				300				1,100				365				625
Noninterest income		7,194				7,474				7,293				7,651				6,664
Noninterest expenses		18,794				19,364				20,290				19,035				17,033
Income before income taxes		10,743				10,383				8,501				8,871				10,907
Income tax expense		1,872				2,015				1,795				1,679				2,131
Net income	$	8,871			$	8,368			$	6,706			$	7,192			$	8,776
Financial ratios:
Return on average assets (1)		1.25	%			1.20	%			0.93	%			0.98	%			1.20	%
Return on average equity (1)		14.42	%			12.65	%			9.93	%			10.69	%			13.56	%
Net interest margin (1)		3.68	%			3.49	%			3.35	%			3.03	%			3.24	%
Efficiency ratio		60.0	%			64.4	%			67.9	%			67.3	%			59.6	%
Per share information:
Income per common share:
Basic	$	0.84			$	0.77			$	0.61			$	0.66			$	0.80
Diluted		0.83				0.76				0.60				0.65				0.79
Book value		22.25				23.00				24.29				23.97				23.61
Tangible book value (2)		20.23				21.03				22.32				21.98				21.61
Cash dividends paid		0.19				0.19				0.19				0.19				0.18
Average basic shares		10,610				10,860				10,939				10,979				10,975
Average diluted shares		10,744				11,007				11,113				11,122				11,112
(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)
	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Noninterest income:
Service charges	$	1,194			$	1,073			$	935			$	993			$	880
Interchange income		1,064				981				1,080				1,030				1,064
Swap fee income		785				953				158				67				15
Wealth management income		2,894				2,869				2,897				2,917				2,930
Mortgage banking activities		498				721				1,225				1,333				1,162
Other income		762				1,023				995				832				602
Investment securities (losses) gains		(3	)			(146	)			3				479				11
Total noninterest income	$	7,194			$	7,474			$	7,293			$	7,651			$	6,664
Noninterest expenses:
Salaries and employee benefits	$	11,312			$	11,337			$	12,095			$	11,498			$	10,212
Occupancy, furniture and equipment		2,423				2,567				2,554				2,374				2,400
Data processing		1,165				1,053				1,020				990				1,032
Advertising and bank promotions		881				355				744				735				274
FDIC insurance		190				283				246				218				158
Professional services		722				808				693				562				579
Taxes other than income		108				564				392				16				462
Intangible asset amortization		281				292				303				314				324
Other operating expenses		1,712				2,105				2,243				2,328				1,592
Total noninterest expenses	$	18,794			$	19,364			$	20,290			$	19,035			$	17,033

ORRSTOWN FINANCIAL SERVICES, INC.
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(continued)
	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Balance Sheet at quarter end:
Cash and cash equivalents	$	111,906			$	214,238			$	208,710			$	311,415			$	336,762
Restricted investments in bank stocks		6,500				6,791				7,252				7,051				9,691
Securities available for sale		512,698				529,730				472,438				445,018				450,402
Loans held for sale, at fair value		7,824				7,403				8,868				6,412				8,092
Loans:
Commercial real estate:
Owner occupied		287,825				256,526				238,668				196,585				191,595
Non-owner occupied		559,309				558,999				551,783				509,703				471,541
Multi-family		116,110				93,158				93,255				112,002				112,420
Non-owner occupied residential		109,141				102,269				106,112				100,088				99,631
Commercial and industrial (1)		379,729				443,170				485,728				540,205				599,123
Acquisition and development:
1-4 family residential construction		22,650				15,115				12,279				12,246				9,686
Commercial and land development		134,947				105,204				93,925				71,784				55,330
Municipal		12,957				14,626				14,989				13,631				14,452
Total commercial loans		1,622,668				1,589,067				1,596,739				1,556,244				1,553,778
Residential mortgage:
First lien		202,787				203,231				198,831				203,360				211,918
Home equity – term		5,996				5,820				6,081				7,079				8,321
Home equity – lines of credit		171,269				164,818				160,705				154,004				149,601
Installment and other loans		14,909				15,371				17,630				19,077				21,765
Total loans		2,017,629				1,978,307				1,979,986				1,939,764				1,945,383
Allowance for loan losses		(23,279	)			(21,508	)			(21,180	)			(19,965	)			(19,381	)
Net loans held-for-investment		1,994,350				1,956,799				1,958,806				1,919,799				1,926,002
Goodwill		18,724				18,724				18,724				18,724				18,724
Other intangible assets, net		3,610				3,891				4,183				4,486				4,800
Total assets		2,824,201				2,900,537				2,834,565				2,870,182				2,912,717
Total deposits		2,478,616				2,545,992				2,464,929				2,502,108				2,494,100
Borrowings		25,965				26,412				25,197				29,598				80,709
Subordinated notes		31,994				31,978				31,963				31,948				31,932
Total shareholders' equity		237,527				254,804				271,656				268,569				265,938
(1) This balance includes $30.2 million, $122.5 million, $189.9 million, $259.9 million and $355.6 million of SBA PPP loans, net of deferred fees and costs, at June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021 and June 30, 2021, respectively.

ORRSTOWN FINANCIAL SERVICES, INC.
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)
(continued)
	June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Capital and credit quality measures (1):
Total risk-based capital:
Orrstown Financial Services, Inc		13.5	%			14.3	%			15.0	%			15.6	%			15.6	%
Orrstown Bank		13.3	%			13.8	%			14.0	%			14.7	%			14.6	%
Tier 1 risk-based capital:
Orrstown Financial Services, Inc		10.9	%			11.7	%			12.2	%			12.8	%			12.7	%
Orrstown Bank		12.2	%			12.7	%			12.9	%			13.5	%			13.5	%
Tier 1 common equity risk-based capital:
Orrstown Financial Services, Inc		10.9	%			11.7	%			12.2	%			12.8	%			12.7	%
Orrstown Bank		12.2	%			12.7	%			12.9	%			13.5	%			13.5	%
Tier 1 leverage capital:
Orrstown Financial Services, Inc		8.5	%			8.8	%			8.5	%			8.3	%			8.0	%
Orrstown Bank		9.5	%			9.5	%			8.9	%			8.7	%			8.5	%
Average equity to average assets		8.64	%			9.47	%			9.34	%			9.20	%			8.83	%
Allowance for loan losses to total loans		1.15	%			1.09	%			1.07	%			1.03	%			1.00	%
Total nonaccrual loans to total loans		0.27	%			0.28	%			0.33	%			0.47	%			0.51	%
Nonperforming assets to total assets		0.19	%			0.19	%			0.23	%			0.32	%			0.34	%
Allowance for loan losses to nonaccrual loans		432	%			390	%			328	%			219	%			195	%
Other information:
Net charge-offs (recoveries)	$	4			$	(28	)		$	(115	)		$	(219	)		$	211
Classified loans		19,682				23,421				23,050				26,910				28,731
Nonperforming and other risk assets:
Nonaccrual loans		5,387				5,510				6,449				9,116				9,941
Other real estate owned		—				—				—				—				—
Total nonperforming assets		5,387				5,510				6,449				9,116				9,941
Restructured loans still accruing		568				575				804				839				852
Loans past due 90 days or more and still accruing (2)		322				238				1,201				362				212
Total nonperforming and other risk assets	$	6,277			$	6,323			$	8,454			$	10,317			$	11,005
(1) Capital ratios are estimated, subject to regulatory filings.
(2) Includes $0.3 million, $0.2 million, $0.3 million, $0.4 million and $0.2 million of purchased credit impaired loans at June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021, and June 30, 2021, respectively. As of December 31, 2021, there was one loan for $0.9 million, which was in the process of collection and guaranteed by the SBA, and was subsequently collected during the first quarter of 2022.

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

As a result of acquisitions, the Company has intangible assets consisting of goodwill and core deposit and other intangible assets, which totaled $22.3 million and $22.9 million at June 30, 2022 and December 31, 2021, respectively.

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

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

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

(dollars in thousands, except per share information)

Tangible Book Value per Common Share		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Shareholders' equity		$	237,527			$	254,804			$	271,656			$	268,569			$	265,938
Less: Goodwill			18,724				18,724				18,724				18,724				18,724
Other intangible assets			3,610				3,891				4,183				4,486				4,800
Related tax effect			(758	)			(817	)			(878	)			(942	)			(1,008	)
Tangible common equity (non-GAAP)		$	215,951			$	233,006			$	249,627			$	246,301			$	243,422
Common shares outstanding			10,676				11,079				11,183				11,205				11,263
Book value per share (most directly comparable GAAP based measure)		$	22.25			$	23.00			$	24.29			$	23.97			$	23.61
Intangible assets per share			2.02				1.97				1.97				1.99				2.00
Tangible book value per share (non-GAAP)		$	20.23			$	21.03			$	22.32			$	21.98			$	21.61

Allowance for Loan Losses to Non-SBA Guaranteed Loans:
	June 30, 2022				March 31, 2022
Allowance for loan losses	$	23,279			$	21,508
Gross loans		2,017,629				1,978,307
less: SBA guaranteed loans		(32,599	)			(124,545	)
Non-SBA guaranteed loans	$	1,985,030			$	1,853,762
Allowance for loan losses to non-SBA guaranteed loans		1.2	%			1.2	%

Appendix B- Investment Portfolio Concentrations

The following table summarizes the credit ratings and collateral associated with the Company's investment security portfolio, excluding equity securities, at June 30, 2022:

(dollars in thousands)

Sector	Portfolio Mix			Amortized Book				Fair Value				Credit Enhancement			AAA			AA			A			BBB			NR			Collateral Type
Unsecured ABS	1	%		$	5,684			$	5,664			32	%		—	%		—	%		—	%		—	%		100	%		Unsecured Consumer Debt
Student Loan ABS	2				7,717				7,558			26			—			—			—			—			100			Seasoned Student Loans
Federal Family Education Loan ABS	17				94,462				90,719			7			86			14			—			—			—			Federal Family Education Loan (1)
PACE Loan ABS	1				3,153				3,025			6			100			—			—			—			—			PACE Loans (4)
Non-Agency RMBS	3				17,520				16,221			11			61			—			—			—			39			Reverse Mortgages (2)
Municipal - General Obligation	22				122,863				114,009						5			90			5			—			—
Municipal - Revenue	24				132,281				119,518						—			83			12			—			5
SBA ReRemic (5)	1				6,469				6,367						—			100			—			—			—			SBA Guarantee (3)
Agency MBS	25				139,251				131,249						—			100			—			—			—			Residential Mortgages (3)
U.S. Treasury securities	4				20,077				17,969						—			100			—			—			—
Bank CDs	—				249				249						—			—			—			—			100			FDIC Insured CD
	100	%		$	549,726			$	512,548						18	%		73	%		4	%		—	%		5	%
(1) Minimum of 17% guaranteed by U.S. government
(2) Reverse mortgages fund over time and credit enhancement is estimated based on prior experience
(3) 77% guaranteed by U.S. government agencies
(4) PACE acronym represents Property Assessed Clean Energy loans
(5) SBA ReRemic acronym represents Re-Securitization of Real Estate Mortgage Investment Conduits
Note : Ratings in table are the lowest of the three rating agencies (Standard & Poor's, Moody's & Fitch). Standard & Poor's rates U.S. government obligations at AA+

About the Company

With $2.8 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 and Section 21E of the Exchange Act. Forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company's industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Forward-looking statements are statements that include projections, predictions, expectations, estimates or beliefs about events or results or otherwise are not statements of historical factors, many of which, by their nature, are inherently uncertain and beyond the Company's control, and include, but are not limited to, statements related to new business development, new loan opportunities, growth in the balance sheet and fee-based revenue lines of business, merger and acquisition activity, reducing risk assets and mitigating losses in the future. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will achieve the desired level of new business development and new loans, growth in the balance sheet and fee-based revenue lines of business, successful merger and acquisition activity and continued reductions in risk assets or mitigate losses in the future. In addition to risks and uncertainties related to the COVID-19 pandemic (including those related to variants) and resulting governmental and societal responses, factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; the integration of the Company's strategic acquisitions; the inability to fully achieve expected savings, efficiencies or synergies from mergers and acquisitions, or taking longer than estimated for such savings, efficiencies and synergies to be realized; changes in laws and regulations; interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; the demand for our products and services; deteriorating economic conditions; geopolitical tensions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; 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 detailed in our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Reports on Form 10-Q under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other filings made with the SEC. The statements are valid only as of the date hereof and we disclaim any obligation to update this information. 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.

FAQ

What were Orrstown Financial Services' earnings in Q2 2022?

Orrstown reported a net income of $8.9 million for Q2 2022.

How much did Orrstown's earnings per share increase in Q2 2022?

The diluted earnings per share rose to $0.83 in Q2 2022.

What was the commercial loan growth for Orrstown in Q2 2022?

Commercial loan growth in Q2 2022 was $125.9 million, or 34% annualized.

When is the dividend payment for Orrstown Financial Services?

The dividend payment of $0.19 per share is payable on August 8, 2022.

What changes occurred in Orrstown's provision for loan losses in Q2 2022?

The provision for loan losses increased to $1.8 million in Q2 2022 from $0.3 million in Q1 2022.