Orrstown Financial Services, Inc. Reports Second Quarter 2021 Results and Announces Increased Quarterly Dividend
- Net income of $8.8 million for the quarter; diluted second quarter 2021 EPS of $0.79 per share versus $0.92 per share in the first quarter of 2021 and $0.58 per share in the second quarter of 2020
- The Board of Directors declared a cash dividend of $0.19 per common share, payable August 9, 2021, to shareholders of record as of August 2, 2021, an increase from $0.18 per common share in the first quarter of 2021
- Commercial loan growth for the quarter, excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, was 24% annualized as loan demand was robust late in the second quarter of 2021; momentum continues with a strong commercial pipeline
- Provision expense of $0.6 million was recorded in the second quarter of 2021 as compared to a provision reversal of $1.0 million in the first quarter of 2021; commercial loan production drove the increase; the provision included $0.8 million and $1.0 million of COVID-19 reserve reductions for the three months ended June 30, 2021 and March 31, 2021, respectively
- Noninterest expenses improved to $17.0 million in the second quarter of 2021 as compared to $17.8 million in the first quarter of 2021; the efficiency ratio was stable at 60% for first and second quarters of 2021
- Noninterest income was $6.7 million in the second quarter of 2021 as compared to $7.5 million in the first quarter of 2021; the first quarter included a $0.6 million reduction of the mortgage servicing rights valuation reserve
- Return on average assets totaled 1.2% in the second quarter of 2021 compared to 1.4% in the first quarter of 2021; second quarter provision increase caused the reduction
- Tangible book value per share(1) increased to $21.61 at June 20, 2021 from $20.59 at March 31, 2021 and $19.93 at December 31, 2020
- Net interest margin declined to 3.24% in the second quarter of 2021 from 3.38% in the first quarter of 2021 due primarily to increased liquidity that resulted from SBA PPP forgiveness
- The SBA PPP portfolio averaged $471.2 million in the three months ended June 30, 2021 as compared to $463.0 million in the three months ended March 31, 2021
- Deposits declined by $53.0 million, or 8% annualized, from the first quarter of 2021 as a result of the usage of stimulus and PPP funds; average deposits per branch remained strong at $97 million for the second quarter of 2021
- Cost of deposits fell by six basis points in the quarter due to late first quarter rate adjustments and changes in mix
(1) Non-GAAP measure. See Appendix B for additional information.
SHIPPENSBURG, Pa., July 20, 2021 (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, 2021. Net income totaled $8.8 million for the three months ended June 30, 2021, compared with $10.2 million for the three months ended March 31, 2021 and $6.4 million in the three months ended June 30, 2020. Diluted earnings per share totaled $0.79 for the three months ended June 30, 2021, compared with $0.92 in the three months ended March 31, 2021 and $0.58 in the three months ended June 30, 2020.
Thomas R. Quinn, Jr., President & CEO, commented, “With another quarter of strong earnings and growing optimism for sustained future earnings, Orrstown’s Board saw an opportunity to further enhance shareholder value and approved an increase to its quarterly dividend. Orrstown strives to serve its community, employees and shareholders in the best way possible and this action along with the Company’s efforts in the past 15 months solidifies that message. After tirelessly devoting the past several quarters to SBA PPP efforts, our seasoned lending team quickly pivoted to commercial loan production. While we continue to service the needs of our PPP clients as we help them navigate through the forgiveness process, our primary focus has returned to growing our core business. The commercial loan pipeline is robust and we expect to see excellent production through the second half of the year. Orrstown continues to take advantage of market disruption which has resulted in both new client relationships and new talent that fits with our strategic vision and core values.”
Mr. Quinn continued, “With the economy re-opened and COVID-19 mandates lifted, our commercial lenders have been enabled to do what they do best, which is interacting with clients and driving new business opportunities. Recruitment will be the key to increasing mortgage banking revenue and replenishing the mortgage loan portfolio. As the profit boost from PPP activity wanes through 2022, our focus remains on replacing that income over the long-term. With interest rates expected to remain at historical lows in the near term, we plan to maintain discipline with our commercial lending and seek appropriate opportunities to utilize excess liquidity that fit within our relationship model and drive long-term growth.”
DISCUSSION OF RESULTS
Balance Sheet
Loans
Loans held for investment, which includes SBA PPP loans, declined by $99.6 million from March 31, 2021 to June 30, 2021, or 20% annualized, due to SBA PPP forgiveness and consumer loan reductions, partially offset by net commercial loan production. SBA PPP loans, net of deferred fees and costs, declined during the quarter by $148.7 million to $355.6 million at June 30, 2021 from $504.3 million at March 31, 2021. Commercial loans, excluding SBA PPP loans, increased by $68.8 million, or 24% annualized, from March 31, 2021 to June 30, 2021 resulting from strong commercial loan production. Loans held for investment are down by $34.3 million, or 2%, from December 31, 2020 to June 30, 2021. Loan demand has increased and is expected to continue for the remainder of the year as the COVID-19 related restrictions were lifted in the second quarter of 2021.
We expect most of the 2020 SBA PPP loan balances to be forgiven by the end of 2021. The SBA PPP loan originations in 2021 totaled $231.7 million at June 30, 2021. A number of the 2021 loans began to achieve forgiveness in the second quarter of 2021 and it is expected most of these 2021 originations will be forgiven by the end of 2022. Net deferred fees of $11.2 million remain at June 30, 2021, the majority of which is expected to be earned by the end of 2022.
Residential mortgage loans declined by $13.3 million, or 24% annualized in the three months ended June 30, 2021. In addition to experiencing an overall decline in mortgage volume, the low interest rate environment has reduced the Company’s appetite for portfolio mortgage loans. Despite this decline, overall loan growth in 2021, excluding SBA PPP, is expected to be mid-single digits with commercial lending growth exceeding 10%.
Deposits
Deposits declined by $53.0 million, or 8% annualized, but remained at $2.5 billion at June 30, 2021 compared to March 31, 2021. This decline is attributed to deposit customers’ utilization of stimulus funds received in the first quarter of 2021, as well as usage of SBA PPP funds. Non-interest bearing demand deposits declined by $19.0 million in the second quarter of 2021, or 14% annualized, and interest bearing checking deposits declined by $28.9 million, or 12% annualized. This decline was partially offset by money market and savings account growth of $19.3 million, or 12% annualized, from March 31, 2021 to June 30, 2021. Certificates of deposit declined by $24.3 million from March 31, 2021 to June 30, 2021, or 25% annualized. Deposits are up by $137.2 million, or 6%, from December 31, 2020 to June 30, 2021 due primarily to SBA PPP loan fundings. Deposit balances are expected to continue to gradually decline over time as clients access their remaining PPP funds and deploy their excess liquidity, which contributed to the Bank’s loan-to-deposit ratio of 78% at June 30, 2021. On a longer term basis, the Bank will continue to target a loan-to-deposit ratio of 90%.
Other
Investment securities increased by $42.1 million to $460.1 million at June 30, 2021 as compared to $418.0 million at March 31, 2021, due primarily to purchases of agency backed securities and municipal bonds. Longer term, the Bank will continue to seek to deploy excess liquidity to relationship lending strategies to maximize its net interest margin as rates rise. See Appendix C for a summary of the current investment portfolio that highlights the concentrations, quality and credit enhancement levels for the portfolio.
Income Statement
Net Interest Income and Margin
Net interest income remained consistent at $21.9 million for the three months ended June 30, 2021 compared to the three months ended March 31, 2021. The net interest margin declined to 3.24% in the second quarter of 2021 from 3.38% in the first quarter of 2021. The margin reduction was primarily a result of an increase in excess cash (17 basis points) and lower purchase accounting accretion (6 basis points), partially offset by a 13 basis point increase in yield on SBA PPP loans.
SBA PPP loans had an average outstanding balance of $471.2 million and yielded approximately 4.4% in the three months ended June 30, 2021. This yield increased from approximately 3.9% in the first quarter of 2021 due to the realization of fees on $197.5 million of SBA PPP loans forgiven in the second quarter of 2021 compared to $80.3 million forgiven in the first quarter of 2021. Net deferred SBA PPP fees of $3.8 million were earned in the second quarter of 2021.
Repricing actions by management at the end of the first quarter of 2021 led to a deposit cost reduction of six basis points in the second quarter of 2021 to 0.17%, which is down from 0.23% in the first quarter of 2021 and 0.60% in the second quarter of 2020.
Excess liquidity that has resulted from SBA PPP forgiveness and an inflow of deposit funds from the SBA PPP and government stimulus programs is expected to continue to negatively impact the margin in the short term as there is little spread on its earnings. We expect that this excess liquidity will exit the banking system in the future as our clients utilize these funds. Our objective of emphasizing balance sheet mix is expected to lead to a higher net interest margin over the long-term. These efforts may mute growth in assets, but should lead to growth in net interest income, earnings and return on assets. It is anticipated that the net interest margin will remain under pressure in 2021 due to excess liquidity combined with low interest rates anticipated for the remainder of the year, coupled with an asset sensitive balance sheet. We believe that our efforts on balance sheet mix enhancement, SBA PPP lending and fee income generation will be effective to manage through the currently challenging external environment.
Provision for Loan Losses
We continue to see favorable asset quality trends including most loans that we placed on payment deferral in 2020 having resumed paying status. The allowance for loan losses totaled $19.4 million at June 30, 2021, compared with $19.0 million at March 31, 2021. Total classified loans decreased by $3.7 million, or 11%, to $28.7 million from March 31, 2021 to June 30, 2021. As of June 30, 2021, the Bank had active COVID-19 related deferred loans totaling $3.9 million, or 0.25% of its total loan portfolio, excluding PPP loans. This compared to $7.5 million, or 0.49% of total loans, excluding PPP loans, at March 31, 2021 and $239.3 million, or 15.1% of total loans, excluding PPP loans, at June 30, 2020.
Net charge offs were $0.2 million, or 0.01% of total non-SBA PPP loans, for both the June 30, 2021 and March 31, 2021 quarters. Nonperforming loans totaled $9.9 million at both June 30, 2021 and March 31, 2021, which was 0.51% of gross loans at June 30, 2021 and 0.48% of gross loans at March 31, 2021. The ratio of the allowance for loan losses to nonperforming loans was 195% at June 30, 2021 compared to 192% at March 31, 2021. The allowance to non-SBA guaranteed loans(1) remained steady at 1.2% as of June 30, 2021 and March 31, 2021. Management believes the allowance for loan losses to be adequate based on current asset quality metrics.
Strong commercial loan growth and some charge-off activity resulted in provision expense of $0.6 million in the three months ended June 30, 2021 despite generally positive trends and sustained performance in the asset quality of the loan portfolio. This compares to a provision reversal of $1.0 million recorded in the three months ended March 31, 2021 and $1.9 million of provision expense recorded in the three months ended June 30, 2020. While there remains uncertainty in the external environment regarding the relative strength of the economy, management determined that a release of a portion of its COVID-19 qualitative reserve is appropriate. This was due to the satisfactory performance of borrowers in the commercial portfolio and consideration of the amount of deferrals that have resumed making regular monthly payments. Accordingly, the qualitative factor within the allowance designated for the impact of COVID-19 was lowered by $0.8 million from March 31, 2021 to $1.0 million at June 30, 2021.
The combination of active client relationship consultation, loan payment deferrals, increased risk management focus on higher risk loan concentrations (primarily hotels and restaurants) and significant client participation in the SBA PPP have contributed to the favorable delinquency and charge-off trends we experienced during the pandemic.
(1) Non-GAAP measure. See Appendix B for additional information.
Noninterest Income
Noninterest income totaled $6.7 million in the three months ended June 30, 2021 compared with $7.5 million in the three months ended March 31, 2021 and $7.2 million in the three months ended June 30, 2020. Management continues to focus on opportunities to enhance fee income to offset potential net interest margin compression.
Total wealth management income for the three months ended June 30, 2021 grew to $2.9 million, as compared to $2.7 million for the three months ended March 31, 2021 and $2.3 million in the second quarter of 2020. Strong market conditions continue to drive wealth management income along with the addition of new clients.
Mortgage banking income declined by $1.0 million from the first quarter of 2021 to $1.2 million in the second quarter of 2021, partially due to a $0.5 million reduction in the fair value of the mortgages held for sale and interest rate lock commitments compared a reduction of $0.1 million in the first quarter of 2021. This was driven by declining production volume. Also, the second quarter of 2021 included a mortgage servicing valuation allowance reduction of $0.1 million as compared to $0.6 million in the first quarter of 2021. Mortgage loans sold totaled $51.8 million in the second quarter of 2021 compared with $57.3 million in the first quarter of 2021 and $49.5 million in the second quarter of 2020. As of June 30, 2021, the Bank services $480.4 million of loans for others, which is up by $16.4 million from March 31, 2021. On a year-to-date basis, mortgage activity has been strong. Mortgage banking income was $3.4 million for the six months ended June 30, 2021 as compared to $1.9 million for the six months ended June 30, 2020.
Debit card interchange income totaled $1.1 million in the second quarter of 2021, which is up $0.1 million from the prior quarter and up $0.2 million from the second quarter of 2020. Rising spending activity from the re-opening of the economy from COVID-19 and government stimulus payments drove this increase.
Noninterest Expenses
Noninterest expenses declined by $0.8 million to $17.0 million in the three months ended June 30, 2021 from the three months ended March 31, 2021. The decrease is due primarily to a $0.4 million reduction in the Bank’s unfunded commitment reserve in the three months ended June 30, 2021 as compared to an increase of $0.3 million in the same reserve for the three months ended March 31, 2021. There were also declines in occupancy, advertising and professional services due to normal fluctuations. Market disruption continues to present opportunities to add experienced lenders and other valuable contributors to the organization. As these opportunities arise to facilitate the Company’s growth, it could lead to increased expenses.
Income Taxes
The Company’s effective tax rate for the second quarter of 2021 was 19.3% compared with 19.1% for the first quarter of 2021. The Company’s effective tax rate 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 change in the effective rate reflects an increase in projected income for the full 2021 year.
Capital
Shareholders’ equity totaled $265.9 million at June 30, 2021, an increase of $11.5 million from $254.4 million at March 31, 2021. The increase was primarily attributable to net income and accumulated other comprehensive income from investment gains recorded in the three months ended June 30, 2021 offset by dividends paid in the period. Tangible book value per share grew from $19.93 per share at December 31, 2020 to $21.61 per share at June 30, 2021, an increase of 8%.
The Company’s tangible common equity ratio increased to 8.4% at June 30, 2021 from 7.8% at March 31, 2021. The Company’s Tier 1 leverage ratio was 8.0% at June 30, 2021 and 8.1% at March 31, 2021. The Company’s total risk-based capital ratio decreased from 16.2% at March 31, 2021 to 15.6% at June 30, 2021. A balance sheet shift to higher risk assets, including commercial loans, drove this reduction. As the balance of SBA PPP loans starts to decline, the Bank’s tier 1 leverage ratio is expected to gradually increase if the cash position remains stable or reduced. The ratio is still well above that required to be considered “well-capitalized” under applicable regulatory requirements. As a result of the Company’s performance in the first half of 2021 and a strong capital position, the Board of Directors approved a quarterly dividend increase from $0.18 per share to $0.19 per share. The dividend payout ratio totaled 24% for the three months ended June 30, 2021. The Company continues to believe that capital is adequate at this time to support the risks inherent in the balance sheet, as well as growth requirements.
| Investor Relations Contact: | Media Contact: |
| Matthew C. Schultheis, CFA | Luke Bernstein |
| Director Strategic Planning and Investor Relations | Corporate Communications Officer |
| Phone (717) 510-7127 | Phone (717) 510-7107 |
| 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) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Profitability for the period: | |||||||||||||||
| Net interest income | $ | 21,901 | $ | 20,798 | $ | 43,756 | $ | 39,060 | |||||||
| Provision for loan losses | 625 | 1,900 | (375 | ) | 2,825 | ||||||||||
| Noninterest income | 6,664 | 7,193 | 14,208 | 14,267 | |||||||||||
| Noninterest expenses | 17,033 | 18,431 | 34,816 | 36,735 | |||||||||||
| Income before income taxes | 10,907 | 7,660 | 23,523 | 13,767 | |||||||||||
| Income tax expense | 2,131 | 1,301 | 4,540 | 2,340 | |||||||||||
| Net income available to common shareholders | $ | 8,776 | $ | 6,359 | $ | 18,983 | $ | 11,427 | |||||||
| Financial ratios: | |||||||||||||||
| Return on average assets (1) | 1.20 | % | 0.94 | % | 1.33 | % | 0.90 | % | |||||||
| Return on average equity (1) | 13.56 | % | 11.82 | % | 15.04 | % | 10.36 | % | |||||||
| Net interest margin (1) | 3.24 | % | 3.37 | % | 3.31 | % | 3.39 | % | |||||||
| Efficiency ratio | 59.6 | % | 65.8 | % | 60.1 | % | 68.9 | % | |||||||
| Income per common share: | |||||||||||||||
| Basic | $ | 0.80 | $ | 0.58 | $ | 1.73 | $ | 1.04 | |||||||
| Diluted | $ | 0.79 | $ | 0.58 | $ | 1.71 | $ | 1.04 | |||||||
| Average equity to average assets | 8.83 | % | 7.94 | % | 8.84 | % | 8.69 | % | |||||||
| (1) Annualized. | |||||||||||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||
| FINANCIAL HIGHLIGHTS (Unaudited) | |||||||
| (continued) | |||||||
| June 30, | December 31, | ||||||
| 2021 | 2020 | ||||||
| At period-end: | |||||||
| Total assets | $ | 2,912,717 | $ | 2,750,572 | |||
| Total deposits | 2,494,100 | 2,356,880 | |||||
| Loans, net of allowance for loan losses | 1,926,002 | 1,959,539 | |||||
| Loans held-for-sale, at fair value | 8,092 | 11,734 | |||||
| Securities available for sale | 450,402 | 466,465 | |||||
| Borrowings | 80,709 | 77,511 | |||||
| Subordinated notes | 31,932 | 31,903 | |||||
| Shareholders’ equity | 265,938 | 246,249 | |||||
| Credit quality and capital ratios (1): | |||||||
| Allowance for loan losses to total loans | 1.00 | % | 1.02 | % | |||
| Total nonaccrual loans to total loans | 0.51 | % | 0.52 | % | |||
| Nonperforming assets to total assets | 0.34 | % | 0.37 | % | |||
| Allowance for loan losses to nonaccrual loans | 195 | % | 195 | % | |||
| Total risk-based capital: | |||||||
| Orrstown Financial Services, Inc. | 15.6 | % | 15.6 | % | |||
| Orrstown Bank | 14.7 | % | 14.7 | % | |||
| Tier 1 risk-based capital: | |||||||
| Orrstown Financial Services, Inc. | 12.8 | % | 12.5 | % | |||
| Orrstown Bank | 13.5 | % | 13.5 | % | |||
| Tier 1 common equity risk-based capital: | |||||||
| Orrstown Financial Services, Inc. | 12.8 | % | 12.5 | % | |||
| Orrstown Bank | 13.5 | % | 13.5 | % | |||
| Tier 1 leverage capital: | |||||||
| Orrstown Financial Services, Inc. | 8.0 | % | 8.1 | % | |||
| Orrstown Bank | 8.5 | % | 8.7 | % | |||
| Book value per common share | $ | 23.61 | $ | 21.98 | |||
| (1) Capital ratios are estimated, subject to regulatory filings | |||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||
| CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||
| (Dollars in thousands, except per share amounts) | June 30, 2021 | December 31, 2020 | |||||
| Assets | |||||||
| Cash and due from banks | $ | 27,623 | $ | 26,203 | |||
| Interest-bearing deposits with banks | 309,139 | 99,055 | |||||
| Cash and cash equivalents | 336,762 | 125,258 | |||||
| Restricted investments in bank stocks | 9,691 | 10,563 | |||||
| Securities available for sale (amortized cost of $440,411 and $460,999 at June 30, 2021 and December 31, 2020, respectively) | 450,402 | 466,465 | |||||
| Loans held for sale, at fair value | 8,092 | 11,734 | |||||
| Loans | 1,945,383 | 1,979,690 | |||||
| Less: Allowance for loan losses | (19,381 | ) | (20,151 | ) | |||
| Net loans | 1,926,002 | 1,959,539 | |||||
| Premises and equipment, net | 34,529 | 35,149 | |||||
| Cash surrender value of life insurance | 69,375 | 68,554 | |||||
| Goodwill | 18,724 | 18,724 | |||||
| Other intangible assets, net | 4,800 | 5,458 | |||||
| Accrued interest receivable | 7,930 | 8,927 | |||||
| Other assets | 46,410 | 40,201 | |||||
| Total assets | $ | 2,912,717 | $ | 2,750,572 | |||
| Liabilities | |||||||
| Deposits: | |||||||
| Noninterest-bearing | $ | 529,137 | $ | 456,778 | |||
| Interest-bearing | 1,964,963 | 1,900,102 | |||||
| Total deposits | 2,494,100 | 2,356,880 | |||||
| Securities sold under agreements to repurchase | 22,872 | 19,466 | |||||
| FHLB advances and other | 57,837 | 58,045 | |||||
| Subordinated notes | 31,932 | 31,903 | |||||
| Accrued interest and other liabilities | 40,038 | 38,029 | |||||
| Total liabilities | 2,646,779 | 2,504,323 | |||||
| Shareholders’ Equity | |||||||
| Preferred stock, $1.25 par value per share; 500,000 shares authorized; no shares issued or outstanding | — | — | |||||
| Common stock, no par value—$0.05205 stated value per share 50,000,000 shares authorized; 11,265,510 shares issued and 11,262,751 outstanding at June 30, 2021; 11,257,046 shares issued and 11,201,317 outstanding at December 31, 2020 | 586 | 586 | |||||
| Additional paid—in capital | 188,772 | 189,066 | |||||
| Retained earnings | 69,052 | 54,099 | |||||
| Accumulated other comprehensive income | 7,578 | 3,346 | |||||
| Treasury stock— 2,759 and 55,729 shares, at cost at June 30, 2021 and December 31, 2020, respectively | (50 | ) | (848 | ) | |||
| Total shareholders’ equity | 265,938 | 246,249 | |||||
| Total liabilities and shareholders’ equity | $ | 2,912,717 | $ | 2,750,572 | |||
| 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) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Interest income | ||||||||||||||||
| Loans | $ | 21,323 | $ | 21,794 | $ | 42,834 | $ | 41,960 | ||||||||
| Investment securities – taxable | 1,614 | 2,795 | 3,493 | 6,233 | ||||||||||||
| Investment securities – tax-exempt | 638 | 420 | 1,138 | 704 | ||||||||||||
| Short-term investments | 81 | 13 | 120 | 92 | ||||||||||||
| Total interest income | 23,656 | 25,022 | 47,585 | 48,989 | ||||||||||||
| Interest expense | ||||||||||||||||
| Deposits | 1,081 | 3,310 | 2,473 | 7,664 | ||||||||||||
| Securities sold under agreements to repurchase | 8 | 152 | 17 | 184 | ||||||||||||
| FHLB advances and other | 164 | 260 | 335 | 1,078 | ||||||||||||
| Subordinated notes | 502 | 502 | 1,004 | 1,003 | ||||||||||||
| Total interest expense | 1,755 | 4,224 | 3,829 | 9,929 | ||||||||||||
| Net interest income | 21,901 | 20,798 | 43,756 | 39,060 | ||||||||||||
| Provision for loan losses | 625 | 1,900 | (375 | ) | 2,825 | |||||||||||
| Net interest income after provision for loan losses | 21,276 | 18,898 | 44,131 | 36,235 | ||||||||||||
| Noninterest income | ||||||||||||||||
| Service charges | 880 | 719 | 1,765 | 1,706 | ||||||||||||
| Interchange income | 1,064 | 819 | 2,019 | 1,607 | ||||||||||||
| Swap fee income | 15 | 232 | 68 | 432 | ||||||||||||
| Wealth management income | 2,930 | 2,295 | 5,653 | 4,654 | ||||||||||||
| Mortgage banking activities | 1,162 | 1,609 | 3,351 | 1,941 | ||||||||||||
| Gains on sale of portfolio loans | — | 925 | — | 2,803 | ||||||||||||
| Investment securities gains (losses) | 11 | 9 | 156 | (31 | ) | |||||||||||
| Other income | 602 | 585 | 1,196 | 1,155 | ||||||||||||
| Total noninterest income | 6,664 | 7,193 | 14,208 | 14,267 | ||||||||||||
| Noninterest expenses | ||||||||||||||||
| Salaries and employee benefits | 10,212 | 10,063 | 20,409 | 21,657 | ||||||||||||
| Occupancy, furniture and equipment | 2,400 | 2,326 | 4,918 | 4,615 | ||||||||||||
| Data processing, telephone, and communication | 1,032 | 791 | 2,051 | 1,662 | ||||||||||||
| Advertising and bank promotions | 274 | 167 | 699 | 956 | ||||||||||||
| FDIC insurance | 158 | 214 | 352 | 261 | ||||||||||||
| Professional services | 579 | 1,021 | 1,300 | 1,737 | ||||||||||||
| Taxes other than income | 462 | 449 | 913 | 451 | ||||||||||||
| Intangible asset amortization | 324 | 404 | 658 | 867 | ||||||||||||
| Insurance claim recovery | — | — | — | (486 | ) | |||||||||||
| Other operating expenses | 1,592 | 2,996 | 3,516 | 5,015 | ||||||||||||
| Total noninterest expenses | 17,033 | 18,431 | 34,816 | 36,735 | ||||||||||||
| Income before income tax expense | 10,907 | 7,660 | 23,523 | 13,767 | ||||||||||||
| Income tax expense | 2,131 | 1,301 | 4,540 | 2,340 | ||||||||||||
| Net income | $ | 8,776 | $ | 6,359 | $ | 18,983 | $ | 11,427 | ||||||||
| Share information: | ||||||||||||||||
| Basic earnings per share | $ | 0.80 | $ | 0.58 | $ | 1.73 | $ | 1.04 | ||||||||
| Diluted earnings per share | $ | 0.79 | $ | 0.58 | $ | 1.71 | $ | 1.04 | ||||||||
| Weighted average shares – basic | 10,975 | 10,916 | 10,975 | 10,937 | ||||||||||||
| Weighted average shares – diluted | 11,112 | 10,993 | 11,093 | 11,027 | ||||||||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||||||||||||||||||||||||||||||||||||
| ANALYSIS OF NET INTEREST INCOME | |||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| 6/30/2021 | 03/31/21 | 12/31/20 | 09/30/20 | 6/30/2020 | |||||||||||||||||||||||||||||||||||||||||||||
| Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | Taxable- | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Average | Equivalent | Equivalent | Average | Equivalent | Equivalent | Average | Equivalent | Equivalent | Average | Equivalent | Equivalent | Average | Equivalent | Equivalent | ||||||||||||||||||||||||||||||||||
| Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||
| Federal funds sold & interest-bearing bank balances | $ | 290,039 | $ | 81 | 0.11 | % | $ | 145,595 | $ | 39 | 0.11 | % | $ | 48,019 | $ | 14 | 0.12 | % | $ | 31,087 | $ | 9 | 0.12 | % | $ | 27,949 | $ | 13 | 0.18 | % | |||||||||||||||||||
| Investment securities (1) | 438,110 | 2,421 | 2.22 | 468,273 | 2,512 | 2.18 | 486,613 | 2,643 | 2.16 | 496,107 | 2,673 | 2.14 | 493,847 | 3,327 | 2.71 | ||||||||||||||||||||||||||||||||||
| Loans (1)(2)(3) | 2,014,600 | 21,375 | 4.26 | 2,033,219 | 21,574 | 4.30 | 2,015,749 | 23,960 | 4.73 | 2,054,193 | 21,741 | 4.21 | 1,988,114 | 21,912 | 4.43 | ||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 2,742,749 | 23,877 | 3.49 | 2,647,087 | 24,125 | 3.70 | 2,550,381 | 26,617 | 4.15 | 2,581,387 | 24,423 | 3.76 | 2,509,910 | 25,252 | 4.05 | ||||||||||||||||||||||||||||||||||
| Other assets | 188,810 | 182,737 | 182,764 | 190,119 | 200,684 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,931,559 | $ | 2,829,824 | $ | 2,733,145 | $ | 2,771,506 | $ | 2,710,594 | |||||||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,394,384 | 292 | 0.08 | $ | 1,334,219 | 438 | 0.13 | $ | 1,283,024 | 655 | 0.20 | $ | 1,213,208 | 939 | 0.31 | $ | 1,154,434 | 1,259 | 0.44 | |||||||||||||||||||||||||||||
| Savings deposits | 200,439 | 50 | 0.10 | 183,576 | 45 | 0.10 | 172,068 | 52 | 0.12 | 168,377 | 67 | 0.16 | 160,738 | 63 | 0.16 | ||||||||||||||||||||||||||||||||||
| Time deposits | 382,467 | 739 | 0.78 | 397,271 | 909 | 0.93 | 411,395 | 1,155 | 1.12 | 432,438 | 1,477 | 1.36 | 462,664 | 1,988 | 1.73 | ||||||||||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | 22,417 | 8 | 0.14 | 21,452 | 9 | 0.17 | 20,055 | 13 | 0.26 | 21,145 | 20 | 0.38 | 21,582 | 24 | 0.45 | ||||||||||||||||||||||||||||||||||
| FHLB advances and other | 57,896 | 164 | 1.14 | 58,000 | 171 | 1.20 | 135,558 | 320 | 0.94 | 219,567 | 394 | 0.71 | 175,336 | 388 | 0.89 | ||||||||||||||||||||||||||||||||||
| Subordinated notes | 31,924 | 502 | 6.29 | 31,909 | 502 | 6.29 | 31,895 | 502 | 6.29 | 31,881 | 501 | 6.28 | 31,867 | 502 | 6.33 | ||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 2,089,527 | 1,755 | 0.34 | 2,026,427 | 2,074 | 0.42 | 2,053,995 | 2,697 | 0.52 | 2,086,616 | 3,398 | 0.65 | 2,006,621 | 4,224 | 0.85 | ||||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | 545,617 | 516,849 | 406,454 | 417,939 | 452,253 | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 37,561 | 36,244 | 36,216 | 37,330 | 36,511 | ||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | 2,672,705 | 2,579,520 | 2,496,665 | 2,541,885 | 2,495,385 | ||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ Equity | 258,854 | 250,304 | 236,480 | 229,621 | 215,209 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,931,559 | $ | 2,829,824 | $ | 2,733,145 | $ | 2,771,506 | $ | 2,710,594 | |||||||||||||||||||||||||||||||||||||||
| Taxable-equivalent net interest income / net interest spread | 22,122 | 3.15 | % | 22,051 | 3.28 | % | 23,920 | 3.63 | % | 21,025 | 3.12 | % | 21,028 | 3.20 | % | ||||||||||||||||||||||||||||||||||
| Taxable-equivalent net interest margin | 3.24 | % | 3.38 | % | 3.73 | % | 3.24 | % | 3.37 | % | |||||||||||||||||||||||||||||||||||||||
| Taxable-equivalent adjustment | (221 | ) | (196 | ) | (192 | ) | (207 | ) | (230 | ) | |||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 21,901 | $ | 21,855 | $ | 23,728 | $ | 20,818 | $ | 20,798 | |||||||||||||||||||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 131 | % | 131 | % | 124 | % | 124 | % | 125 | % | |||||||||||||||||||||||||||||||||||||||
| 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, prior periods have been adjusted to include these fees. | |||||||||||||||||||||||||||||||||||||||||||||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||||||
| ANALYSIS OF NET INTEREST INCOME | |||||||||||||||||||
| Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited) | |||||||||||||||||||
| Six Months Ended | |||||||||||||||||||
| June 30, 2021 | June 30, 2020 | ||||||||||||||||||
| Taxable- | Taxable- | Taxable- | Taxable- | ||||||||||||||||
| Average | Equivalent | Equivalent | Average | Equivalent | Equivalent | ||||||||||||||
| (Dollars in thousands) | Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||
| Assets | |||||||||||||||||||
| Federal funds sold & interest-bearing bank balances | $ | 218,216 | $ | 120 | 0.11 | % | $ | 25,409 | $ | 92 | 0.73 | % | |||||||
| Investment securities (1) | 453,108 | 4,933 | 2.20 | 497,418 | 7,124 | 2.88 | |||||||||||||
| Loans (1)(2)(3) | 2,023,858 | 42,949 | 4.28 | 1,820,830 | 42,199 | 4.66 | |||||||||||||
| Total interest-earning assets | 2,695,182 | 48,002 | 3.59 | 2,343,657 | 49,415 | 4.24 | |||||||||||||
| Other assets | 185,791 | 194,543 | |||||||||||||||||
| Total | $ | 2,880,973 | $ | 2,538,200 | |||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,364,483 | 728 | 0.11 | $ | 1,063,460 | 3,161 | 0.60 | |||||||||||
| Savings deposits | 192,039 | 96 | 0.10 | 155,966 | 127 | 0.16 | |||||||||||||
| Time deposits | 389,828 | 1,649 | 0.85 | 483,014 | 4,376 | 1.82 | |||||||||||||
| Securities sold under agreements to repurchase | 21,937 | 17 | 0.16 | 15,499 | 52 | 0.67 | |||||||||||||
| FHLB advances and other | 57,948 | 335 | 1.17 | 181,372 | 1,210 | 1.34 | |||||||||||||
| Subordinated notes | 31,916 | 1,004 | 6.29 | 31,860 | 1,003 | 6.29 | |||||||||||||
| Total interest-bearing liabilities | 2,058,151 | 3,829 | 0.38 | 1,931,171 | 9,929 | 1.03 | |||||||||||||
| Noninterest-bearing demand deposits | 531,313 | 351,208 | |||||||||||||||||
| Other | 36,906 | 35,139 | |||||||||||||||||
| Total Liabilities | 2,626,370 | 2,317,518 | |||||||||||||||||
| Shareholders’ Equity | 254,603 | 220,682 | |||||||||||||||||
| Total | $ | 2,880,973 | $ | 2,538,200 | |||||||||||||||
| Taxable-equivalent net interest income / net interest spread | 44,173 | 3.22 | % | 39,486 | 3.21 | % | |||||||||||||
| Taxable-equivalent net interest margin | 3.31 | % | 3.39 | % | |||||||||||||||
| Taxable-equivalent adjustment | (417 | ) | (426 | ) | |||||||||||||||
| Net interest income | $ | 43,756 | $ | 39,060 | |||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 131 | % | 121 | % | |||||||||||||||
| 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, prior periods have been adjusted to include these fees. | |||||||||||||||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||||||
| HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) | |||||||||||||||||||
| (In thousands, except per share amounts ) | June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
||||||||||||||
| Profitability for the quarter: | |||||||||||||||||||
| Net interest income | $ | 21,901 | $ | 21,855 | $ | 23,729 | $ | 20,818 | $ | 20,798 | |||||||||
| Provision for loan losses | 625 | (1,000 | ) | 300 | 2,200 | 1,900 | |||||||||||||
| Noninterest income | 6,664 | 7,544 | 7,181 | 6,861 | 7,193 | ||||||||||||||
| Noninterest expenses | 17,033 | 17,783 | 18,080 | 19,265 | 18,431 | ||||||||||||||
| Income before income taxes | 10,907 | 12,616 | 12,530 | 6,214 | 7,660 | ||||||||||||||
| Income tax expense | 2,131 | 2,409 | 2,471 | 1,237 | 1,301 | ||||||||||||||
| Net income | $ | 8,776 | $ | 10,207 | $ | 10,059 | $ | 4,977 | $ | 6,359 | |||||||||
| Financial ratios: | |||||||||||||||||||
| Return on average assets (1) | 1.20 | % | 1.44 | % | 1.47 | % | 0.72 | % | 0.94 | % | |||||||||
| Return on average equity (1) | 13.56 | % | 16.31 | % | 17.01 | % | 8.67 | % | 11.82 | % | |||||||||
| Net interest margin (1) | 3.24 | % | 3.38 | % | 3.73 | % | 3.24 | % | 3.37 | % | |||||||||
| Efficiency ratio | 59.6 | % | 60.5 | % | 58.5 | % | 69.6 | % | 65.8 | % | |||||||||
| Per share information : | |||||||||||||||||||
| Income per common share: | |||||||||||||||||||
| Basic | $ | 0.80 | $ | 0.93 | $ | 0.92 | $ | 0.45 | $ | 0.58 | |||||||||
| Diluted | $ | 0.79 | $ | 0.92 | $ | 0.91 | $ | 0.45 | $ | 0.58 | |||||||||
| Book value | $ | 23.61 | $ | 22.62 | $ | 21.98 | $ | 20.78 | $ | 20.13 | |||||||||
| Tangible book value (2) | $ | 21.61 | $ | 20.59 | $ | 19.93 | $ | 18.70 | $ | 18.03 | |||||||||
| Cash dividends paid | $ | 0.18 | $ | 0.18 | $ | 0.17 | $ | 0.17 | $ | 0.17 | |||||||||
| Average basic shares | 10,975 | 10,975 | 10,953 | 10,941 | 10,916 | ||||||||||||||
| Average diluted shares | 11,112 | 11,074 | 11,057 | 11,025 | 10,993 | ||||||||||||||
| (1) Annualized. | |||||||||||||||||||
| (2) Non-GAAP based financial measure. Please refer to Appendix B – Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein. | |||||||||||||||||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||
| HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) | |||||||||||||||
| (continued) | |||||||||||||||
| June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
|||||||||||
| Noninterest income: | |||||||||||||||
| Service charges | $ | 880 | $ | 885 | $ | 999 | $ | 852 | $ | 719 | |||||
| Interchange income | 1,064 | 955 | 916 | 900 | 819 | ||||||||||
| Loan swap referral fees | 15 | 53 | 320 | 95 | 232 | ||||||||||
| Wealth management income | 2,930 | 2,723 | 2,615 | 2,464 | 2,295 | ||||||||||
| Mortgage banking activities | 1,162 | 2,189 | 1,348 | 1,985 | 1,609 | ||||||||||
| Other income | 602 | 594 | 955 | 578 | 1,510 | ||||||||||
| Investment securities gains (losses) | 11 | 145 | 28 | (13 | ) | 9 | |||||||||
| Total noninterest income | $ | 6,664 | $ | 7,544 | $ | 7,181 | $ | 6,861 | $ | 7,193 | |||||
| Noninterest expenses: | |||||||||||||||
| Salaries and employee benefits | $ | 10,212 | $ | 10,197 | $ | 10,998 | $ | 10,695 | $ | 10,063 | |||||
| Occupancy, furniture and equipment | 2,400 | 2,518 | 2,467 | 2,434 | 2,326 | ||||||||||
| Data processing, telephone, and communication | 1,032 | 1,019 | 954 | 958 | 791 | ||||||||||
| Advertising and bank promotions | 274 | 425 | 507 | 197 | 167 | ||||||||||
| FDIC insurance | 158 | 194 | 195 | 230 | 214 | ||||||||||
| Professional services | 579 | 721 | 780 | 603 | 1,021 | ||||||||||
| Taxes other than income | 462 | 451 | 240 | 453 | 449 | ||||||||||
| Intangible asset amortization | 324 | 334 | 345 | 357 | 404 | ||||||||||
| Merger related and branch consolidation expenses | — | — | — | 1,310 | — | ||||||||||
| Other operating expenses | 1,592 | 1,924 | 1,594 | 2,028 | 2,996 | ||||||||||
| Total noninterest expenses | $ | 17,033 | $ | 17,783 | $ | 18,080 | $ | 19,265 | $ | 18,431 | |||||
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||||||
| HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) | |||||||||||||||||||
| (continued) | |||||||||||||||||||
| June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
|||||||||||||||
| Balance Sheet at quarter end: | |||||||||||||||||||
| Cash and cash equivalents | $ | 336,762 | $ | 326,245 | $ | 125,258 | $ | 87,307 | $ | 52,290 | |||||||||
| Restricted investments in bank stocks | 9,691 | 10,307 | 10,563 | 12,646 | 16,256 | ||||||||||||||
| Securities available for sale | 450,402 | 407,690 | 466,465 | 478,288 | 483,936 | ||||||||||||||
| Loans held for sale, at fair value | 8,092 | 11,449 | 11,734 | 12,804 | 13,594 | ||||||||||||||
| Loans: | |||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||
| Owner occupied | 191,595 | 177,934 | 174,908 | 166,623 | 164,442 | ||||||||||||||
| Non-owner occupied | 471,541 | 415,219 | 409,567 | 403,138 | 390,980 | ||||||||||||||
| Multi-family | 112,420 | 111,757 | 113,635 | 110,153 | 111,016 | ||||||||||||||
| Non-owner occupied residential | 99,631 | 101,381 | 114,505 | 111,958 | 116,531 | ||||||||||||||
| Commercial and industrial (1) | 599,123 | 750,831 | 647,368 | 690,330 | 665,312 | ||||||||||||||
| Acquisition and development: | |||||||||||||||||||
| 1-4 family residential construction | 9,686 | 12,138 | 9,486 | 9,627 | 7,966 | ||||||||||||||
| Commercial and land development | 55,330 | 45,229 | 51,826 | 37,850 | 50,220 | ||||||||||||||
| Municipal | 14,452 | 19,238 | 20,523 | 28,867 | 34,276 | ||||||||||||||
| Total commercial loans | 1,553,778 | 1,633,727 | 1,541,818 | 1,558,546 | 1,540,743 | ||||||||||||||
| Residential mortgage: | |||||||||||||||||||
| First lien | 211,918 | 225,247 | 244,321 | 273,149 | 295,736 | ||||||||||||||
| Home equity – term | 8,321 | 9,183 | 10,169 | 11,108 | 11,944 | ||||||||||||||
| Home equity – lines of credit | 149,601 | 153,169 | 157,021 | 158,106 | 160,842 | ||||||||||||||
| Installment and other loans | 21,765 | 23,695 | 26,361 | 28,961 | 32,052 | ||||||||||||||
| Total loans | 1,945,383 | 2,045,021 | 1,979,690 | 2,029,870 | 2,041,317 | ||||||||||||||
| Allowance for loan losses | (19,381 | ) | (18,967 | ) | (20,151 | ) | (19,725 | ) | (17,517 | ) | |||||||||
| Net loans held-for-investment | 1,926,002 | 2,026,054 | 1,959,539 | 2,010,145 | 2,023,800 | ||||||||||||||
| Goodwill | 18,724 | 18,724 | 18,724 | 18,724 | 18,724 | ||||||||||||||
| Other intangible assets, net | 4,800 | 5,124 | 5,458 | 5,803 | 6,160 | ||||||||||||||
| Total assets | 2,912,717 | 2,963,534 | 2,750,572 | 2,781,667 | 2,772,796 | ||||||||||||||
| Total deposits | 2,494,100 | 2,547,089 | 2,356,880 | 2,279,483 | 2,251,731 | ||||||||||||||
| Borrowings | 80,709 | 80,736 | 77,511 | 200,818 | 226,520 | ||||||||||||||
| Subordinated notes | 31,932 | 31,918 | 31,903 | 31,889 | 31,875 | ||||||||||||||
| Total shareholders’ equity | 265,938 | 254,448 | 246,249 | 232,847 | 225,638 | ||||||||||||||
(1) This balance includes $355.6 million, $504.3 million, $403.3 million, $458.1 million and $447.2 million of SBA PPP loans, net of deferred fees and costs, at June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, respectively.
| ORRSTOWN FINANCIAL SERVICES, INC. | |||||||||||||||||||
| HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) | |||||||||||||||||||
| (continued) | |||||||||||||||||||
| June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
|||||||||||||||
| Capital and credit quality measures (1): | |||||||||||||||||||
| Total risk-based capital: | |||||||||||||||||||
| Orrstown Financial Services, Inc | 15.6 | % | 16.2 | % | 15.6 | % | 15.0 | % | 14.5 | % | |||||||||
| Orrstown Bank | 14.7 | % | 15.3 | % | 14.7 | % | 14.3 | % | 13.9 | % | |||||||||
| Tier 1 risk-based capital: | |||||||||||||||||||
| Orrstown Financial Services, Inc | 12.8 | % | 13.2 | % | 12.5 | % | 12.0 | % | 11.7 | % | |||||||||
| Orrstown Bank | 13.5 | % | 14.1 | % | 13.5 | % | 13.1 | % | 12.8 | % | |||||||||
| Tier 1 common equity risk-based capital: | |||||||||||||||||||
| Orrstown Financial Services, Inc | 12.8 | % | 13.2 | % | 12.5 | % | 12.0 | % | 11.7 | % | |||||||||
| Orrstown Bank | 13.5 | % | 14.1 | % | 13.5 | % | 13.1 | % | 12.8 | % | |||||||||
| Tier 1 leverage capital: | |||||||||||||||||||
| Orrstown Financial Services, Inc | 8.0 | % | 8.1 | % | 8.1 | % | 7.8 | % | 7.6 | % | |||||||||
| Orrstown Bank | 8.5 | % | 8.6 | % | 8.7 | % | 8.5 | % | 8.4 | % | |||||||||
| Average equity to average assets | 8.83 | % | 8.85 | % | 8.65 | % | 8.29 | % | 7.94 | % | |||||||||
| Allowance for loan losses to total loans | 1.00 | % | 0.93 | % | 1.02 | % | 0.97 | % | 0.86 | % | |||||||||
| Total nonaccrual loans to total loans | 0.51 | % | 0.48 | % | 0.52 | % | 0.39 | % | 0.36 | % | |||||||||
| Nonperforming assets to total assets | 0.34 | % | 0.33 | % | 0.37 | % | 0.28 | % | 0.27 | % | |||||||||
| Allowance for loan losses to nonaccrual loans | 195 | % | 192 | % | 195 | % | 250 | % | 237 | % | |||||||||
| Other information: | |||||||||||||||||||
| Net charge-offs (recoveries) | $ | 211 | $ | 184 | $ | (126 | ) | $ | (8 | ) | $ | 186 | |||||||
| Classified loans | 28,731 | 32,408 | 33,147 | 36,408 | 33,376 | ||||||||||||||
| Nonperforming and other risk assets: | |||||||||||||||||||
| Nonaccrual loans | 9,941 | 9,895 | 10,310 | 7,899 | 7,404 | ||||||||||||||
| Other real estate owned | — | — | — | — | 17 | ||||||||||||||
| Total nonperforming assets | 9,941 | 9,895 | 10,310 | 7,899 | 7,421 | ||||||||||||||
| Restructured loans still accruing | 852 | 921 | 934 | 945 | 960 | ||||||||||||||
| Loans past due 90 days or more and still accruing (2) | 212 | 196 | 554 | 520 | 909 | ||||||||||||||
| Total nonperforming and other risk assets | $ | 11,005 | $ | 11,012 | $ | 11,798 | $ | 9,364 | $ | 9,290 | |||||||||
| (1) Capital ratios are estimated, subject to regulatory filings. | |||||||||||||||||||
| (2) Includes $196 thousand, $179 thousand, $515 thousand, $520 thousand and $594 thousand of purchased credit impaired loans at June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, respectively. | |||||||||||||||||||
Appendix A- Supplemental Reporting of Unusual Items
The following table presents unusual items that impacted each period shown. These items are presented to enable investors to better understand the magnitude of certain significant items on reported GAAP results in the context of the Company’s growth and acquisition activities.
| Three Months Ended | Year To Date | |||||||||||||||||||||
| 6/30/2021 | 3/31/21 | 12/31/20 | 9/30/20 | 6/30/2020 | 6/30/2021 | 6/30/2020 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||||
| Pretax Items | ||||||||||||||||||||||
| Branch consolidation expenses | $ | — | $ | — | $ | — | $ | 1,310 | $ | — | $ | — | $ | — | ||||||||
| Net securities gains (losses) | 11 | 145 | 28 | (13 | ) | 9 | 156 | (31 | ) | |||||||||||||
| Gain on swap termination | — | — | 226 | — | — | — | — | |||||||||||||||
| Earnings on life insurance proceeds | — | — | 58 | — | — | — | — | |||||||||||||||
| Gains on sale of portfolio loans | — | — | — | — | 925 | — | 2,803 | |||||||||||||||
| Accretion – recoveries on purchased credit impaired loans | 23 | 256 | 779 | 294 | 1,021 | 278 | 1,232 | |||||||||||||||
| Insurance claim receivable recovery | — | — | — | — | — | — | 486 | |||||||||||||||
Appendix B- Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations
As a result of acquisitions, the Company has intangible assets consisting of goodwill and core deposit and other intangible assets totaling $23.5 million and $24.2 million at June 30, 2021 and December 31, 2020, respectively. Additionally, the Company incurred approximately $1.3 million in charges associated with branch consolidation efforts during the three months ended September 30, 2020.
Management believes providing certain “non-GAAP” financial information will assist investors in their understanding of the effect of acquisition activity on reported results, particularly to overcome comparability issues related to the influence of intangibles (principally goodwill) created in acquisitions. Management also believes providing certain other “non-GAAP” financial information will assist investors in their understanding of the effect on recent financial results of non-recurring charges associated with increasing operational efficiencies for the long-term, and provide investors with clarity on its allowance for loan losses to total loans ratio. The Company believes that excluding SBA PPP loans, due to its credit enhancement, from loans held for investment is useful to investors due to the size and effect on the total and ratio.
Tangible book value per common share and allowance to non-SBA guaranteed loans, as used by the Company in this earnings release, are determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). While we believe this information is a useful supplement to GAAP based measures presented in this earnings release, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to be determined in accordance with GAAP.
The following tables present the computation of each non-GAAP based measure:
(dollars in thousands, except per share information)
| Tangible Book Value per Common Share | June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
|||||||||||||||
| Shareholders’ equity | $ | 265,938 | $ | 254,448 | $ | 246,249 | $ | 232,847 | $ | 225,638 | ||||||||||
| Less: Goodwill | 18,724 | 18,724 | 18,724 | 18,724 | 18,724 | |||||||||||||||
| Other intangible assets | 4,800 | 5,124 | 5,458 | 5,803 | 6,160 | |||||||||||||||
| Related tax effect | (1,008 | ) | (1,076 | ) | (1,146 | ) | (1,219 | ) | (1,294 | ) | ||||||||||
| Tangible common equity (non-GAAP) | $ | 243,422 | $ | 231,676 | $ | 223,213 | $ | 209,539 | $ | 202,048 | ||||||||||
| Common shares outstanding | 11,263 | 11,251 | 11,201 | 11,204 | 11,209 | |||||||||||||||
| Book value per share (most directly comparable GAAP based measure) | $ | 23.61 | $ | 22.62 | $ | 21.98 | $ | 20.78 | $ | 20.13 | ||||||||||
| Intangible assets per share | 2.00 | 2.03 | 2.05 | 2.08 | 2.10 | |||||||||||||||
| Tangible book value per share (non-GAAP) | $ | 21.61 | $ | 20.59 | $ | 19.93 | $ | 18.70 | $ | 18.03 | ||||||||||
| Allowance to Non-SBA Guaranteed Loans: | |||||||
| June 30, 2021 | March 31, 2021 | ||||||
| Allowance for loan losses | $ | 19,381 | $ | 18,967 | |||
| Gross loans | 1,945,383 | 2,045,021 | |||||
| less: SBA guaranteed loans | (356,905 | ) | (506,296 | ) | |||
| Non-SBA guaranteed loans | $ | 1,588,478 | $ | 1,538,725 | |||
| Allowance to non-SBA guaranteed loans | 1.2 | % | 1.2 | % | |||
Appendix C- Investment Portfolio Concentrations
The following table summarizes the credit ratings and collateral associated with the Company’s investment portfolio, excluding equity securities, at June 30, 2021:
(dollars in thousands)
| Sector | Portfolio Mix | Amortized Book | Fair Value | Credit Enhancement | AAA | AA | A | BBB | NR | Collateral Type | ||||||||||||||||||||
| Unsecured ABS | 1 | % | $ | 4,044 | $ | 4,086 | 53 | % | — | % | — | % | — | % | — | % | 100 | % | Unsecured Consumer Debt | |||||||||||
| Student Loan ABS | 2 | % | 9,945 | 9,882 | 26 | — | % | — | % | — | % | — | % | 100 | % | Seasoned Student Loans | ||||||||||||||
| Federal Family Education Loan ABS | 41 | % | 176,220 | 176,388 | 6 | 71 | % | 16 | % | 13 | % | — | % | — | % | Federal Family Education Loan (1) | ||||||||||||||
| PACE Loan ABS | 1 | % | 4,525 | 4,644 | 6 | 100 | % | — | % | — | % | — | % | — | % | PACE Loans | ||||||||||||||
| Non-Agency RMBS | 3 | % | 14,013 | 14,642 | 47 | 100 | % | — | % | — | % | — | % | — | % | Reverse Mortgages (2) | ||||||||||||||
| Municipal – General Obligation | 19 | % | 83,541 | 89,179 | 2 | % | 90 | % | 8 | % | — | % | — | % | ||||||||||||||||
| Municipal – Revenue | 15 | % | 66,344 | 70,237 | — | % | 70 | % | 15 | % | — | % | 15 | % | ||||||||||||||||
| SBA ReRemic | 2 | % | 9,783 | 9,772 | — | % | 100 | % | — | % | — | % | — | % | SBA Guarantee (3) | |||||||||||||||
| Agency MBS | 16 | % | 71,597 | 71,173 | — | % | 100 | % | — | % | — | % | — | % | Residential Mortgages (3) | |||||||||||||||
| Bank CDs | — | % | 249 | 249 | — | % | — | % | — | % | — | % | 100 | % | FDIC Insured CD | |||||||||||||||
| 100 | % | $ | 440,261 | $ | 450,252 | 33 | % | 52 | % | 9 | % | — | % | 6 | % | |||||||||||||||
| (1) Minimum of 97% guaranteed by U.S. government | ||||||||||||||||||||||||||||||
| (2) Reverse mortgages fund over time and credit enhancement is estimated based on prior experience | ||||||||||||||||||||||||||||||
| (3) 100% guaranteed by U.S. government agencies | ||||||||||||||||||||||||||||||
| Note : Ratings in table are the lowest of the three rating agencies (Standard & Poors, Moody’s & Fitch). Standard & Poors rates U.S. government obligations at AA+ | ||||||||||||||||||||||||||||||
| Note: S&P rates US government obligations at AA+ | ||||||||||||||||||||||||||||||
About the Company
With $2.9 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a wide range of consumer and business financial services in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, and Washington Counties, Maryland, as well as Baltimore City, Maryland. Orrstown Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. Orrstown Financial Services, Inc.’s common stock is traded on Nasdaq (ORRF). For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.com.
Cautionary Note Regarding Forward-looking Statements:
This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect the current views of the Company’s management with respect to, among other things, future events and the Company’s financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will be able to continue to successfully execute on its strategic growth plan into Dauphin, Lancaster, York and Berks counties, Pennsylvania, and the greater Baltimore market in Maryland, with newer markets continuing to be receptive to our community banking model; to take advantage of market disruption; to experience sustained growth in loans and deposits or maintain the momentum experienced to date from these actions. In addition to risks and uncertainties related to the COVID-19 pandemic (including those related to variants, such as the delta variant) 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; deteriorating economic conditions; expenses associated with pending litigation and legal proceedings; the failure of the SBA to honor its guarantee of loans issued under the SBA PPP; the timing of the repayment of SBA PPP loans and the impact it has on fee recognition; our ability to convert new relationships gained through the SBA PPP efforts to full banking relationships; and other risks and uncertainties, including those set forth under the heading “Risk Factors” in the Company’s 2020 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission. The foregoing list of factors is not exhaustive.
If one or more events related to these or other risks or uncertainties materializes, or if the Company’s underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for the Company to predict those events or how they may affect it. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on the Company’s behalf may issue.
The review period for subsequent events extends up to and includes the filing date of a public company’s financial statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information presented in this announcement is subject to change.
