Orrstown Financial Services, Inc. Reports Third Quarter 2022 Results

Orrstown Financial Services, Inc.

• Net income of $5.4 million and diluted earnings per share of $0.52 for the quarter ended September 30, 2022 compared to net income of $8.9 million and diluted earnings per share of $0.83 for the quarter ended June 30, 2022;

• Excluding the impact from the previously announced restructuring charge of $3.2 million, net income and diluted earnings per share were $7.9 million and $0.75⁽¹⁾ for the third quarter of 2022, respectively;

• Net interest income increased to $25.5 million for the three months ended September 30, 2022 compared to $24.1 million for the three months ended June 30, 2022 despite a decline of $1.4 million in Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loan income over the same period;

• Net interest margin on a tax equivalent basis increased to 3.92% in the third quarter of 2022 from 3.68% in the second quarter of 2022; net interest margin has increased for five consecutive quarters; strong margin momentum continues as a result of loan growth and the rising interest rate environment;

• Third quarter commercial loan growth, excluding SBA PPP loans, was $57.7 million, or 14% annualized;

• Deposits grew by $27.2 million, or 4% annualized, during the third quarter of 2022;

• Noninterest income of $6.1 million in the third quarter of 2022 compared to $7.2 million in the second quarter of 2022; significant increases in mortgage rates caused a decrease in the fair value of residential mortgages held-for-sale; also contributing to the decline was a reduction in secondary market activity;

• Noninterest expenses increased by $4.6 million to $23.4 million in the third quarter of 2022 from $18.8 million in the second quarter of 2022; excluding the impact from the restructuring charge, noninterest expenses increased to $20.3 million⁽¹⁾ during the third quarter of 2022; salaries and benefits increased during the third quarter of 2022 due primarily to the impact of wage pressures and incentive compensation, but are expected to decline in 2023 as a result of the staffing model adjustments made during the quarter;

• Provision for loan losses of $1.5 million in the third quarter of 2022 compared to $1.8 million in the second quarter of 2022;

• The Board of Directors declared a cash dividend of $0.19 per common share, payable November 7, 2022, to shareholders of record as of October 31, 2022;

• Strategic initiatives were previously announced to drive long-term growth and improve operating efficiencies through branch closures and staffing model adjustments, which resulted in a pre-tax restructuring charge of $3.2 million during the third quarter of 2022.
  

SHIPPENSBURG, Pa., Oct. 18, 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 September 30, 2022. Net income totaled $5.4 million for the three months ended September 30, 2022, compared with $8.9 million for the three months ended June 30, 2022 and $7.2 million for the three months ended September 30, 2021. Diluted earnings per share totaled $0.52 for the three months ended September 30, 2022, compared with $0.83 for the three months ended June 30, 2022 and $0.65 for the three months ended September 30, 2021. Excluding the impact from the restructuring charge, net income and diluted earnings per share were $7.9 million and $0.75, respectively, for the third quarter of 2022⁽¹⁾.

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

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

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

DISCUSSION OF RESULTS

Balance Sheet

Loans

Excluding SBA PPP loans, total loans increased by $83.5 million from June 30, 2022 to September 30, 2022, or 17% annualized. SBA PPP loans, net of deferred fees and costs, declined by $13.2 million to $17.0 million at September 30, 2022 from $30.2 million at June 30, 2022 due to forgiveness activity. Net deferred SBA PPP fees of $0.3 million remain at September 30, 2022. Commercial loans, excluding SBA PPP loans, increased by $57.7 million, or 14% annualized, from June 30, 2022 to September 30, 2022. Loans held for investment, which includes SBA PPP loans, increased by $70.3 million from June 30, 2022 to September 30, 2022, or 14% annualized, due to net commercial and consumer loan growth.

The first lien residential mortgage portfolio grew by $18.2 million, or 36% annualized, in the three months ended September 30, 2022 from jumbo and adjustable-rate mortgage production. Home equity lines of credit increased by $9.0 million, or 21% annualized, in the three months ended September 30, 2022.

Investment Securities

Investment securities decreased by $9.1 million to $510.1 million at September 30, 2022 compared to $519.2 million at June 30, 2022. During the third quarter of 2022, the Bank purchased mortgage-backed securities totaling $10.1 million and asset-backed securities totaling $8.0 million. These purchases were more than offset by an increase in net unrealized losses of $17.3 million, which resulted from market interest rate increases, and normal paydown activity of $9.0 million. See Appendix B for a summary of the Bank's investment securities at September 30, 2022, highlighting the concentrations, credit ratings and credit enhancement levels of the investment securities portfolio at such date.

Deposits

Deposits increased by $27.2 million, or 4% annualized, totaling approximately $2.5 billion at both September 30, 2022 and June 30, 2022. This increase resulted primarily from seasonality of public fund balances as well as retail deposit generation partially offset by certificate of deposit runoff. In the third quarter of 2022, interest-bearing demand deposits increased by $49.0 million, or 21% annualized. There were decreases in certificates of deposits of $12.1 million, or 18% annualized, non-interest-bearing demand deposits of $7.2 million, or 5% annualized, and money market and savings deposits of $2.5 million, or 1% annualized. The Bank's loan-to-deposit ratio was 83% at September 30, 2022, an increase of 2% from June 30, 2022 due to loan growth.

Income Statement

Net Interest Income and Margin

Net interest income increased by $1.4 million to $25.5 million for the three months ended September 30, 2022 compared to $24.1 million for the three months ended June 30, 2022. Net interest margin on a tax equivalent basis increased to 3.92% in the third quarter of 2022 from 3.68% in the second quarter of 2022. The increase in net interest margin was a result of further deployment of cash into loans and investments as well as the impact of the rising interest rates on the loan and investment securities portfolios, partially offset by the increase in the cost of funds.

Interest income on loans, for the three months ended September 30, 2022, increased by $1.1 million to $23.2 million compared to $22.1 million for the three months ended June 30, 2022. Loan growth and higher interest rates were the primary drivers of this increase. Interest income on loans for the three months ended September 30, 2022 included prepayment fee income of $0.1 million, a decrease of $0.3 million, from the three months ended June 30, 2022. Similarly, accretion on acquired loans decreased by $0.3 million to $0.1 million for the three months ended September 30, 2022 compared to the three months ended June 30, 2022 due to fewer payoffs and declining prepayment speed assumptions.

Interest income recognized on SBA PPP loans totaled $0.5 million in the three months ended September 30, 2022 compared to $1.9 million in the three months ended June 30, 2022. The SBA PPP loan portfolio averaged $25.0 million in the three months ended September 30, 2022 compared to $72.5 million in the three months ended June 30, 2022, which reflects continued forgiveness from the SBA.

Interest income on investment securities increased by $1.0 million to $4.4 million in the three months ended September 30, 2022 from $3.4 million for the second quarter of 2022. The increase reflects the impact from rising interest rates on investments for which resets occur at various frequencies and the additional yield generated from investments purchased at the end of the second quarter and into the third quarter of 2022.

Average cash and cash equivalents decreased from $131.4 million in the three months ended June 30, 2022 to $38.1 million in the three months ended September 30, 2022. The decrease reflects the deployment of excess cash balances into loans and investment securities.

Provision for Loan Losses

The Company recorded a provision for loan losses of $1.5 million for the three months ended September 30, 2022 compared to $1.8 million for the three months ended June 30, 2022 primarily due to increases in both commercial and consumer loans during the third quarter of 2022. Net charge-offs were $70 thousand for the three months ended September 30, 2022 compared to net charge-offs of $4 thousand for the three months ended June 30, 2022. The allowance for loan losses totaled $24.7 million at September 30, 2022, compared with $23.3 million at June 30, 2022, and the allowance for loan losses to total loans increased to 1.18% at September 30, 2022 from 1.15% from June 30, 2022.

Asset quality metrics in the third quarter of 2022 compare favorably to historical measurements. The ratio of nonperforming loans to gross loans improved to 0.25% at September 30, 2022, a decrease of 0.02%, from 0.27% at June 30, 2022. Classified loans remained consistent at $19.6 million at both September 30, 2022 and June 30, 2022. Criticized loans increased from $34.1 million at June 30, 2022 to $54.9 million at September 30, 2022 primarily due to downgrades for one borrower within Acquisition and Development and the other borrower within the Commercial and Industrial loan categories. The ratio of the allowance for loan losses to nonaccrual loans increased to 466% at September 30, 2022 from 432% at June 30, 2022. Management believes the allowance for loan losses to be adequate based on current asset quality metrics and economic conditions.

Noninterest Income

Noninterest income totaled $6.1 million in the three months ended September 30, 2022 compared with $7.2 million in the three months ended June 30, 2022.

Mortgage banking income decreased by $1.5 million from income of $0.5 million in the second quarter of 2022 to a loss of $1.0 million in the third quarter of 2022. Market conditions, including rapidly increasing mortgage interest rates and low housing inventory, caused a significant decline in the fair value of the held-for-sale mortgages. In addition, construction has been prolonged in part due to supply chain challenges, which have delayed the marketability of mortgages for sale. The impact was a fair value reduction of $1.4 million in the three months ended September 30, 2022. The difficult mortgage market also slowed residential mortgage loan production, thereby causing corresponding reductions in the residential mortgage loan pipeline and secondary market sales during the three months ended September 30, 2022. Mortgage loans sold totaled $12.7 million in the third quarter of 2022 compared with $22.9 million in the second quarter of 2022.

Swap fee income decreased by $0.6 million to $0.2 million for the three months ended September 30, 2022 compared to $0.8 million for the three months ended June 30, 2022. Swap fee income fluctuates based on market conditions and client demand.

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

Noninterest Expenses

Noninterest expenses increased by $4.6 million to $23.4 million in the three months ended September 30, 2022 from $18.8 million in the three months ended June 30, 2022. During the third quarter of 2022, the Company announced that five branch locations would be closing and staffing model adjustments would be made to drive long-term growth and improve operating efficiencies in 2023 and forward. As a result of these initiatives, the Company recorded a pre-tax restructuring charge of $3.2 million, which consisted of building and fixed asset write-offs of $1.9 million and early retirement/severance costs of $1.3 million.

Salaries and benefits expense increased by $1.4 million to $12.7 million in the three months ended September 30, 2022 from $11.3 million in the three months ended June 30, 2022 due to the filling of several vacancies, higher healthcare costs and merit-based salary and incentive compensation increases. These expenses are expected to decline in 2023 as a result of the staffing model adjustments made during the quarter.

Advertising and bank promotions expense decreased by $0.6 million to $0.3 million in the three months ended September 30, 2022 from $0.9 million for the three months ended June 30, 2022 due to $0.5 million in contributions to the Pennsylvania Educational Improvement Tax Credit Program during the second quarter of 2022. Taxes other than income increased by $0.4 million to $0.5 million in the three months ended September 30, 2022. This increase reflects the tax credits recognized on these contributions during the second quarter of 2022.

Income Taxes

The Company's effective tax rate for the second quarter of 2022 was 17.6% compared with 17.4% for the second quarter of 2022. The Company's effective tax rate for the three months ended September 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 effective tax rate for the nine months ended September 30, 2022 is 18.2%.

Capital

Shareholders’ equity totaled $227.6 million at September 30, 2022, a decrease of $9.9 million from $237.5 million at June 30, 2022. The decrease was primarily attributable to a reduction of $14.1 million in accumulated other comprehensive income as unrealized losses on available-for-sale securities increased from higher market interest rates and dividends paid of $2.0 million, partially offset by net income of $5.4 million for the three months ended September 30, 2022. Tangible book value per share⁽¹⁾ decreased from $20.23 per share at June 30, 2022 to $19.30 per share at September 30, 2022 primarily as a result of the decrease in shareholders' equity.

The Company's tangible common equity ratio decreased to 7.3% at September 30, 2022 from 7.7% at June 30, 2022 primarily due to a decrease in tangible equity from the increase in unrealized losses on available-for-sale securities. The Company's total risk-based capital ratio decreased to 13.2% at September 30, 2022 from 13.5% at June 30, 2022 due to deployment of cash into commercial loans and an increase in deferred tax assets resulting primarily from the increase in unrealized losses on available-for-sale securities, both resulting in increases to risk weighted assets. The Company's Tier 1 leverage ratio increased to 8.8% at September 30, 2022 from 8.5% at June 30, 2022 primarily due to the impact of the decrease in average assets caused by the decrease in average deposits over that period.

The Board of Directors approved a quarterly dividend of $0.19 per share, payable on November 7, 2022, to shareholders of record as of October 31, 2022. The dividend payout ratio totaled 37% for the three months ended September 30, 2022 compared to 23% for the three months ended June 30, 2022. The increase is partially attributable to the impact of the restructuring charge. 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								Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands)		2022				2021				2022				2021
Profitability for the period:
Net interest income	$	25,455			$	20,620			$	72,146			$	64,376
Provision for loan losses		1,500				365				3,575				(10	)
Noninterest income		6,058				7,651				20,726				21,859
Noninterest expenses		23,412				19,035				61,570				53,851
Income before income taxes		6,601				8,871				27,727				32,394
Income tax expense		1,159				1,679				5,046				6,219
Net income available to common shareholders	$	5,442			$	7,192			$	22,681			$	26,175
Financial ratios:
Return on average assets(1)		0.77	%			0.98	%			1.07	%			1.21	%
Return on average assets, adjusted(1) (2) (3)		1.12	%			0.98	%			1.19	%			1.21	%
Return on average equity(1)		8.93	%			10.69	%			12.03	%			13.49	%
Return on average equity, adjusted(1) (2) (3)		13.02	%			10.69	%			13.35	%			13.49	%
Net interest margin(1)		3.92	%			3.03	%			3.70	%			3.21	%
Efficiency ratio		74.3	%			67.3	%			66.3	%			62.4	%
Efficiency ratio, adjusted(2) (3)		64.3	%			67.3	%			62.9	%			62.4	%
Income per common share:
Basic	$	0.52			$	0.66			$	2.14			$	2.38
Basic, adjusted(2) (3)	$	0.77			$	0.66			$	2.37			$	2.38
Diluted	$	0.52			$	0.65			$	2.11			$	2.36
Diluted, adjusted(2) (3)	$	0.75			$	0.65			$	2.34			$	2.36
Average equity to average assets		8.59	%			9.20	%			8.90	%			8.96	%
(1)Annualized.
(2) Ratio has been adjusted for restructuring expenses.
(3) Non-GAAP based financial measure. Please refer to Appendix A - Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein.

ORRSTOWN FINANCIAL SERVICES, INC.
FINANCIAL HIGHLIGHTS (Unaudited)
(continued)
	September 30,				December 31,
		2022				2021
At period-end:
Total assets	$	2,849,362			$	2,834,565
Total deposits		2,505,853				2,464,929
Loans, net of allowance for loan losses		2,063,218				1,958,806
Loans held-for-sale, at fair value		10,175				8,868
Securities available for sale		503,596				472,438
Borrowings		22,632				25,197
Subordinated notes		32,010				31,963
Shareholders' equity		227,648				271,656
Credit quality and capital ratios(1):
Allowance for loan losses to total loans		1.18	%			1.07	%
Total nonaccrual loans to total loans		0.25	%			0.33	%
Nonperforming assets to total assets		0.19	%			0.23	%
Allowance for loan losses to nonaccrual loans		466	%			328	%
Total risk-based capital:
Orrstown Financial Services, Inc.		13.2	%			15.0	%
Orrstown Bank		12.9	%			14.0	%
Tier 1 risk-based capital:
Orrstown Financial Services, Inc.		10.7	%			12.2	%
Orrstown Bank		11.8	%			12.9	%
Tier 1 common equity risk-based capital:
Orrstown Financial Services, Inc.		10.7	%			12.2	%
Orrstown Bank		11.8	%			12.9	%
Tier 1 leverage capital:
Orrstown Financial Services, Inc.		8.8	%			8.5	%
Orrstown Bank		9.6	%			8.9	%
Book value per common share	$	21.30			$	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)	September 30, 2022				December 31, 2021
Assets
Cash and due from banks	$	34,481			$	21,217
Interest-bearing deposits with banks		32,446				187,493
Cash and cash equivalents		66,927				208,710
Restricted investments in bank stocks		6,469				7,252
Securities available for sale (amortized cost of $558,056 and $466,806 at September 30, 2022 and December 31, 2021, respectively)		503,596				472,438
Loans held for sale, at fair value		10,175				8,868
Loans		2,087,927				1,979,986
Less: Allowance for loan losses		(24,709	)			(21,180	)
Net loans		2,063,218				1,958,806
Premises and equipment, net		31,457				34,045
Cash surrender value of life insurance		71,332				70,217
Goodwill		18,724				18,724
Other intangible assets, net		3,338				4,183
Accrued interest receivable		9,212				8,234
Deferred tax assets, net		24,145				11,648
Other assets		40,769				31,440
Total assets	$	2,849,362			$	2,834,565
Liabilities
Deposits:
Noninterest-bearing	$	562,024			$	553,238
Interest-bearing		1,943,829				1,911,691
Total deposits		2,505,853				2,464,929
Securities sold under agreements to repurchase		21,065				23,301
FHLB advances and other		1,567				1,896
Subordinated notes		32,010				31,963
Accrued interest and other liabilities		61,219				40,820
Total liabilities		2,621,714				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 10,686,064 outstanding at September 30, 2022; 11,258,167 shares issued and 11,183,050 outstanding at December 31, 2021		585				586
Additional paid—in capital		188,730				189,689
Retained earnings		95,137				78,700
Accumulated other comprehensive (loss) income		(43,468	)			4,449
Treasury stock— 550,494 and 75,117 shares, at cost at September 30, 2022 and December 31, 2021, respectively		(13,336	)			(1,768	)
Total shareholders’ equity		227,648				271,656
Total liabilities and shareholders’ equity	$	2,849,362			$	2,834,565

ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
		Three Months Ended							Nine Months Ended
		September 30,				September 30,			September 30,				September 30,
(In thousands)			2022				2021			2022				2021
Interest income
Loans		$	23,152			$	19,890		$	66,548			$	62,724
Investment securities - taxable			2,907				1,514			6,462				5,007
Investment securities - tax-exempt			1,160				652			3,013				1,790
Short-term investments			200				135			536				255
Total interest income			27,419				22,191			76,559				69,776
Interest expense
Deposits			1,372				937			2,758				3,410
Securities sold under agreements to repurchase			10				8			24				25
FHLB advances and other			78				123			121				458
Subordinated notes			504				503			1,510				1,507
Total interest expense			1,964				1,571			4,413				5,400
Net interest income			25,455				20,620			72,146				64,376
Provision for loan losses			1,500				365			3,575				(10	)
Net interest income after provision for loan losses			23,955				20,255			68,571				64,386
Noninterest income
Service charges			1,216				993			3,483				2,758
Interchange income			1,014				1,030			3,059				3,049
Swap fee income			197				67			1,935				135
Wealth management income			2,953				2,917			8,716				8,570
Mortgage banking activities			(1,014	)			1,333			205				4,684
Investment securities (losses) gains			(14	)			479			(163	)			635
Other income			1,706				832			3,491				2,028
Total noninterest income			6,058				7,651			20,726				21,859
Noninterest expenses
Salaries and employee benefits			12,705				11,498			35,354				31,907
Occupancy, furniture and equipment			2,380				2,374			7,370				7,292
Data processing			1,192				990			3,410				3,041
Advertising and bank promotions			278				735			1,514				1,434
FDIC insurance			294				218			767				570
Professional services			887				562			2,417				1,862
Taxes other than income			488				16			1,160				929
Intangible asset amortization			272				314			845				972
Restructuring expenses			3,155				—			3,155				—
Other operating expenses			1,761				2,328			5,578				5,844
Total noninterest expenses			23,412				19,035			61,570				53,851
Income before income tax expense			6,601				8,871			27,727				32,394
Income tax expense			1,159				1,679			5,046				6,219
Net income		$	5,442			$	7,192		$	22,681			$	26,175
Share information:
Basic earnings per share		$	0.52			$	0.66		$	2.14			$	2.38
Diluted earnings per share		$	0.52			$	0.65		$	2.11			$	2.36
Weighted average shares - basic			10,369				10,979			10,611				10,976
Weighted average shares - diluted			10,529				11,122			10,758				11,103

ORRSTOWN FINANCIAL SERVICES, INC.
ANALYSIS OF NET INTEREST INCOME
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)
	Three Months Ended
	9/30/2022										6/30/2022										3/31/2022										12/31/2021										9/30/2021
				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	$	38,068		$	200			2.08	%		$	131,449		$	235			0.72	%		$	199,788		$	101			0.20	%		$	250,336		$	98			0.16	%		$	347,242		$	135			0.15	%
Investment securities (1)		528,988			4,377			3.31				523,940			3,388			2.59				472,195			2,512			2.13				477,217			2,506			2.08				464,417			2,339			2.00
Loans (1)(2)(3)		2,051,707			23,219			4.49				2,008,283			22,090			4.41				1,974,804			21,429			4.39				1,975,014			21,559			4.33				1,919,926			19,945			4.12
Total interest-earning assets		2,618,763			27,796			4.22				2,663,672			25,713			3.87				2,646,787			24,042			3.67				2,702,567			24,163			3.55				2,731,585			22,419			3.26
Other assets		196,277										192,561										184,300										187,622										195,089
Total	$	2,815,040									$	2,856,233									$	2,831,087									$	2,890,189									$	2,926,674
Liabilities and Shareholders' Equity
Interest-bearing demand deposits	$	1,379,082			912			0.26			$	1,420,051			301			0.09			$	1,398,182			256			0.07			$	1,430,845			273			0.08			$	1,411,243			286			0.08
Savings deposits		237,462			90			0.15				236,916			63			0.11				227,676			57			0.10				215,957			55			0.10				209,112			53			0.10
Time deposits		265,015			370			0.55				275,408			337			0.49				298,618			372			0.51				313,148			461			0.58				349,215			598			0.68
Total interest-bearing deposits		1,881,559			1,372			0.29				1,932,375			701			0.15				1,924,476			685			0.14				1,959,950			789			0.16				1,969,570			937			0.19
Securities sold under agreements to repurchase		23,480			10			0.18				24,045			7			0.11				23,530			7			0.12				24,069			7			0.12				23,578			8			0.13
FHLB advances and other		10,394			78			3.02				1,741			21			4.74				1,850			22			4.74				1,956			23			4.70				45,071			123			1.09
Subordinated notes		32,000			504			6.29				31,985			503			6.29				31,969			503			6.29				31,954			503			6.29				31,938			503			6.29
Total interest-bearing liabilities		1,947,433			1,964			0.40				1,990,146			1,232			0.25				1,981,825			1,217			0.25				2,017,929			1,322			0.26				2,070,157			1,571			0.30
Noninterest-bearing demand deposits		575,777										572,171										540,139										559,882										548,923
Other		49,964										47,190										40,919										42,380										38,409
Total Liabilities		2,573,174										2,609,507										2,562,883										2,620,191										2,657,489
Shareholders' Equity		241,866										246,726										268,204										269,998										269,185
Total	$	2,815,040									$	2,856,233									$	2,831,087									$	2,890,189									$	2,926,674
Taxable-equivalent net interest income / net interest spread					25,832			3.82	%						24,481			3.62	%						22,825			3.42	%						22,841			3.29	%						20,848			2.96	%
Taxable-equivalent net interest margin								3.92	%									3.68	%									3.49	%									3.35	%									3.03	%
Taxable-equivalent adjustment					(377	)									(363	)									(252	)									(243	)									(228	)
Net interest income				$	25,455									$	24,118									$	22,573									$	22,598									$	20,620
Ratio of average interest-earning assets to average interest-bearing liabilities								134	%									134	%									134	%									134	%									132	%
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)
	Nine Months Ended
	September 30, 2022										September 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	$	122,509		$	536			0.59	%		$	261,697		$	255			0.13	%
Investment securities (1)		508,582			10,276			2.70				456,919			7,272			2.13
Loans (1)(2)(3)		2,011,881			66,738			4.43				1,988,834			62,895			4.23
Total interest-earning assets		2,642,972			77,550			3.92				2,707,450			70,422			3.48
Other assets		191,090										188,924
Total	$	2,834,062									$	2,896,374
Liabilities and Shareholders' Equity
Interest-bearing demand deposits	$	1,399,035			1,470			0.14			$	1,380,241			1,014			0.10
Savings deposits		234,054			209			0.12				197,792			149