ORRSTOWN FINANCIAL SERVICES INC [ORRF] Filings

10-Q 1 orrf-20230331.htm 10-Q orrf-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34292

ORRSTOWN FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania

23-2530374

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

77 East King Street

P. O. Box 250

Shippensburg

Pennsylvania

17257

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code:

(717)

532-6114

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, no par value

ORRF

Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☒

Non-accelerated filer

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). Yes ☐ No x

Number of shares outstanding of the registrant’s Common Stock as of May 5, 2023: 10,658,066.

Table of Contents

ORRSTOWN FINANCIAL SERVICES, INC.

INDEX


		Page
Part I – FINANCIAL INFORMATION

	Glossary	3

Item 1.	Financial Statements	4

	Consolidated Balance Sheets (Unaudited)	4

	Consolidated Statements of Income (Unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	7

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	8

	Consolidated Statements of Cash Flows (Unaudited)	9

	Notes to Consolidated Financial Statements (Unaudited)	11

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71

Item 4.	Controls and Procedures	72

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	74

Item 1A.	Risk Factors	74

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3.	Defaults upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	74

Item 6.	Exhibits	75

SIGNATURES		76

Table of Contents

Glossary of Defined Terms

The following terms may be used throughout this Report, including the unaudited condensed consolidated financial statements and related notes.


Term			Definition

ACL			Allowance for credit losses
ALL			Allowance for loan losses
AFS			Available-for-sale
AOCI			Accumulated other comprehensive income (loss)
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Bank			Orrstown Bank, the commercial banking subsidiary of Orrstown Financial Services, Inc.
CDI			Core deposit intangible
CECL			Current expected credit losses

CMO			Collateralized mortgage obligation


EITC			Educational Improvement Tax Credit Program

ERM			Enterprise Risk Management
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FDM			Financial difficulty modification
FHLB			Federal Home Loan Bank
FRB			Board of Governors of the Federal Reserve System
GAAP			Accounting principles generally accepted in the United States of America
GDP			Gross Domestic Deposit
GSE			U.S. government-sponsored enterprise

IEL			Individually evaluated loan
IRC			Internal Revenue Code of 1986, as amended
LHFS			Loans held for sale
LIBOR			London Interbank Offered Rate
MBS			Mortgage-backed securities

MSR			Mortgage servicing right

OCI			Other comprehensive income

OREO			Other real estate owned

OTTI			Other-than-temporary impairment

2011 Plan			2011 Orrstown Financial Services, Inc. Incentive Stock Plan
PCD loans			Purchased credit deteriorated loans
PCI loans			Purchased credit impaired loans
PACE			Property Assessed Clean Energy loans
PPP			Paycheck Protection Program


ReRemic			Re-securitization of Real Estate Mortgage Investment Conduits
ROU			Right of use (leases)
SBA			U.S. Small Business Administration
SEC			Securities and Exchange Commission
Securities Act			Securities Act of 1933, as amended
SOFR			Secured Overnight Financing Rate
TDR			Troubled debt restructuring
Unless the context otherwise requires, the terms “Orrstown,” “we,” “us,” “our,” and “Company” refer to Orrstown Financial Services, Inc. and its subsidiaries.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)

ORRSTOWN FINANCIAL SERVICES, INC.


(Dollars in thousands, except per share amounts)	March 31, 2023		December 31, 2022
Assets
Cash and due from banks	$	27,612	$	28,477
Interest-bearing deposits with banks	70,711		32,346

Cash and cash equivalents	98,323		60,823
Restricted investments in bank stocks	12,869		10,642
Securities available for sale (amortized cost of $561,008 and $563,278 at March 31, 2023 and December 31, 2022, respectively)	520,232		513,728
Loans held for sale, at fair value	7,341		10,880
Loans	2,207,501		2,151,232
Less: Allowance for credit losses	(28,364)		(25,178)
Net loans	2,179,137		2,126,054
Premises and equipment, net	29,106		29,328
Cash surrender value of life insurance	72,179		71,760
Goodwill	18,724		18,724
Other intangible assets, net	2,828		3,078
Accrued interest receivable	10,911		11,027
Deferred tax assets, net	21,335		24,031
Other assets	38,563		42,333
Total assets	$	3,011,548	$	2,922,408
Liabilities
Deposits:
Noninterest-bearing	$	488,630	$	494,131
Interest-bearing	1,999,479		1,950,807
Deposits held for assumption in connection with sale of bank branch	27,517		31,307
Total deposits	2,515,626		2,476,246
Securities sold under agreements to repurchase and federal funds purchased	13,989		17,251
FHLB advances and other borrowings	162,326		106,139
Subordinated notes	32,042		32,026
Other liabilities	47,404		61,850
Total liabilities	2,771,387		2,693,512

Commitments and contingencies

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; 11,222,732 shares issued and 10,691,907 outstanding at March 31, 2023; 11,229,242 shares issued and 10,671,413 outstanding at December 31, 2022	584		584
Additional paid - in capital	187,572		189,264
Retained earnings	97,519		92,473
Accumulated other comprehensive loss	(32,825)		(39,913)
Treasury stock—530,825 and 557,829 shares, at cost at March 31, 2023 and December 31, 2022, respectively	(12,689)		(13,512)
Total shareholders’ equity	240,161		228,896
Total liabilities and shareholders’ equity	$	3,011,548	$	2,922,408

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Table of Contents

Condensed Consolidated Statements of Income (Unaudited)

ORRSTOWN FINANCIAL SERVICES, INC.


	Three Months Ended
(Dollars in thousands, except per share amounts)		March 31, 2023		March 31, 2022
Interest income
Loans		$	28,744	$	21,369
Investment securities - taxable		4,370		1,598
Investment securities - tax-exempt		865		722
Short-term investments		298		101
Total interest income		34,277		23,790
Interest expense
Deposits		6,202		685
Securities sold under agreements to repurchase and federal funds purchased		25		7
FHLB advances and other borrowings		1,252		22
Subordinated notes		504		503
Total interest expense		7,983		1,217
Net interest income		26,294		22,573
Provision for credit losses		729		300
Net interest income after provision for credit losses		25,565		22,273
Noninterest income
Service charges on deposit accounts		962		920
Interchange income		965		981
Other service charges, commissions and fees		195		153
Swap fee income		—		953
Trust and investment management income		1,888		1,941
Brokerage income		859		928
Mortgage banking activities		478		721

Income from life insurance		590		566
Investment securities losses		(8)		(146)
Other income		149		457
Total noninterest income		6,078		7,474
Noninterest expenses
Salaries and employee benefits		12,196		11,337
Occupancy		1,106		1,288
Furniture and equipment		1,227		1,279
Data processing		1,217		1,053

Automated teller and interchange fees		298		305
Advertising and bank promotions		405		355
FDIC insurance		504		283

Professional services		734		808
Directors' compensation		247		231


Taxes other than income		457		564
Intangible asset amortization		250		292




Other operating expenses		1,614		1,569
Total noninterest expenses		20,255		19,364
Income before income tax expense		11,388		10,383
Income tax expense		2,232		2,015
Net income		$	9,156	$	8,368

Table of Contents



	Three Months Ended
		March 31, 2023		March 31, 2022
Per share information:
Basic earnings per share		$	0.88	$	0.77
Diluted earnings per share		0.87		0.76
Dividends paid per share		0.20		0.19

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Table of Contents

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

ORRSTOWN FINANCIAL SERVICES, INC.


	Three Months Ended
(Dollars in thousands)		March 31, 2023		March 31, 2022
Net income		$	9,156	$	8,368
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale arising during the period		8,766		(24,353)
Reclassification adjustment for losses realized in net income		8		146
Net unrealized gains (losses) on securities available for sale		8,774		(24,207)
Tax effect		(1,930)		5,084
Total other comprehensive income (loss), net of tax and reclassification adjustments on securities available for sale		6,844		(19,123)
Unrealized gains on interest rate swaps used in cash flow hedges		319		—
Reclassification adjustment for losses realized in net income		—		—
Net unrealized gains on interest rate swaps used in cash flow hedges		319		—
Tax effect		(75)		—
Total other comprehensive income, net of tax and reclassification adjustments on interest rate swaps used in cash flow hedges		244		—
Total other comprehensive income (loss), net of tax and reclassification adjustments		7,088		(19,123)
Total comprehensive income (loss)		$	16,244	$	(10,755)

The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Table of Contents

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

ORRSTOWN FINANCIAL SERVICES, INC.











































	Three Months Ended March 31, 2023
(Dollars in thousands, except per share amounts)	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Shareholders’ Equity
Balance, January 1, 2023	$	584	$	189,264	$	92,473	$	(39,913)	$	(13,512)	$	228,896
Cumulative effect of change in accounting principle - CECL (Note 3)	—		—		(1,984)		—		—		(1,984)
Net income	—		—		9,156		—		—		9,156

Total other comprehensive income, net of taxes	—		—		—		7,088		—		7,088
Cash dividends ($0.20 per share)	—		—		(2,126)		—		—		(2,126)

Share-based compensation plans:
6,510 net common shares acquired and 27,004 net treasury shares issued, including compensation expense totaling $619	—		(1,692)		—		—		823		(869)

Balance, March 31, 2023	$	584	$	187,572	$	97,519	$	(32,825)	$	(12,689)	$	240,161
























































	Three Months Ended March 31, 2022
(Dollars in thousands, except per share amounts)	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders’ Equity
Balance, January 1, 2022	$	586	$	189,689	$	78,700	$	4,449	$	(1,768)	$	271,656
Net income	—		—		8,368		—		—

ORRSTOWN FINANCIAL SERVICES INC [ORRF] Filings
10-Q	[2023-05-09]
10-K	[2023-03-16]
10-Q	[2022-11-09]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-03-11]
10-Q	[2021-11-05]
10-Q	[2021-08-05]
10-Q	[2021-05-07]
10-K	[2021-03-15]
10-Q	[2020-11-05]
10-Q	[2020-08-07]
10-Q	[2020-05-07]
10-K	[2020-03-16]
10-Q	[2019-11-08]
10-Q	[2019-08-08]
10-Q	[2019-05-07]
10-K	[2019-03-15]
10-Q	[2018-11-06]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-K	[2018-03-09]
10-Q	[2017-11-07]
10-Q	[2017-08-08]
10-Q	[2017-05-09]
10-K	[2017-03-13]
10-Q	[2016-11-07]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-03-11]
10-Q	[2015-11-06]
10-Q	[2015-08-05]
10-Q	[2015-05-08]
10-K	[2015-03-12]
10-Q	[2014-11-07]
10-Q	[2014-08-08]
10-Q	[2014-05-09]
10-K	[2014-03-14]
10-Q	[2013-11-08]
10-Q	[2013-08-08]
10-Q	[2013-05-09]
10-K	[2013-03-06]
10-Q	[2012-11-08]
10-Q	[2012-08-09]
10-Q	[2012-05-09]
10-K	[2012-03-15]