GlobeNewswire Inc | Jan 19, 2022 04:02PM EST

January 19, 2022

-- Net income of $32.9 million and diluted earnings per share of $2.96 for the year ended December 31, 2021 compared to $26.5 million and diluted earnings per share of $2.40 for the year ended December 31, 2020; net income of $6.7 million for the quarter; diluted fourth quarter 2021 earnings per share of $0.60 compared to diluted earnings per share of $0.65 in the third quarter of 2021 and $0.91 in the fourth quarter of 2020 -- Fourth quarter commercial loan growth, excluding Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans, was $110.5 million, or 34% annualized; full year commercial loan growth, excluding SBA PPP loans, was $268.3 million, or 24% -- Net interest margin increased to 3.35% in the fourth quarter of 2021 from 3.03% in the third quarter of 2021; some excess liquidity was deployed into commercial loan production and the cost of funds continued to decline -- Tangible book value per share(1) increased to $22.32 at December 31, 2021 from $21.98 at September 30, 2021, and $19.93 at December 31, 2020 -- Noninterest income of $7.3 million in the fourth quarter of 2021 compared to $7.7 million in the third quarter of 2021; the third quarter included $0.5 million in gains from the sales of asset-backed securities -- A provision for loan losses of $1.1 million was recorded in the fourth quarter of 2021 compared to $0.4 million in the third quarter of 2021 reflecting continued commercial loan growth in both periods; the provision for loan losses in the third quarter of 2021 included a COVID-19 reserve reversal of $1.0 million -- The SBA PPP loan portfolio averaged $232.2 million in the three months ended December 31, 2021 as compared to $303.2 million in the three months ended September 30, 2021 -- Noninterest expenses increased by $1.3 million to $20.3 million in the fourth quarter of 2021 from $19.0 million in the third quarter of 2021; performance-based compensation increases were earned in the period due to individual production, the Company's performance exceeding targets and other employee incentives -- The Company repurchased 32,652 shares of its common stock at an average price of $24.17 per share during the three months ended December 31, 2021 -- The Board of Directors declared a cash dividend of $0.19 per common share, payable February 8, 2022, to shareholders of record as of February 1, 2022

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

SHIPPENSBURG, Pa., Jan. 19, 2022 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. ("Orrstown" or the Company) (NASDAQ: ORRF), the parent company of Orrstown Bank (the Bank), announced earnings for the three months ended December 31, 2021. Net income totaled $6.7 million for the three months ended December 31, 2021, compared with $7.2 million for the three months ended September 30, 2021 and $10.1 million for the three months ended December 31, 2020. Diluted earnings per share totaled $0.60 for the three months ended December 31, 2021, compared with $0.65 for the three months ended September 30, 2021 and $0.91 for the three months ended December 31, 2020.

Thomas R. Quinn, Jr., President & CEO, commented, Orrstown generated record earnings in 2021 in a challenging and unprecedented operating environment. The past two years have highlighted the dedication and commitment of our employees to both the Company and the communities we serve. In the fourth quarter, our exceptional commercial lending team continued to originate loans at a tremendous pace with the momentum expected to continue into 2022. The deployment of excess cash into higher earning assets drove a substantial improvement in our net interest margin. We expect that commercial loan production will contribute significantly towards offsetting a decline in PPP income in 2022. Orrstown continues to benefit from the new relationships formed through the SBA PPP program. Our team will be rewarded for our record performance in 2021 and this resulted in elevated expenses in the fourth quarter. We will continue to invest in our people and infrastructure as opportunities arise to build on the growth trajectory of the Company.

Mr. Quinn continued, Despite a strong economic recovery in 2021 and anticipated market interest rate increases over the next year, many challenges remain nationwide including the continued impact of COVID-19, wage pressures and inflation. In this unique environment, Orrstown is making every effort to ensure the safety and well-being of our employees and clients. As we proactively work through these concerns, the Company remains well positioned for a rising rate environment and we anticipate another successful year in 2022. This should further enable us to transform the Company through an increased focus on automation and digital banking.

DISCUSSION OF RESULTS

Balance Sheet

Loans

Loans held for investment, which includes SBA PPP loans, increased by $40.2 million from September 30, 2021 to December 31, 2021, or 8% annualized, as the impact of SBA PPP loan forgiveness was offset by net commercial loan production. Excluding SBA PPP loans, total loans increased by $110.2 million from September 30, 2021 to December 31, 2021, or 26% annualized. SBA PPP loans, net of deferred fees and costs, declined by $70.0 million to $189.9 million at December 31, 2021 from $259.9 million at September 30, 2021 due to forgiveness activity. Commercial loans, excluding SBA PPP loans, increased by $110.5 million, or 34% annualized, from September 30, 2021 to December 31, 2021. The commercial loan pipeline is strong heading into the first quarter of 2022.

The remaining gross balance of SBA PPP loans is $195.3 million at December 31, 2021. Net deferred SBA PPP fees of $5.5 million remain at December 31, 2021, which are expected to mostly be earned by the end of 2022.

Home equity lines of credit increased by $6.7 million, or 17% annualized, in the fourth quarter of 2021. Residential mortgage loans declined by $4.5 million, or 9% annualized, in the three months ended December 31, 2021. Other installment loans decreased by $1.5 million, or 30% annualized, in the three months ended December 31, 2021. Consumer portfolio net runoff has slowed since the beginning of 2021. Overall loan growth, excluding SBA PPP loans, was 14% for the year ended December 31, 2021.

Investment Securities

Investment securities increased by $27.6 million to $479.7 million at December 31, 2021 compared to $452.1 million at September 30, 2021. During the fourth quarter of 2021, the Bank purchased mortgage-backed securities and municipal securities totaling $38.1 million. See Appendix C for a summary of the Bank's investment securities at December 31, 2021, highlighting the concentrations, credit ratings and credit enhancement levels of the portfolio at such date.

Deposits

Deposits decreased by $37.2 million, or 6% annualized, remaining at $2.5 billion at December 31, 2021 compared to September 30, 2021. In the fourth quarter of 2021, interest-bearing demand deposits decreased by $33.1 million, or 14.0% annualized and certificates of deposit decreased by $25.4 million, or 31% annualized. These decreases were partially offset by increases in noninterest-bearing demand deposits of $7.9 million, or 6% annualized and money market and savings deposits of $13.4 million, or 8% annualized. Deposits rose by $108.0 million, or 5%, from December 31, 2020 to December 31, 2021 due primarily to SBA PPP loan funding combined with clients continuing to maintain deposit balances in excess of historical norms. The Bank's loan-to-deposit ratio was 80% at December 31, 2021, an increase of 2% from September 30, 2021. On a longer-term basis, the Bank is targeting a loan-to-deposit ratio of 90%.

Income Statement

Net Interest Income and Margin

Net interest income increased by $2.0 million to $22.6 million for the three months ended December 31, 2021 compared to the three months ended September 30, 2021. The net interest margin increased to 3.35% in the fourth quarter of 2021 from 3.03% in the third quarter of 2021. The increase in net interest margin was a result of an increase in interest income from SBA PPP loan forgiveness (12 basis points) and commercial loan production (4 basis points), a decrease in average cash (11 basis points) and a decrease in cost of funds (3 basis points).

For the three months ended December 31, 2021 and September 30, 2021, there were $66.9 million and $98.2 million of SBA PPP loans forgiven, respectively. Interest income recognized on SBA PPP loans totaled $3.8 million in the three months ended December 31, 2021 as compared to $3.4 million in the three months ended September 30, 2021. This increase is due to the accretion and forgiveness of the remaining SBA PPP loans with higher fees.

The cost of deposits was 0.12% in the fourth quarter of 2021, which is down from 0.15% in the third quarter of 2021 and 0.33% in the fourth quarter of 2020. Rate reductions in the first and third quarters of 2021 combined with the continued maturity of higher yielding certificates of deposit drove this decrease.

Average cash and cash equivalents decreased from $347.2 million in the three months ended September 30, 2021 to $250.3 million in the three months ended December 31, 2021. The decrease reflects the Companys strategy to reduce excess cash balances through increased commercial loan production.

Provision for Loan Losses

Asset quality metrics remained strong and trended positively in the fourth quarter. The allowance for loan losses totaled $21.2 million at December 31, 2021, compared with $20.0 million at September 30, 2021, due to continued commercial loan growth. Total classified loans decreased by $3.8 million, or 14%, to $23.1 million at December 31, 2021 from $26.9 million at September 30, 2021.

Net recoveries were $0.1 million for the three months ended December 31, 2021 compared to net recoveries of $0.2 million for the three months ended September 30, 2021. Nonperforming loans decreased by $2.6 million to $6.5 million at December 31, 2021 from $9.1 million at September 30, 2021 due to the payoff of one loan. Nonperforming loans were 0.33% of gross loans at December 31, 2021 and 0.47% of gross loans at September 30, 2021. The ratio of the allowance for loan losses to nonaccrual loans was 328% at December 31, 2021 compared to 219% at September 30, 2021. The allowance for loan losses to non-SBA guaranteed loans(1) remained steady at 1.2% at December 31, 2021 and September 30, 2021. Management believes the allowance for loan losses to be adequate based on current asset quality metrics.

Commercial loan growth drove provision expense of $1.1 million in the three months ended December 31, 2021. This compares to provision expense of $0.4 million and $0.3 million recorded in the three months ended September 30, 2021 and December 31, 2020, respectively. The provision for loan losses in the third quarter of 2021 included a COVID-19 reserve reversal of $1.0 million.

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

Noninterest Income

Noninterest income totaled $7.3 million in the three months ended December 31, 2021 compared with $7.7 million in the three months ended September 30, 2021 and $7.2 million in the three months ended December 31, 2020.

Investment securities gains decreased by $0.5 million in the fourth quarter of 2021. The decrease reflects gains on the sales of $72.8 million of asset-backed securities in the third quarter of 2021 compared to no such sales during the fourth quarter of 2021.

Total wealth management income was $2.9 million for both the three months ended December 31, 2021 and September 30, 2021 compared to $2.6 million in the fourth quarter of 2020. Assets under management have increased by $149.1 million to $1.9 billion at December 31, 2021 from $1.7 billion at December 31, 2020.

Mortgage banking income decreased by $0.1 million from the third quarter of 2021 to $1.2 million in the fourth quarter of 2021. There was a decrease of $0.3 million in the fair value of the residential mortgage loans held for sale and interest rate lock commitments due a reduced pipeline during the fourth quarter. Offsetting this was a reduction of $0.3 million in the mortgage servicing rights valuation allowance. Mortgage loans sold totaled $43.7 million in the fourth quarter of 2021 compared with $48.0 million in the third quarter of 2021 and $60.7 million in the fourth quarter of 2020. As of December 31, 2021, the Bank serviced $502.5 million of residential mortgage loans, which is up by $13.9 million from September 30, 2021. Mortgage banking income was $5.9 million for the year ended December 31, 2021 compared to $5.3 million for the year ended December 31, 2020.

Other income increased by $0.2 million to $1.0 million in the fourth quarter of 2021 compared to the third quarter of 2021. The fourth quarter included $0.3 million in gains from the sales of two properties, while the third quarter included $0.2 million in tax credits from the Bank's investment in solar renewable energy partnerships.

Noninterest Expenses

Noninterest expenses increased by $1.3 million to $20.3 million in the three months ended December 31, 2021 from the three months ended September 30, 2021.

Salaries and benefits increased by $0.6 million to $12.1 million for the three months ended December 31, 2021 from the three months ended September 30, 2021. The increase was primarily attributed to performance-based incentive compensation earned in the period of $0.5 million resulting from strong individual production, Company performance exceeding targets and other employee incentives, and a liability of $0.3 million recorded for the carryover of paid time off, which increases were partially offset by a decrease of $0.3 million in employee benefit costs.

For the three months ended December 31, 2021, professional services expense increased $0.1 million to $0.7 million from the three months ended September 30, 2021 due to legal and consulting services.

Taxes other than income increased by $0.4 million for the three months ended December 31, 2021 from the three months ended September 30, 2021 due to an increase in Pennsylvania Bank Shares Tax expense and decrease in tax credits associated with contributions to the Pennsylvania Educational Improvement Tax Credit Program.

Other operating expenses decreased by $0.1 million to $2.2 million for the three months ended December 31, 2021 from the three months ended September 30, 2021. During the third quarter of 2021, the Company recognized a $0.5 million loss from the termination of a cash flow hedge derivative. For the three months ended December 31, 2021, there was an increase in the unfunded commitment reserve of $0.2 million due to the increase in commercial construction lines compared to no reserve in the three months ended September 30, 2021.

Income Taxes

The Company's effective tax rate for the fourth quarter of 2021 was 21.1% compared with 18.9% for the third quarter of 2021. For the years ended December 31, 2021 and 2020, the effective tax rates were 19.6% and 18.6%, respectively. The Company's effective tax rate for the year ended December 31, 2021 and 2020 are 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 higher effective tax rate is consistent with higher levels of pre-tax income and the impact it had on our tax rate for the year.

Capital

Shareholders equity totaled $271.7 million at December 31, 2021, an increase of $3.1 million from $268.6 million at September 30, 2021. The increase was primarily attributable to net income, partially offset by dividends paid and a decrease in unrealized gains on available-for-sale securities. Tangible book value per share(1) has grown from $19.93 per share at December 31, 2020 to $22.32 per share at December 31, 2021, an increase of 12.0%.

The Company's tangible common equity ratio increased to 8.8% at December 31, 2021 from 8.6% at September 30, 2021. The Company's Tier 1 leverage ratio was 8.5% at December 31, 2021 and 8.3% at September 30, 2021. The Company's total risk-based capital ratio was 15.0% at December 31, 2021 and 15.6% at September 30, 2021 as the Company has been deploying its cash into commercial lending.

The Board of Directors approved a quarterly dividend of $0.19 per share, payable February 8, 2022, to shareholders of record as of February 1, 2022. The dividend payout ratio totaled 31% for the three months ended December 31, 2021 compared to 29% for the three months ended September 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.

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

Investor Relations Contact: Media Contact:Matthew C. Schultheis, CFA Luke BernsteinDirector Strategic Planning and Investor Corporate CommunicationsRelations OfficerPhone (717) 510-7127 Phone (717) 510-7107

ORRSTOWN FINANCIAL SERVICES, INC.FINANCIALHIGHLIGHTS (Unaudited) Three Months Ended Year Ended December 31, December 31, December 31, December 31,(Dollars inthousands, except 2021 2020 2021 2020 per share amounts) Profitability for the period:Net interest $ 22,598 $ 23,729 $ 86,974 $ 83,607 incomeProvision for loan 1,100 300 1,090 5,325 lossesNoninterest income 7,293 7,181 29,152 28,309 Noninterest 20,290 18,080 74,141 74,080 expensesIncome before 8,501 12,530 40,895 32,511 income taxesIncome tax expense 1,795 2,471 8,014 6,048 Net incomeavailable to $ 6,706 $ 10,059 $ 32,881 $ 26,463 commonshareholders Financial ratios: Return on average 0.93 % 1.47 % 1.14 % 1.00 %assets^(1)Return on average 9.93 % 17.01 % 12.54 % 11.66 %equity^(1)Net interest 3.35 % 3.73 % 3.25 % 3.44 %margin^(1)Efficiency ratio 67.9 % 58.5 % 63.8 % 66.2 %Income per common share:Basic $ 0.61 $ 0.92 $ 3.00 $ 2.42 Diluted $ 0.60 $ 0.91 $ 2.96 $ 2.40 Average equity to 9.34 % 8.65 % 9.06 % 8.58 %average assets ^(1) Annualized.

ORRSTOWN FINANCIAL SERVICES, INC. FINANCIAL HIGHLIGHTS (Unaudited) (continued) December 31, December 31, 2021 2020 At period-end: Total assets $ 2,834,565 $ 2,750,572 Total deposits 2,464,929 2,356,880 Loans, net of allowance for loan losses 1,958,806 1,959,539 Loans held-for-sale, at fair value 8,868 11,734 Securities available for sale 472,438 466,465 Borrowings 25,197 77,511 Subordinated notes 31,963 31,903 Shareholders' equity 271,656 246,249 Credit quality and capital ratios^(1): Allowance for loan losses to total loans 1.07 % 1.02 %Total nonaccrual loans to total loans 0.33 % 0.52 %Nonperforming assets to total assets 0.23 % 0.37 %Allowance for loan losses to nonaccrual 328 % 195 %loansTotal risk-based capital: Orrstown Financial Services, Inc. 15.0 % 15.6 %Orrstown Bank 14.0 % 14.7 %Tier 1 risk-based capital: Orrstown Financial Services, Inc. 12.2 % 12.5 %Orrstown Bank 12.9 % 13.5 %Tier 1 common equity risk-based capital: Orrstown Financial Services, Inc. 12.2 % 12.5 %Orrstown Bank 12.9 % 13.5 %Tier 1 leverage capital: Orrstown Financial Services, Inc. 8.5 % 8.1 %Orrstown Bank 8.9 % 8.7 % Book value per common share $ 24.29 $ 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) December 31, December 31, 2021 2020Assets Cash and due from banks $ 21,217 $ 26,203 Interest-bearing deposits with banks 187,493 99,055 Cash and cash equivalents 208,710 125,258 Restricted investments in bank stocks 7,252 10,563 Securities available for sale (amortized cost of$466,806 and $460,999 at December31, 2021 and 472,438 466,465 December31, 2020, respectively)Loans held for sale, at fair value 8,868 11,734 Loans 1,979,986 1,979,690 Less: Allowance for loan losses (21,180 ) (20,151 )Net loans 1,958,806 1,959,539 Premises and equipment, net 34,045 35,149 Cash surrender value of life insurance 70,217 68,554 Goodwill 18,724 18,724 Other intangible assets, net 4,183 5,458 Accrued interest receivable 8,234 8,927 Other assets 43,088 40,201 Total assets $ 2,834,565 $ 2,750,572 Liabilities Deposits: Noninterest-bearing $ 553,238 $ 456,778 Interest-bearing 1,911,691 1,900,102 Total deposits 2,464,929 2,356,880 Securities sold under agreements to repurchase 23,301 19,466 FHLB advances and other 1,896 58,045 Subordinated notes 31,963 31,903 Accrued interest and other liabilities 40,820 38,029 Total liabilities 2,562,909 2,504,323 Shareholders? Equity Preferred stock, $1.25 par value per share;500,000 shares authorized; no shares issued or ? ? outstandingCommon stock, no par value?$0.05205 stated valueper share 50,000,000 shares authorized;11,258,167 shares issued and 11,183,050 586 586 outstanding at December31, 2021; 11,257,046shares issued and 11,201,317 outstanding atDecember31, 2020Additional paid?in capital 189,689 189,066 Retained earnings 78,700 54,099 Accumulated other comprehensive income 4,449 3,346 Treasury stock? 75,117 and 55,729 shares, at costat December31, 2021 and December31, 2020, (1,768 ) (848 )respectivelyTotal shareholders? equity 271,656 246,249 Total liabilities and shareholders? equity $ 2,834,565 $ 2,750,572

ORRSTOWN FINANCIAL SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Twelve Months Ended December December December December 31, 31, 31, 31,(In thousands, except per share 2021 2020 2021 2020 amounts)Interest income Loans $ 21,503 $ 23,887 $ 84,227 $ 87,492 Investment securities - taxable 1,615 2,080 6,622 10,458 Investment securities - 703 445 2,493 1,566 tax-exemptShort-term investments 98 14 353 115 Total interest income 23,919 26,426 93,695 99,631 Interest expense Deposits 789 1,862 4,199 12,009 Securities sold under agreements 7 13 31 85 to repurchaseFHLB advances and other 23 320 482 1,924 Subordinated notes 502 502 2,009 2,006 Total interest expense 1,321 2,697 6,721 16,024 Net interest income 22,598 23,729 86,974 83,607 Provision for loan losses 1,100 300 1,090 5,325 Net interest income after 21,498 23,429 85,884 78,282 provision for loan lossesNoninterest income Service charges 960 999 3,718 3,557 Interchange income 1,080 916 4,129 3,423 Swap fee income 158 320 293 847 Wealth management income 2,897 2,615 11,467 9,733 Mortgage banking activities 1,225 1,348 5,909 5,274 Gains on sale of portfolio loans ? ? ? 2,803 Investment securities gains 3 28 638 (16 )(losses)Other income 970 955 2,998 2,688 Total noninterest income 7,293 7,181 29,152 28,309 Noninterest expenses Salaries and employee benefits 12,095 10,998 44,002 43,350 Occupancy, furniture and 2,554 2,467 9,846 9,516 equipmentData processing, telephone, and 1,020 954 4,061 3,574 communicationAdvertising and bank promotions 744 507 2,178 1,660 FDIC insurance 246 195 816 686 Professional services 693 780 2,555 3,120 Taxes other than income 392 240 1,321 1,144 Intangible asset amortization 303 345 1,275 1,569 Merger related and branch ? ? ? 1,310 consolidation expensesInsurance claim recovery ? ? ? (486 )Other operating expenses 2,243 1,594 8,087 8,637 Total noninterest expenses 20,290 18,080 74,141 74,080 Income before income tax expense 8,501 12,530 40,895 32,511 Income tax expense 1,795 2,471 8,014 6,048 Net income $ 6,706 $ 10,059 $ 32,881 $ 26,463 Share information: Basic earnings per share $ 0.61 $ 0.92 $ 3.00 $ 2.42 Diluted earnings per share $ 0.60 $ 0.91 $ 2.96 $ 2.40 Weighted average shares - basic 10,939 10,953 10,967 10,942 Weighted average shares - diluted 11,113 11,057 11,106 11,034

ORRSTOWN FINANCIAL SERVICES, INC. ANALYSIS OF NET INTEREST INCOME Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited) Three Months Ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 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 RateAssets Federal funds sold & interest-bearing bank balances $ 250,336 $ 98 0.16 % $ 347,242 $ 135 0.15 % $ 290,039 $ 81 0.11 % $ 145,595 $ 39 0.11 % $ 48,019 $ 14 0.12 %Investment securities ^(1) 477,217 2,506 2.08 464,417 2,339 2.00 438,110 2,421 2.22 468,273 2,512 2.18 486,613 2,643 2.16 Loans^ (1)(2)(3) 1,975,014 21,559 4.33 1,919,926 19,945 4.12 2,014,600 21,375 4.26 2,033,219 21,574 4.30 2,015,749 23,960 4.73 Total interest-earning assets 2,702,567 24,163 3.55 2,731,585 22,419 3.26 2,742,749 23,877 3.49 2,647,087 24,125 3.70 2,550,381 26,617 4.15 Other assets 187,622 195,089 188,810 182,737 182,764 Total $ 2,890,189 $ 2,926,674 $ 2,931,559 $ 2,829,824 $ 2,733,145 Liabilities and Shareholders' Equity Interest-bearing demand deposits $ 1,430,845 273 0.08 $ 1,411,243 286 0.08 $ 1,394,384 292 0.08 $ 1,334,219 438 0.13 $ 1,283,024 655 0.20 Savings deposits 215,957 55 0.10 209,112 53 0.10 200,439 50 0.10 183,576 45 0.10 172,068 52 0.12 Time deposits 313,148 461 0.58 349,215 598 0.68 382,467 739 0.78 397,271 909 0.93 411,395 1,155 1.12 Total interest-bearing deposits 1,959,950 789 0.16 1,969,570 937 0.19 1,977,290 1,081 0.22 1,915,066 1,392 0.29 1,866,487 1,862 0.40 Securities sold under agreements to repurchase 24,069 7 0.12 23,578 8 0.13 22,417 8 0.14 21,452 9 0.17 20,055 13 0.26 FHLB advances and other 1,956 23 4.70 45,071 123 1.09 57,896 164 1.14 58,000 171 1.20 135,558 320 0.94 Subordinated notes 31,954 503 6.29 31,938 503 6.29 31,924 502 6.29 31,909 502 6.29 31,895 502 6.29 Total interest-bearing liabilities 2,017,929 1,322 0.26 2,070,157 1,571 0.30 2,089,527 1,755 0.34 2,026,427 2,074 0.42 2,053,995 2,697 0.52 Noninterest-bearing demand deposits 559,882 548,923 545,617 516,849 406,454 Other 42,380 38,409 37,561 36,244 36,216 Total Liabilities 2,620,191 2,657,489 2,672,705 2,579,520 2,496,665 Shareholders' Equity 269,998 269,185 258,854 250,304 236,480 Total $ 2,890,189 $ 2,926,674 $ 2,931,559 $ 2,829,824 $ 2,733,145 Taxable-equivalent net interest income / net interest 22,841 3.29 % 20,848 2.96 % 22,122 3.15 % 22,051 3.28 % 23,920 3.63 %spreadTaxable-equivalent net interest margin 3.35 % 3.03 % 3.24 % 3.38 % 3.73 %Taxable-equivalent adjustment (243 ) (228 ) (221 ) (196 ) (192 ) Net interest income $ 22,598 $ 20,620 $ 21,901 $ 21,855 $ 23,728 Ratio of average interest-earning assets to average 134 % 132 % 131 % 131 % 124 %interest-bearing liabilities NOTES: ^(1) Yields and interest income on tax-exempt assets have been computed on ataxable-equivalent basis assuming a 21% tax rate.^(2) Average balances include nonaccrual loans.^(3) Interest income on loans includes prepayment and late fees, whereapplicable

ORRSTOWN FINANCIAL SERVICES, INC. ANALYSIS OF NET INTEREST INCOME Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited) Twelve Months Ended December 31, 2021 December 31, 2020 Taxable- Taxable- Taxable- Taxable- Average Equivalent Equivalent Average Equivalent Equivalent(Dollars in Balance Interest Rate Balance Interest Ratethousands)Assets Federal funds sold& interest-bearing $ 258,834 $ 353 0.14 % $ 32,519 $ 115 0.35 %bank balancesInvestment 462,035 9,779 2.12 494,372 12,440 2.52 securities ^(1)Loans ^(1)(2)(3) 1,985,350 84,453 4.25 1,928,486 87,900 4.56 Totalinterest-earning 2,706,219 94,585 3.50 2,455,377 100,455 4.09 assetsOther assets 188,596 190,470 Total $ 2,894,815 $ 2,645,847 Liabilities andShareholders' EquityInterest-bearing $ 1,392,996 1,287 0.09 $ 1,156,292 4,755 0.41 demand depositsSavings deposits 202,371 203 0.10 163,133 246 0.15 Time deposits 360,264 2,709 0.75 452,298 7,008 1.55 Totalinterest-bearing 1,955,631 4,199 0.21 1,771,723 12,009 0.68 depositsSecurities soldunder agreements to 22,888 32 0.14 18,064 86 0.48 repurchaseFHLB advances and 40,589 482 1.19 179,457 1,923 1.07 otherSubordinated notes 31,931 2,009 6.29 31,874 2,006 6.29 Totalinterest-bearing 2,051,039 6,722 0.33 2,001,118 16,024 0.80 liabilitiesNoninterest-bearing 542,952 381,869 demand depositsOther 38,665 35,960 Total Liabilities 2,632,656 2,418,947 Shareholders' 262,159 226,900 EquityTotal $ 2,894,815 $ 2,645,847 Taxable-equivalentnet interest income 87,863 3.17 % 84,431 3.29 %/ net interestspreadTaxable-equivalent 3.25 % 3.44 %net interest marginTaxable-equivalent (889 ) (824 ) adjustmentNet interest income $ 86,974 $ 83,607 Ratio of averageinterest-earningassets to average 132 % 123 %interest-bearingliabilities NOTES TO ANALYSIS OF NET INTEREST INCOME: ^(1) Yields and interest income on tax-exempt assets have been computed on ataxable-equivalent basis assuming a 21% tax rate.^(2) Average balances include nonaccrual loans.^(3) Interest income on loans includes prepayment and late fees, whereapplicable

ORRSTOWN FINANCIAL SERVICES, INC. HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) (Inthousands, December 31, September June 30, March 31, December 31,except per 2021 30, 2021 2021 2020share amounts 2021)Profitabilityfor the quarter:Net interest $ 22,598 $ 20,620 $ 21,901 $ 21,855 $ 23,729 incomeProvision for 1,100 365 625 (1,000 ) 300 loan lossesNoninterest 7,293 7,651 6,664 7,544 7,181 incomeNoninterest 20,290 19,035 17,033 17,783 18,080 expensesIncome before 8,501 8,871 10,907 12,616 12,530 income taxesIncome tax 1,795 1,679 2,131 2,409 2,471 expenseNet income $ 6,706 $ 7,192 $ 8,776 $ 10,207 $ 10,059 Financial ratios:Return onaverage 0.93 % 0.98 % 1.20 % 1.44 % 1.47 %assets^(1)Return onaverage 9.93 % 10.69 % 13.56 % 16.31 % 17.01 %equity^(1)Net interest 3.35 % 3.03 % 3.24 % 3.38 % 3.73 %margin^(1)Efficiency 67.9 % 67.3 % 59.6 % 60.5 % 58.5 %ratio Per share information:Income per common share:Basic $ 0.61 $ 0.66 $ 0.80 $ 0.93 $ 0.92 Diluted 0.60 0.65 0.79 0.92 0.91 Book value 24.29 23.97 23.61 22.62 21.98 Tangible book 22.32 21.98 21.61 20.59 19.93 value ^(2)Cashdividends 0.19 0.19 0.18 0.18 0.17 paid Average basic 10,939 10,979 10,975 10,975 10,953 sharesAveragediluted 11,113 11,122 11,112 11,074 11,057 shares^(1) Annualized.^(2) Non-GAAP based financial measure. Please refer to Appendix B -Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAPReconciliations for a discussion of our use of non-GAAP based financialmeasures, including tables reconciling GAAP and non-GAAP financial measuresappearing herein.

ORRSTOWN FINANCIAL SERVICES, INC.HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)(continued) December September June 30, March 31, December 31, 30, 2021 2021 31, 2021 2021 2020Noninterest income:Service charges $ 960 $ 993 $ 880 $ 885 $ 999Interchange 1,080 1,030 1,064 955 916incomeLoan swap 158 67 15 53 320referral feesWealth management 2,897 2,917 2,930 2,723 2,615incomeMortgage banking 1,225 1,333 1,162 2,189 1,348activitiesOther income 970 832 602 594 955Investment 3 479 11 145 28securities gainsTotal noninterest $ 7,293 $ 7,651 $ 6,664 $ 7,544 $ 7,181income Noninterest expenses:Salaries and $ 12,095 $ 11,498 $ 10,212 $ 10,197 $ 10,998employee benefitsOccupancy,furniture and 2,554 2,374 2,400 2,518 2,467equipmentData processing,telephone, and 1,020 990 1,032 1,019 954communicationAdvertising and 744 735 274 425 507bank promotionsFDIC insurance 246 218 158 194 195Professional 693 562 579 721 780servicesTaxes other than 392 16 462 451 240incomeIntangible asset 303 314 324 334 345amortizationOther operating 2,243 2,328 1,592 1,924 1,594expensesTotal noninterest $ 20,290 $ 19,035 $ 17,033 $ 17,783 $ 18,080expenses

ORRSTOWN FINANCIAL SERVICES, INC. HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)(continued) December 31, September 30, June 30, March 31, December 31, 2021 2021 2021 2021 2020Balance Sheet at quarter end:Cash and cash $ 208,710 $ 311,415 $ 336,762 $ 326,245 $ 125,258 equivalentsRestrictedinvestments in bank 7,252 7,051 9,691 10,307 10,563 stocksSecurities 472,438 445,018 450,402 407,690 466,465 available for saleLoans held for 8,868 6,412 8,092 11,449 11,734 sale, at fair valueLoans: Commercial real estate: Owner occupied 238,668 196,585 191,595 177,934 174,908 Non-owner 551,783 509,703 471,541 415,219 409,567 occupied Multi-family 93,255 112,002 112,420 111,757 113,635 Non-owneroccupied 106,112 100,088 99,631 101,381 114,505 residentialCommercial and 485,728 540,205 599,123 750,831 647,368 industrial ^(1)Acquisition and development: 1-4 familyresidential 12,279 12,246 9,686 12,138 9,486 construction Commercial and 93,925 71,784 55,330 45,229 51,826 land developmentMunicipal 14,989 13,631 14,452 19,238 20,523 Total 1,596,739 1,556,244 1,553,778 1,633,727 1,541,818 commercial loansResidential mortgage: First lien 198,831 203,360 211,918 225,247 244,321 Home equity ? 6,081 7,079 8,321 9,183 10,169 term Home equity ? 160,705 154,004 149,601 153,169 157,021 lines of creditInstallment and 17,630 19,077 21,765 23,695 26,361 other loansTotal loans 1,979,986 1,939,764 1,945,383 2,045,021 1,979,690 Allowance for loan (21,180 ) (19,965 ) (19,381 ) (18,967 ) (20,151 )lossesNet loans 1,958,806 1,919,799 1,926,002 2,026,054 1,959,539 held-for-investmentGoodwill 18,724 18,724 18,724 18,724 18,724 Other intangible 4,183 4,486 4,800 5,124 5,458 assets, netTotal assets 2,834,565 2,870,182 2,912,717 2,963,534 2,750,572 Total deposits 2,464,929 2,502,108 2,494,100 2,547,089 2,356,880 Borrowings 25,197 29,598 80,709 80,736 77,511 Subordinated notes 31,963 31,948 31,932 31,918 31,903 Total shareholders' 271,656 268,569 265,938 254,448 246,249 equity

(1) This balance includes $189.9 million, $259.9 million, $355.6 million, $504.3 million and $403.3 million of SBA PPP loans, net of deferred fees and costs, at December31, 2021, September30, 2021, June30, 2021, March31, 2021 and December31, 2020, respectively.

ORRSTOWN FINANCIAL SERVICES, INC.HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)(continued) December September June 30, March 31, December 31, 30, 2021 2021 31, 2021 2021 2020Capital andcredit quality measures^(1):Total risk-based capital:OrrstownFinancial 15.0 % 15.6 % 15.6 % 16.2 % 15.6 %Services, IncOrrstown Bank 14.0 % 14.7 % 14.6 % 15.3 % 14.7 %Tier 1risk-based capital:OrrstownFinancial 12.2 % 12.8 % 12.7 % 13.2 % 12.5 %Services, IncOrrstown Bank 12.9 % 13.5 % 13.5 % 14.1 % 13.5 %Tier 1 commonequity risk-basedcapital:OrrstownFinancial 12.2 % 12.8 % 12.7 % 13.2 % 12.5 %Services, IncOrrstown Bank 12.9 % 13.5 % 13.5 % 14.1 % 13.5 %Tier 1 leverage capital:OrrstownFinancial 8.5 % 8.3 % 8.0 % 8.1 % 8.1 %Services, IncOrrstown Bank 8.9 % 8.7 % 8.5 % 8.6 % 8.7 % Average equityto average 9.34 % 9.20 % 8.83 % 8.85 % 8.65 %assetsAllowance forloan losses to 1.07 % 1.03 % 1.00 % 0.93 % 1.02 %total loansTotal nonaccrualloans to total 0.33 % 0.47 % 0.51 % 0.48 % 0.52 %loansNonperformingassets to total 0.23 % 0.32 % 0.34 % 0.33 % 0.37 %assetsAllowance forloan losses to 328 % 219 % 195 % 192 % 195 %nonaccrual loans Other information:Net (recoveries) $ (115 ) $ (219 ) $ 211 $ 184 $ (126 )charge-offsClassified loans 23,050 26,910 28,731 32,408 33,147 Nonperformingand other risk assets:Nonaccrual loans 6,449 9,116 9,941 9,895 10,310 Other real ? ? ? ? ? estate ownedTotalnonperforming 6,449 9,116 9,941 9,895 10,310 assetsRestructuredloans still 804 839 852 921 934 accruingLoans past due90 days or more 1,201 362 212 196 554 and stillaccruing ^(2) Totalnonperforming $ 8,454 $ 10,317 $ 11,005 $ 11,012 $ 11,798 and other riskassets(1) Capital ratios are estimated, subject to regulatory filings.(2) Includes $0.3 million, $0.4 million, $0.2 million, $0.2 million and $0.5million of purchased credit impaired loans at December31, 2021, September30,2021, June30, 2021, March31, 2021, and December31, 2020, respectively. As ofDecember 31, 2021, there was one loan for $0.9 million, which was in theprocess of collection and guaranteed by the SBA.

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 12/31 9/30/ 6/30 3/31/ 12/31 12/31/ 12/31/ /2021 2021 / 2021 /2020 2021 2020 2021(In thousands) Pretax Items Branchconsolidation $ ? $ ? $ ? $ ? $ ? $ ? $ 1,310 expensesGains (losses)on sale of 327 ? ? ? 13 327 (170 )propertiesNet securities 3 479 11 145 28 638 (16 )gains (losses)(Loss) gain on ? (514 ) ? ? 226 (514 ) 226 swap terminationEarnings on lifeinsurance ? ? ? ? 58 ? 58 proceedsGains on sale of ? ? ? ? ? ? 2,803 portfolio loansAccretion -recoveries on 34 15 23 256 779 328 2,304 purchased creditimpaired loansSolarpartnership ? 230 ? ? 264 230 264 credit incomeInsurance claimreceivable ? ? ? ? ? ? 486 recovery

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 $22.9 million and $24.2 million at December31, 2021 and December31, 2020, respectively. Additionally, the Company incurred approximately $1.3 million in charges associated with branch consolidation efforts during the year ended December 31, 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 December 31, September 30, June 30, March 31, December 31,Value per 2021 2021 2021 2021 2020Common ShareShareholders' $ 271,656 $ 268,569 $ 265,938 $ 254,448 $ 246,249 equityLess: 18,724 18,724 18,724 18,724 18,724 GoodwillOtherintangible 4,183 4,486 4,800 5,124 5,458 assetsRelated tax (878 ) (942 ) (1,008 ) (1,076 ) (1,146 )effectTangiblecommon equity $ 249,627 $ 246,301 $ 243,422 $ 231,676 $ 223,213 (non-GAAP) Common shares 11,183 11,205 11,263 11,251 11,201 outstanding Book valueper share(mostdirectly $ 24.29 $ 23.97 $ 23.61 $ 22.62 $ 21.98 comparableGAAP basedmeasure)Intangibleassets per 1.97 1.99 2.00 2.03 2.05 shareTangible bookvalue per $ 22.32 $ 21.98 $ 21.61 $ 20.59 $ 19.93 share(non-GAAP)

Allowance to Non-SBA Guaranteed Loans: December 31, 2021 September 30, 2021Allowance for loan losses $ 21,180 $ 19,965 Gross loans 1,979,986 1,939,764 less: SBA guaranteed loans (195,585 ) (261,138 )Non-SBA guaranteed loans $ 1,784,401 $ 1,678,626 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 December31, 2021:

(dollars in thousands)

Sector Portfolio Amortized Fair Credit AAA AA A BBB NR Collateral Mix Book Value Enhancement TypeUnsecured UnsecuredABS 2 % $ 7,458 $ 7,489 33 % ? % ? % ? % ? % 100 % Consumer DebtStudent SeasonedLoan ABS 2 8,785 8,762 26 ? ? ? ? 100 Student LoansFederal FederalFamily 21 99,631 99,702 6 85 15 ? ? ? FamilyEducation EducationLoan ABS Loan (1)PACE Loan 1 3,591 3,636 6 100 ? ? ? ? PACE LoansABSNon-Agency ReverseRMBS 5 25,639 24,661 31 45 ? ? ? 55 Mortgages (2)Municipal- General 20 92,895 97,696 7 86 7 ? ? ObligationMunicipal 20 92,542 95,674 ? 73 16 ? 11 - RevenueSBA SBAReRemic 2 8,092 8,068 ? 100 ? ? ? Guarantee (3) ResidentialAgency MBS 23 107,690 106,649 ? 100 ? ? ? Mortgages (3)U.S.Treasury 4 20,084 19,702 ? 100 ? ? ? securitiesBank CDs ? 249 249 ? ? ? ? 100 FDIC Insured CD 100 % $ 466,656 $ 472,288 23 % 64 % 4 % ? % 9 % (1) Minimum of 97% guaranteed by U.S. government(2) Reverse mortgages fund over time and credit enhancement is estimated basedon prior experience(3) 100% guaranteed by U.S. government agencies Note : Ratings in table are the lowest of the three rating agencies (Standard &Poor's, Moody's & Fitch). Standard & Poor's rates U.S. government obligationsat AA+Note: S&P rates US government obligations at AA+

About the Company

With $2.8 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a wide range of consumer and business financial services in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, and Washington Counties, Maryland, as well as Baltimore City, Maryland. Orrstown Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. Orrstown Financial Services, Inc.s common stock is traded on Nasdaq (ORRF). For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.com.

Cautionary Note Regarding Forward-looking Statements:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act 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, managements 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; take advantage of market disruption; 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 omicron and delta variants) and resulting governmental and societal responses, factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; the integration of the Company's strategic acquisitions; the inability to fully achieve expected savings, efficiencies or synergies from mergers and acquisitions, or taking longer than estimated for such savings, efficiencies and synergies to be realized; changes in laws and regulations; interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; the demand for our products and services; deteriorating economic conditions; 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 companys financial statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information presented in this announcement is subject to change.