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 March 31, 2023. Net
income totaled $9.2 million for the three months ended March 31,
2023, compared to $9.6 million for the three months ended December
31, 2022 and $8.4 million for the three months ended March 31,
2022. Diluted earnings per share totaled $0.87 for the three months
ended March 31, 2023, compared to $0.91 for the three months ended
December 31, 2022 and $0.76 for the three months ended March 31,
2022.
“Despite widespread challenges in the banking
industry, Orrstown’s dedication to the communities we serve,
combined with the trust our clients have shown in us, resulted in
another successful quarter. Strong commercial loan growth and net
interest margin helped the Company generate higher than expected
net income and return metrics. While we expect the pace of loan
growth to slow in the near term as we assess the economic and
credit environment and anticipate some further margin compression,
we remain confident that we are positioned to generate solid
earnings going forward,” commented Thomas R. Quinn, Jr., President
and Chief Executive Officer.
“Community banks have demonstrated their
resilience even during the recent market disruption the industry
has experienced since March when an already competitive deposit
environment was further fueled by concerns about the banking
sector," Quinn added. "Thanks in large part to our proactive client
outreach and emphasis on our stability, we experienced modest
deposit growth in a difficult deposit-gathering environment. Our
capital position remains strong, and our balance sheet is closely
monitored to ensure appropriate interest rate risk management.
There is a new set of challenges ahead and we will continue to take
a measured approach to drive client satisfaction and maximize
shareholder value.”
DISCUSSION OF RESULTS
Balance Sheet
Loans
Loans held for investment, which includes SBA
PPP loans, increased by $56.3 million from December 31, 2022 to
March 31, 2023, or 11% annualized. Commercial loans, excluding SBA
PPP loan forgiveness activity, increased by $63.2 million, or 15%
annualized, from December 31, 2022 to March 31, 2023. SBA PPP
loans, net of deferred fees and costs, declined by $3.0 million to
$10.8 million at March 31, 2023 from $13.8 million at December 31,
2022 due to forgiveness and payment activity. Net deferred SBA PPP
fees of $0.2 million remain at March 31, 2023. The first lien
residential mortgage portfolio declined by $2.8 million, or 5%
annualized, in the three months ended March 31, 2023.
Investment Securities
Investment securities, which are all
available-for-sale, increased by $8.7 million to $533.1 million at
March 31, 2023 compared to $524.4 million at December 31, 2022. Net
unrealized losses on investment securities declined by $8.8 million
primarily due to the further inversion of the yield curve. During
the first quarter of 2023, the Bank purchased investment securities
totaling $9.5 million. These purchases were offset by normal
paydown activity of $11.1 million. In addition, Federal Home Loan
Bank ("FHLB") stock increased $2.2 million due to an increase in
borrowings during the first quarter of 2023. The overall duration
of the Company's investment securities portfolio is 4.8 years. The
Company has sufficient access to liquidity such that management
does not believe it would be necessary to sell any of its
investment securities at a loss to offset any unexpected deposit
outflows. Management believes the structure of the Bank's
investment portfolio is appropriately aligned with the rest of the
balance sheet to protect against significant and unexpected charges
against earnings and capital. See Appendix B for a summary of the
Bank's investment securities at March 31, 2023, highlighting their
concentrations, credit ratings and credit enhancement levels.
Deposits
Deposits increased by $39.4 million, or 6%
annualized, totaling approximately $2.5 billion at both March 31,
2023 and December 31, 2022. In the first quarter of 2023, time
deposits increased by $51.6 million, or 83% annualized, money
market deposits increased by $4.1 million, or 3% annualized, and
interest-bearing demand deposits increased by $2.8 million, or 1%
annualized. These increases were partially offset by a decrease in
savings deposits of $11.7 million, or 21% annualized, and a
decrease in noninterest-bearing demand deposits of $7.4 million, or
6% annualized. The increase in time deposits was attributable to
promotional offerings of up to 18-month terms. The decline in the
savings and noninterest-bearing deposit categories was primarily
the result of clients seeking higher-yielding products. During the
first quarter of 2023, the Bank was successful at retaining many of
those deposits and driving inflows from new clients as well. At
March 31, 2023, deposits that are uninsured and not collateralized
totaled $474.2 million, or 19%, of total deposits. Alternative
solutions, such as reciprocal deposit products, have been offered
to clients concerned about uninsured deposits. The Bank's
loan-to-deposit ratio was only modestly higher at 88% at March 31,
2023 from 87% at December 31, 2022.
The previously announced sale of the Bank's Path
Valley branch is expected to be completed in the second quarter of
2023. It is expected that an estimated $27.5 million in deposits
will be sold at a premium of 6.0%.
Borrowings
FHLB advances and other borrowings increased by
$56.2 million to $162.3 million at March 31, 2023 compared to
$106.1 million at December 31, 2022. The increase in borrowings
during the first quarter of 2023 includes fixed-rate advances from
the FHLB totaling $40.0 million. With the continued strength in
loan fundings and increased competition for deposits, the Bank
elected to replace some of its overnight borrowings with lower cost
term advances. The Bank tested its various sources of funding
during the first quarter of 2023 to ensure accessibility. The
availability of alternative funding sources, such as the FHLB
advances and other wholesale options, exceeded $1.0 billion at
March 31, 2023.
Income Statement
Net Interest Income and Margin
Net interest income decreased by $1.2 million to
$26.3 million for the three months ended March 31, 2023 compared to
$27.5 million for the three months ended December 31, 2022. The net
interest margin, on a tax equivalent basis, remained strong, but
decreased to 3.94% in the first quarter of 2023 from 4.14% in the
fourth quarter of 2022. The decrease in net interest margin was
primarily the result of increased funding costs due to competitive
pressures and an increase in higher cost borrowings.
Interest income on loans increased by $1.7
million to $28.7 million for the three months ended March 31, 2023
compared to $27.0 million for the three months ended December 31,
2022. Loan growth and higher interest rates on loans were the
primary drivers of this increase. Interest income on loans for the
three months ended March 31, 2023 included prepayment fee income of
$0.1 million, a decrease of $0.3 million, from $0.4 million for the
three months ended December 31, 2022, which resulted in a decrease
of five basis points in net interest margin.
Interest income on investment securities
increased by $0.3 million to $5.2 million for the three months
ended March 31, 2023 from $4.9 million for the fourth quarter of
2022. The increase reflects higher yields on adjustable rate
securities.
Interest expense increased by $3.4 million to
$8.0 million for the three months ended March 31, 2023 compared to
$4.6 million for the three months ended December 31, 2022 due
primarily to increasing deposit and borrowing rates for both
existing and new balances. In addition, average interest-bearing
deposits increased by $56.4 million and average borrowings
increased by $53.8 million during the three months ended March 31,
2023.
Provision for Credit Losses
The allowance for credit losses increased by
$3.2 million to $28.4 million at March 31, 2023, compared to $25.2
million at December 31, 2022. The allowance for credit losses to
total loans was 1.28% at March 31, 2023 compared to 1.17% at
December 31, 2022. On January 1, 2023, the Company adopted
Accounting Standards Update No. 2016-13, Financial Instruments -
Credit Losses (Topic 326) ("ASU 2016-13"), the current expected
credit losses accounting standard commonly referred to as "CECL,"
resulting in a cumulative-effect adjustment that increased the
allowance for credit losses by $2.4 million. The Company recorded a
provision for credit losses of $0.7 million for the three months
ended March 31, 2023 under the CECL model compared to $0.6 million
for the three months ended December 31, 2022 under the incurred
loss model. Asset quality metrics remain strong despite growing
economic uncertainty. Net recoveries were less than $0.1 million
for the three months ended March 31, 2023 compared to net
charge-offs of $0.1 million for the three months ended December 31,
2022. Non-accruals increased by $0.6 million to $21.2 million at
March 31, 2023 from $20.6 million at December 31, 2022 primarily
due to additions of $1.5 million, inclusive of $0.9 million
transferred to non-accrual due to the treatment of purchased credit
deteriorated loans at the individual asset level under CECL,
partially offset by payments of $0.7 million, partial charge-offs
of $0.1 million and loans returned to accrual status of $0.1
million. Management believes the allowance for credit losses to be
adequate based on current asset quality metrics and economic
conditions.
Management regularly analyzes the commercial
real estate portfolio, which includes the review of occupancy, cash
flows, expenses and expiring leases, as well as the location of the
real estate. At March 31, 2023, the Company had $236.2 million in
loans related to office space. Management believes that the office
space portfolio is well-diversified and includes only limited
exposure to properties located in major metro markets (less than 3%
of the total commercial real estate loan balance as of March 31,
2023). In addition, management recently completed stress testing on
commercial real estate loans totaling $1.0 million or greater. The
average loan-to-value ratio was less than 60% for the tested loans.
The results of this stress testing, for which projected cash flows
were reduced by 30%, indicated that the average projected cash
flows are sufficient for borrowers to meet covenant
requirements.
Noninterest Income
Noninterest income decreased by $0.1 million to
$6.1 million in the three months ended March 31, 2023 compared to
$6.2 million in the three months ended December 31, 2022.
Wealth management income increased by $0.2
million to $2.7 million during the first quarter of 2023 from $2.5
million during the fourth quarter of 2022 due to slight improvement
in market conditions in the stock and bond markets.
Mortgage banking income increased by $0.3
million from $0.2 million in the fourth quarter of 2022 to $0.5
million in the first quarter of 2023. Market conditions and
elevated interest rates continued to hinder mortgage production
during the first quarter of 2023. Due to the current mortgage
interest rates, clients have shifted from conventional fixed-rate
mortgages to adjustable-rate products, which has reduced the
residential mortgage loan pipeline for sale in the secondary
market. Mortgage loans sold totaled $9.6 million in the first
quarter of 2023 compared to $8.6 million in the fourth quarter of
2022 and $31.9 million in the first quarter of 2022. During the
three months ended March 31, 2023, mortgage interest rates
declined, which resulted in an improvement to the fair value mark
of the Bank's held-for-sale loans of $0.3 million.
During the first quarter of 2023, the Company
did not execute any customer interest rate swaps. As a result, swap
fee income decreased by $0.7 million for the three months ended
March 31, 2023 compared to the three months ended December 31,
2022. Swap fee income fluctuates based on market conditions and
client demand.
Noninterest Expenses
Noninterest expenses decreased by $0.9 million
to $20.3 million in the three months ended March 31, 2023 from
$21.2 million in the three months ended December 31, 2022.
Salaries and benefits expense decreased by $0.5
million to $12.2 million for the three months ended March 31, 2023
compared to $12.7 million for the three months ended December 31,
2022. The decrease was attributed primarily to performance-based
bonuses recognized during the fourth quarter of 2022, partially
offset by an increase in employee benefit costs and employment
taxes in the first quarter of 2023 as these costs typically are
higher early in the year.
Advertising and bank promotions expense
decreased by $0.4 million to $0.4 million in the three months ended
March 31, 2023 from $0.8 million for the three months ended
December 31, 2022 due to $0.4 million in contributions to tax
credit programs during the fourth quarter of 2022. Taxes other than
income increased by $0.3 million to $0.5 million in the three
months ended March 31, 2023 compared to $0.2 million in the three
months ended December 31, 2022. This increase reflects the tax
credits recognized on the contributions during the fourth quarter
of 2022.
Other operating expenses decreased by $0.4
million to $2.2 million during the first quarter of 2023 compared
to $2.6 million during the fourth quarter of 2022. This decrease
included a reduction in client fraud losses of $0.1 million.
Included in this balance is $0.2 million of mark-to-market losses
on derivatives not designated as hedging instruments for the three
months ended March 31, 2023 and December 31, 2022 at $0.2 million.
The remaining fluctuation is attributable to normal business
operations.
Income Taxes
The Company's effective tax rate for the first
quarter of 2023 was 19.6% compared to 19.0% for the fourth quarter
of 2022. The Company's effective tax rate for the three months
ended March 31, 2023 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 increase in the effective tax rate was
primarily due to an increase in taxable income as the effective tax
rate in 2022 included the impact from the restructuring charge and
legal settlement. In addition, as interest expense increases, the
portion that is disallowed as a deduction against earnings, in
association with the Bank's tax-exempt investments under the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), also
increases.
Capital
Shareholders’ equity totaled $240.2 million at
March 31, 2023, an increase of $11.3 million from $228.9 million at
December 31, 2022. The increase was primarily attributable to net
income of $9.2 million and other comprehensive income of $7.1
million, partially offset by dividends paid of $2.1 million for the
three months ended March 31, 2023 and the cumulative-effect
adjustment from the adoption of CECL that decreased retained
earnings by $2.0 million. Other comprehensive income increased due
to after-tax declines of $6.8 million and $0.3 million in net
unrealized losses on investment securities and cash flow hedges,
respectively.
Tangible book value per share(1) increased to
$20.50 per share at March 31, 2023 from $19.47 per share at
December 31, 2022 primarily as a result of the increase in
shareholders' equity. Recently, tangible book value per share was
as low as $18.34 per share at September 30, 2022 after the Company
recorded litigation and restructuring-related charges. Tangible
book value per share increased in part due to improvement in other
comprehensive income, which increased from $14.1 million in
after-tax net unrealized losses during the third quarter of 2022 to
after-tax net unrealized gains of $6.8 million during the first
quarter of 2023.
(1) Non-GAAP measure. See Appendix A for
additional information.
The Company's tangible common equity ratio
increased to 7.3% at March 31, 2023 from 7.1% at December 31, 2022
primarily due to an increase in tangible equity from net income and
the decrease in unrealized losses on available-for-sale securities.
The Company's total risk-based capital ratio was 12.8% at March 31,
2023 up from 12.7% at December 31, 2022. The Company's Tier 1
leverage ratio remained at 8.5% at March 31, 2023 and December 31,
2022. At March 31, 2023, all four capital ratios applicable to the
Company were above regulatory minimum levels to be deemed “well
capitalized” under current bank regulatory guidelines. 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.
The Board of Directors approved a cash dividend
of $0.20 per share, payable on May 16, 2023, to shareholders of
record as of May 9, 2023.
Investor Relations Contact:Neelesh
KalaniExecutive Vice President, Chief Financial OfficerPhone (717)
510-7097
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|
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ORRSTOWN FINANCIAL
SERVICES, INC. |
|
|
|
FINANCIAL HIGHLIGHTS
(Unaudited) |
|
|
|
|
|
|
|
|
Three Months Ended |
|
March 31, |
|
March 31, |
(Dollars in thousands) |
|
2023 |
|
|
|
2022 |
|
|
|
|
|
Profitability for the
period: |
|
|
|
Net interest income |
$ |
26,294 |
|
|
$ |
22,573 |
|
Provision for credit losses |
|
729 |
|
|
|
300 |
|
Noninterest income |
|
6,078 |
|
|
|
7,474 |
|
Noninterest expenses |
|
20,255 |
|
|
|
19,364 |
|
Income before income tax expense |
|
11,388 |
|
|
|
10,383 |
|
Income tax expense |
|
2,232 |
|
|
|
2,015 |
|
Net income available to common shareholders |
$ |
9,156 |
|
|
$ |
8,368 |
|
|
|
|
|
Financial ratios: |
|
|
|
Return on average assets (1) |
|
1.27 |
% |
|
|
1.20 |
% |
Return on average equity (1) |
|
15.88 |
% |
|
|
12.65 |
% |
Net interest margin (1) |
|
3.94 |
% |
|
|
3.49 |
% |
Efficiency ratio |
|
62.6 |
% |
|
|
64.4 |
% |
Income per common share: |
|
|
|
Basic |
$ |
0.88 |
|
|
$ |
0.77 |
|
Diluted |
$ |
0.87 |
|
|
$ |
0.76 |
|
|
|
|
|
Average equity to average assets |
|
7.97 |
% |
|
|
9.47 |
% |
|
|
|
|
(1) Annualized.
ORRSTOWN FINANCIAL
SERVICES, INC. |
|
|
|
FINANCIAL
HIGHLIGHTS (Unaudited) |
|
|
|
(continued) |
|
|
|
|
March 31, |
|
December 31, |
(Dollars in thousands, except per share amounts) |
|
2023 |
|
|
|
2022 |
|
At period-end: |
|
|
|
Total assets |
$ |
3,011,548 |
|
|
$ |
2,922,408 |
|
Total deposits |
|
2,515,626 |
|
|
|
2,476,246 |
|
Loans, net of allowance for credit losses |
|
2,179,137 |
|
|
|
2,126,054 |
|
Loans held-for-sale, at fair value |
|
7,341 |
|
|
|
10,880 |
|
Securities available for sale, at fair value |
|
520,232 |
|
|
|
513,728 |
|
Borrowings |
|
176,315 |
|
|
|
123,390 |
|
Subordinated notes |
|
32,042 |
|
|
|
32,026 |
|
Shareholders' equity |
|
240,161 |
|
|
|
228,896 |
|
|
|
|
|
Credit quality and capital
ratios (1): |
|
|
|
Allowance for credit losses to total loans |
|
1.28 |
% |
|
|
1.17 |
% |
Total nonaccrual loans to total loans |
|
0.96 |
% |
|
|
0.96 |
% |
Nonperforming assets to total assets |
|
0.71 |
% |
|
|
0.70 |
% |
Allowance for credit losses to nonaccrual loans |
|
134 |
% |
|
|
122 |
% |
Total risk-based capital: |
|
|
|
Orrstown Financial Services, Inc. |
|
12.8 |
% |
|
|
12.7 |
% |
Orrstown Bank |
|
12.4 |
% |
|
|
12.3 |
% |
Tier 1 risk-based capital: |
|
|
|
Orrstown Financial Services, Inc. |
|
10.4 |
% |
|
|
10.3 |
% |
Orrstown Bank |
|
11.2 |
% |
|
|
11.2 |
% |
Tier 1 common equity risk-based capital: |
|
|
|
Orrstown Financial Services, Inc. |
|
10.4 |
% |
|
|
10.3 |
% |
Orrstown Bank |
|
11.2 |
% |
|
|
11.2 |
% |
Tier 1 leverage capital: |
|
|
|
Orrstown Financial Services, Inc. |
|
8.5 |
% |
|
|
8.5 |
% |
Orrstown Bank |
|
9.2 |
% |
|
|
9.2 |
% |
|
|
|
|
Book value per common share |
$ |
22.46 |
|
|
$ |
21.45 |
|
|
|
|
|
(1) Capital ratios are estimated, subject to regulatory filings.
The Company elected the three-year phase in option for the day-one
impact of ASU 2016-13 for current expected credit losses ("CECL")
to regulatory capital. In the first year of adoption in 2023, the
Company adjusted retained earnings, allowance for credit losses
includable in tier 2 capital and the deferred tax assets from
temporary differences in risk weighted assets by the permitted
percentage of the day-one impact from adopting the new CECL
standard.
ORRSTOWN FINANCIAL
SERVICES, INC. |
|
|
|
CONSOLIDATED BALANCE
SHEETS (Unaudited) |
|
|
|
|
|
|
|
(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 |
|
Accrued
interest and other liabilities |
|
47,404 |
|
|
|
61,850 |
|
Total liabilities |
|
2,771,387 |
|
|
|
2,693,512 |
|
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 losses |
|
(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 |
|
|
|
|
|
|
|
|
|
ORRSTOWN
FINANCIAL SERVICES, INC. |
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
|
Three Months Ended |
|
March 31, |
|
March 31, |
(In thousands) |
|
2023 |
|
|
|
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 |
|
1,157 |
|
|
|
1,073 |
|
Interchange income |
|
965 |
|
|
|
981 |
|
Swap fee
income |
|
— |
|
|
|
953 |
|
Wealth
management income |
|
2,747 |
|
|
|
2,869 |
|
Mortgage
banking activities |
|
478 |
|
|
|
721 |
|
Investment securities losses |
|
(8 |
) |
|
|
(146 |
) |
Other
income |
|
739 |
|
|
|
1,023 |
|
Total noninterest income |
|
6,078 |
|
|
|
7,474 |
|
Noninterest expenses |
|
|
|
Salaries
and employee benefits |
|
12,196 |
|
|
|
11,337 |
|
Occupancy, furniture and equipment |
|
2,333 |
|
|
|
2,567 |
|
Data
processing |
|
1,217 |
|
|
|
1,053 |
|
Advertising and bank promotions |
|
405 |
|
|
|
355 |
|
FDIC
insurance |
|
504 |
|
|
|
283 |
|
Professional services |
|
734 |
|
|
|
808 |
|
Taxes
other than income |
|
457 |
|
|
|
564 |
|
Intangible asset amortization |
|
250 |
|
|
|
292 |
|
Other
operating expenses |
|
2,159 |
|
|
|
2,105 |
|
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 |
|
|
|
|
|
Share
information: |
|
|
|
Basic earnings per share |
$ |
0.88 |
|
|
$ |
0.77 |
|
Diluted earnings per
share |
$ |
0.87 |
|
|
$ |
0.76 |
|
Weighted average shares -
basic |
|
10,385 |
|
|
|
10,860 |
|
Weighted average shares -
diluted |
|
10,496 |
|
|
|
11,007 |
|
|
|
|
|
|
|
|
|
ORRSTOWN
FINANCIAL SERVICES, INC. |
|
|
|
|
ANALYSIS
OF NET INTEREST INCOME |
|
|
|
|
Average
Balances and Interest Rates, Taxable-Equivalent Basis
(Unaudited) |
|
|
|
Three Months Ended |
|
3/31/2023 |
|
12/31/2022 |
|
9/30/2022 |
|
6/30/2022 |
|
3/31/2022 |
|
|
|
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 |
$ |
29,599 |
|
$ |
298 |
|
|
4.07 |
% |
|
$ |
28,419 |
|
$ |
238 |
|
|
3.31 |
% |
|
$ |
38,068 |
|
$ |
200 |
|
|
2.08 |
% |
|
$ |
131,449 |
|
$ |
235 |
|
|
0.72 |
% |
|
$ |
199,788 |
|
$ |
101 |
|
|
0.20 |
% |
Investment securities (1) |
|
525,685 |
|
|
5,465 |
|
|
4.18 |
|
|
|
512,779 |
|
|
5,170 |
|
|
4.03 |
|
|
|
528,988 |
|
|
4,377 |
|
|
3.31 |
|
|
|
523,940 |
|
|
3,388 |
|
|
2.59 |
|
|
|
472,195 |
|
|
2,512 |
|
|
2.13 |
|
Loans (1)(2)(3) |
|
2,180,224 |
|
|
28,844 |
|
|
5.36 |
|
|
|
2,133,052 |
|
|
27,061 |
|
|
5.04 |
|
|
|
2,051,707 |
|
|
23,219 |
|
|
4.49 |
|
|
|
2,008,283 |
|
|
22,090 |
|
|
4.41 |
|
|
|
1,974,804 |
|
|
21,429 |
|
|
4.39 |
|
Total interest-earning
assets |
|
2,735,508 |
|
|
34,607 |
|
|
5.12 |
|
|
|
2,674,250 |
|
|
32,469 |
|
|
4.83 |
|
|
|
2,618,763 |
|
|
27,796 |
|
|
4.22 |
|
|
|
2,663,672 |
|
|
25,713 |
|
|
3.87 |
|
|
|
2,646,787 |
|
|
24,042 |
|
|
3.67 |
|
Other assets |
|
197,620 |
|
|
|
|
|
|
202,384 |
|
|
|
|
|
|
196,277 |
|
|
|
|
|
|
192,561 |
|
|
|
|
|
|
184,300 |
|
|
|
|
Total Assets |
$ |
2,933,128 |
|
|
|
|
|
$ |
2,876,634 |
|
|
|
|
|
$ |
2,815,040 |
|
|
|
|
|
$ |
2,856,233 |
|
|
|
|
|
$ |
2,831,087 |
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
deposits |
$ |
1,503,421 |
|
|
4,862 |
|
|
1.31 |
|
|
$ |
1,459,109 |
|
|
2,838 |
|
|
0.77 |
|
|
$ |
1,379,082 |
|
|
912 |
|
|
0.26 |
|
|
$ |
1,420,051 |
|
|
301 |
|
|
0.09 |
|
|
$ |
1,398,182 |
|
|
256 |
|
|
0.07 |
|
Savings deposits |
|
219,408 |
|
|
133 |
|
|
0.25 |
|
|
|
228,521 |
|
|
132 |
|
|
0.23 |
|
|
|
237,462 |
|
|
90 |
|
|
0.15 |
|
|
|
236,916 |
|
|
63 |
|
|
0.11 |
|
|
|
227,676 |
|
|
57 |
|
|
0.10 |
|
Time deposits |
|
275,880 |
|
|
1,207 |
|
|
1.78 |
|
|
|
254,637 |
|
|
609 |
|
|
0.95 |
|
|
|
265,015 |
|
|
370 |
|
|
0.55 |
|
|
|
275,408 |
|
|
337 |
|
|
0.49 |
|
|
|
298,618 |
|
|
372 |
|
|
0.51 |
|
Total interest-bearing
deposits |
|
1,998,709 |
|
|
6,202 |
|
|
1.26 |
|
|
|
1,942,267 |
|
|
3,579 |
|
|
0.73 |
|
|
|
1,881,559 |
|
|
1,372 |
|
|
0.29 |
|
|
|
1,932,375 |
|
|
701 |
|
|
0.15 |
|
|
|
1,924,476 |
|
|
685 |
|
|
0.14 |
|
Securities sold under
agreements to repurchase and federal funds purchased |
|
13,868 |
|
|
25 |
|
|
0.72 |
|
|
|
18,211 |
|
|
20 |
|
|
0.46 |
|
|
|
23,480 |
|
|
10 |
|
|
0.18 |
|
|
|
24,045 |
|
|
7 |
|
|
0.11 |
|
|
|
23,530 |
|
|
7 |
|
|
0.12 |
|
FHLB advances and other
borrowings |
|
106,434 |
|
|
1,252 |
|
|
4.77 |
|
|
|
48,276 |
|
|
509 |
|
|
4.21 |
|
|
|
10,394 |
|
|
78 |
|
|
3.02 |
|
|
|
1,741 |
|
|
21 |
|
|
4.74 |
|
|
|
1,850 |
|
|
22 |
|
|
4.74 |
|
Subordinated notes |
|
32,033 |
|
|
504 |
|
|
6.29 |
|
|
|
32,016 |
|
|
503 |
|
|
6.29 |
|
|
|
32,000 |
|
|
504 |
|
|
6.29 |
|
|
|
31,985 |
|
|
503 |
|
|
6.29 |
|
|
|
31,969 |
|
|
503 |
|
|
6.29 |
|
Total interest-bearing
liabilities |
|
2,151,044 |
|
|
7,983 |
|
|
1.50 |
|
|
|
2,040,770 |
|
|
4,611 |
|
|
0.90 |
|
|
|
1,947,433 |
|
|
1,964 |
|
|
0.40 |
|
|
|
1,990,146 |
|
|
1,232 |
|
|
0.25 |
|
|
|
1,981,825 |
|
|
1,217 |
|
|
0.25 |
|
Noninterest-bearing demand
deposits |
|
495,562 |
|
|
|
|
|
|
540,275 |
|
|
|
|
|
|
575,777 |
|
|
|
|
|
|
572,171 |
|
|
|
|
|
|
540,139 |
|
|
|
|
Other liabilities |
|
52,630 |
|
|
|
|
|
|
74,602 |
|
|
|
|
|
|
49,964 |
|
|
|
|
|
|
47,190 |
|
|
|
|
|
|
40,919 |
|
|
|
|
Total Liabilities |
|
2,699,236 |
|
|
|
|
|
|
2,655,647 |
|
|
|
|
|
|
2,573,174 |
|
|
|
|
|
|
2,609,507 |
|
|
|
|
|
|
2,562,883 |
|
|
|
|
Shareholders' Equity |
|
233,892 |
|
|
|
|
|
|
220,987 |
|
|
|
|
|
|
241,866 |
|
|
|
|
|
|
246,726 |
|
|
|
|
|
|
268,204 |
|
|
|
|
Total |
$ |
2,933,128 |
|
|
|
|
|
$ |
2,876,634 |
|
|
|
|
|
$ |
2,815,040 |
|
|
|
|
|
$ |
2,856,233 |
|
|
|
|
|
$ |
2,831,087 |
|
|
|
|
Taxable-equivalent net
interest income / net interest spread |
|
|
|
26,624 |
|
|
3.62 |
% |
|
|
|
|
27,858 |
|
|
3.93 |
% |
|
|
|
|
25,832 |
|
|
3.82 |
% |
|
|
|
|
24,481 |
|
|
3.62 |
% |
|
|
|
|
22,825 |
|
|
3.42 |
% |
Taxable-equivalent net
interest margin |
|
|
|
|
3.94 |
% |
|
|
|
|
|
4.14 |
% |
|
|
|
|
|
3.92 |
% |
|
|
|
|
|
3.68 |
% |
|
|
|
|
|
3.49 |
% |
Taxable-equivalent
adjustment |
|
|
|
(330 |
) |
|
|
|
|
|
|
(374 |
) |
|
|
|
|
|
|
(377 |
) |
|
|
|
|
|
|
(363 |
) |
|
|
|
|
|
|
(252 |
) |
|
|
Net interest income |
|
|
$ |
26,294 |
|
|
|
|
|
|
$ |
27,484 |
|
|
|
|
|
|
$ |
25,455 |
|
|
|
|
|
|
$ |
24,118 |
|
|
|
|
|
|
$ |
22,573 |
|
|
|
Ratio of average
interest-earning assets to average interest-bearing
liabilities |
|
|
|
|
127 |
% |
|
|
|
|
|
131 |
% |
|
|
|
|
|
134 |
% |
|
|
|
|
|
134 |
% |
|
|
|
|
|
134 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
|
|
|
|
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
March 31,2023 |
|
December 31,2022 |
|
September 30,2022 |
|
June 30,2022 |
|
March 31,2022 |
Profitability for the
quarter: |
|
|
|
|
|
|
|
|
|
Net interest income |
$ |
26,294 |
|
|
$ |
27,484 |
|
|
$ |
25,455 |
|
|
$ |
24,118 |
|
|
$ |
22,573 |
|
Provision for credit losses |
|
729 |
|
|
|
585 |
|
|
|
1,500 |
|
|
|
1,775 |
|
|
|
300 |
|
Noninterest income |
|
6,078 |
|
|
|
6,226 |
|
|
|
6,058 |
|
|
|
7,194 |
|
|
|
7,474 |
|
Noninterest expenses |
|
20,255 |
|
|
|
21,236 |
|
|
|
36,412 |
|
|
|
18,794 |
|
|
|
19,364 |
|
Income (loss) before income taxes |
|
11,388 |
|
|
|
11,889 |
|
|
|
(6,399 |
) |
|
|
10,743 |
|
|
|
10,383 |
|
Income tax expense (benefit) |
|
2,232 |
|
|
|
2,263 |
|
|
|
(1,571 |
) |
|
|
1,872 |
|
|
|
2,015 |
|
Net income (loss) |
$ |
9,156 |
|
|
$ |
9,626 |
|
|
$ |
(4,828 |
) |
|
$ |
8,871 |
|
|
$ |
8,368 |
|
|
|
|
|
|
|
|
|
|
|
Financial ratios: |
|
|
|
|
|
|
|
|
|
Return on average assets (1) |
|
1.27 |
% |
|
|
1.33 |
% |
|
|
(0.68 |
)% |
|
|
1.25 |
% |
|
|
1.20 |
% |
Return on average assets, adjusted (1)(2)(3) |
|
1.27 |
% |
|
|
1.33 |
% |
|
|
1.12 |
% |
|
|
1.25 |
% |
|
|
1.20 |
% |
Return on average equity (1) |
|
15.88 |
% |
|
|
17.28 |
% |
|
|
(7.92 |
)% |
|
|
14.42 |
% |
|
|
12.65 |
% |
Return on average equity, adjusted (1)(2)(3) |
|
15.88 |
% |
|
|
17.28 |
% |
|
|
13.02 |
% |
|
|
14.42 |
% |
|
|
12.65 |
% |
Net interest margin (1) |
|
3.94 |
% |
|
|
4.14 |
% |
|
|
3.92 |
% |
|
|
3.68 |
% |
|
|
3.49 |
% |
Efficiency ratio |
|
62.6 |
% |
|
|
63.0 |
% |
|
|
115.5 |
% |
|
|
60.0 |
% |
|
|
64.4 |
% |
Efficiency ratio, adjusted (2)(3) |
|
62.6 |
% |
|
|
63.0 |
% |
|
|
64.3 |
% |
|
|
60.0 |
% |
|
|
64.4 |
% |
|
|
|
|
|
|
|
|
|
|
Per share information: |
|
|
|
|
|
|
|
|
|
Income (loss) per common share: |
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.88 |
|
|
$ |
0.93 |
|
|
$ |
(0.47 |
) |
|
$ |
0.84 |
|
|
$ |
0.77 |
|
Basic, adjusted (2)(3) |
|
0.88 |
|
|
|
0.93 |
|
|
|
0.77 |
|
|
|
0.84 |
|
|
|
0.77 |
|
Diluted |
|
0.87 |
|
|
|
0.91 |
|
|
|
(0.47 |
) |
|
|
0.83 |
|
|
|
0.76 |
|
Diluted, adjusted (2)(3) |
|
0.87 |
|
|
|
0.91 |
|
|
|
0.75 |
|
|
|
0.83 |
|
|
|
0.76 |
|
Book value |
|
22.46 |
|
|
|
21.45 |
|
|
|
20.34 |
|
|
|
22.25 |
|
|
|
23.00 |
|
Tangible book value (2) |
|
20.50 |
|
|
|
19.47 |
|
|
|
18.34 |
|
|
|
20.23 |
|
|
|
21.03 |
|
Cash dividends paid |
|
0.20 |
|
|
|
0.19 |
|
|
|
0.19 |
|
|
|
0.19 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
Average basic shares |
|
10,385 |
|
|
|
10,382 |
|
|
|
10,369 |
|
|
|
10,610 |
|
|
|
10,860 |
|
Average diluted shares |
|
10,496 |
|
|
|
10,550 |
|
|
|
10,529 |
|
|
|
10,744 |
|
|
|
11,007 |
|
(1) Annualized. |
(2) Ratio has been adjusted for the restructuring charge and
provision for legal settlement for the three months ended September
30, 2022. |
(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. |
|
|
|
|
|
|
|
|
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA
(Unaudited) |
|
|
|
|
(continued) |
|
|
|
|
|
|
|
|
|
(In thousands) |
March 31,2023 |
|
December 31,2022 |
|
September 30,2022 |
|
June 30,2022 |
|
March 31,2022 |
Noninterest income: |
|
|
|
|
|
|
|
|
|
Service charges |
$ |
1,157 |
|
|
$ |
1,131 |
|
$ |
1,216 |
|
|
$ |
1,194 |
|
|
$ |
1,073 |
|
Interchange income |
|
965 |
|
|
|
996 |
|
|
1,014 |
|
|
|
1,064 |
|
|
|
981 |
|
Swap fee income |
|
— |
|
|
|
697 |
|
|
197 |
|
|
|
785 |
|
|
|
953 |
|
Wealth management income |
|
2,747 |
|
|
|
2,535 |
|
|
2,953 |
|
|
|
2,894 |
|
|
|
2,869 |
|
Mortgage banking activities |
|
478 |
|
|
|
202 |
|
|
(1,014 |
) |
|
|
498 |
|
|
|
721 |
|
Other income |
|
739 |
|
|
|
662 |
|
|
1,706 |
|
|
|
762 |
|
|
|
1,023 |
|
Investment securities (losses) gains |
|
(8 |
) |
|
|
3 |
|
|
(14 |
) |
|
|
(3 |
) |
|
|
(146 |
) |
Total noninterest income |
$ |
6,078 |
|
|
$ |
6,226 |
|
$ |
6,058 |
|
|
$ |
7,194 |
|
|
$ |
7,474 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses: |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
$ |
12,196 |
|
|
$ |
12,650 |
|
$ |
12,705 |
|
|
$ |
11,312 |
|
|
$ |
11,337 |
|
Occupancy, furniture and equipment |
|
2,333 |
|
|
|
2,442 |
|
|
2,380 |
|
|
|
2,423 |
|
|
|
2,567 |
|
Data processing |
|
1,217 |
|
|
|
1,150 |
|
|
1,192 |
|
|
|
1,165 |
|
|
|
1,053 |
|
Advertising and bank promotions |
|
405 |
|
|
|
750 |
|
|
278 |
|
|
|
881 |
|
|
|
355 |
|
FDIC insurance |
|
504 |
|
|
|
316 |
|
|
294 |
|
|
|
190 |
|
|
|
283 |
|
Professional services |
|
734 |
|
|
|
837 |
|
|
887 |
|
|
|
722 |
|
|
|
808 |
|
Taxes other than income |
|
457 |
|
|
|
231 |
|
|
488 |
|
|
|
108 |
|
|
|
564 |
|
Intangible asset amortization |
|
250 |
|
|
|
260 |
|
|
272 |
|
|
|
281 |
|
|
|
292 |
|
Provision for legal settlement |
|
— |
|
|
|
— |
|
|
13,000 |
|
|
|
— |
|
|
|
— |
|
Restructuring expenses |
|
— |
|
|
|
— |
|
|
3,155 |
|
|
|
— |
|
|
|
— |
|
Other operating expenses |
|
2,159 |
|
|
|
2,600 |
|
|
1,761 |
|
|
|
1,712 |
|
|
|
2,105 |
|
Total noninterest expenses |
$ |
20,255 |
|
|
$ |
21,236 |
|
$ |
36,412 |
|
|
$ |
18,794 |
|
|
$ |
19,364 |
|
|
|
|
|
|
|
|
|
|
|
ORRSTOWN
FINANCIAL SERVICES, INC. |
|
|
|
|
|
|
|
|
HISTORICAL
TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) |
|
|
|
|
|
|
(continued) |
|
|
|
|
|
|
|
|
|
(In thousands) |
March 31,2023 |
|
December 31,2022 |
|
September 30,2022 |
|
June 30,2022 |
|
March 31,2022 |
Balance Sheet at quarter
end: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
98,323 |
|
|
$ |
60,823 |
|
|
$ |
66,927 |
|
|
$ |
111,906 |
|
|
$ |
214,238 |
|
Restricted investments in bank stocks |
|
12,869 |
|
|
|
10,642 |
|
|
|
6,469 |
|
|
|
6,500 |
|
|
|
6,791 |
|
Securities available for sale |
|
520,232 |
|
|
|
513,728 |
|
|
|
503,596 |
|
|
|
512,698 |
|
|
|
529,730 |
|
Loans held for sale, at fair value |
|
7,341 |
|
|
|
10,880 |
|
|
|
10,175 |
|
|
|
7,824 |
|
|
|
7,403 |
|
Loans: |
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
Owner occupied |
|
339,371 |
|
|
|
315,770 |
|
|
|
313,125 |
|
|
|
287,825 |
|
|
|
256,526 |
|
Non-owner occupied |
|
603,396 |
|
|
|
608,043 |
|
|
|
573,605 |
|
|
|
559,309 |
|
|
|
558,999 |
|
Multi-family |
|
144,053 |
|
|
|
138,832 |
|
|
|
114,561 |
|
|
|
116,110 |
|
|
|
93,158 |
|
Non-owner occupied residential |
|
106,390 |
|
|
|
104,604 |
|
|
|
105,267 |
|
|
|
109,141 |
|
|
|
102,269 |
|
Commercial and industrial (1) |
|
380,683 |
|
|
|
357,774 |
|
|
|
378,574 |
|
|
|
379,729 |
|
|
|
443,170 |
|
Acquisition and development: |
|
|
|
|
|
|
|
|
|
1-4 family residential construction |
|
20,941 |
|
|
|
25,068 |
|
|
|
20,810 |
|
|
|
22,650 |
|
|
|
15,115 |
|
Commercial and land development |
|
174,556 |
|
|
|
158,308 |
|
|
|
148,512 |
|
|
|
134,947 |
|
|
|
105,204 |
|
Municipal |
|
11,329 |
|
|
|
12,173 |
|
|
|
12,683 |
|
|
|
12,957 |
|
|
|
14,626 |
|
Total commercial loans |
|
1,780,719 |
|
|
|
1,720,572 |
|
|
|
1,667,137 |
|
|
|
1,622,668 |
|
|
|
1,589,067 |
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
First lien |
|
227,031 |
|
|
|
229,849 |
|
|
|
220,970 |
|
|
|
202,787 |
|
|
|
203,231 |
|
Home equity – term |
|
5,371 |
|
|
|
5,505 |
|
|
|
5,869 |
|
|
|
5,996 |
|
|
|
5,820 |
|
Home equity – lines of credit |
|
183,340 |
|
|
|
183,241 |
|
|
|
180,267 |
|
|
|
171,269 |
|
|
|
164,818 |
|
Installment and other loans |
|
11,040 |
|
|
|
12,065 |
|
|
|
13,684 |
|
|
|
14,909 |
|
|
|
15,371 |
|
Total loans |
|
2,207,501 |
|
|
|
2,151,232 |
|
|
|
2,087,927 |
|
|
|
2,017,629 |
|
|
|
1,978,307 |
|
Allowance for credit losses (2) |
|
(28,364 |
) |
|
|
(25,178 |
) |
|
|
(24,709 |
) |
|
|
(23,279 |
) |
|
|
(21,508 |
) |
Net loans held-for-investment |
|
2,179,137 |
|
|
|
2,126,054 |
|
|
|
2,063,218 |
|
|
|
1,994,350 |
|
|
|
1,956,799 |
|
Goodwill |
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
Other intangible assets, net |
|
2,828 |
|
|
|
3,078 |
|
|
|
3,338 |
|
|
|
3,610 |
|
|
|
3,891 |
|
Total assets |
|
3,011,548 |
|
|
|
2,922,408 |
|
|
|
2,852,092 |
|
|
|
2,824,201 |
|
|
|
2,900,537 |
|
Total deposits (3) |
|
2,515,626 |
|
|
|
2,476,246 |
|
|
|
2,505,853 |
|
|
|
2,478,616 |
|
|
|
2,545,992 |
|
Borrowings |
|
176,315 |
|
|
|
123,390 |
|
|
|
22,632 |
|
|
|
25,965 |
|
|
|
26,412 |
|
Subordinated notes |
|
32,042 |
|
|
|
32,026 |
|
|
|
32,010 |
|
|
|
31,994 |
|
|
|
31,978 |
|
Total shareholders' equity |
|
240,161 |
|
|
|
228,896 |
|
|
|
217,378 |
|
|
|
237,527 |
|
|
|
254,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) This balance includes $10.8 million, $13.8 million, $17.0
million, $30.2 million and $122.5 million of SBA PPP loans, net of
deferred fees and costs, at March 31, 2023, December 31,
2022, September 30, 2022, June 30, 2022 and
March 31, 2022, respectively.
(2) The balance at March 31, 2023 includes $2.4 million in
a one-time cumulative-effect adjustment that increased the
allowance for credit losses from the adoption of the new CECL
standard.
(3) This balance includes deposits of approximately $27.5
million expected to be conveyed in the Path Valley branch sale at
March 31, 2023, which is comprised of $21.5 million in
interest-bearing deposits and $6.0 million in non-interest bearing
deposits. At December 31, 2022, $31.7 million in deposits were
expected to be conveyed in the branch sale, consisting of $24.3
million in interest-bearing deposits and $7.4 million in
non-interest bearing deposits.
ORRSTOWN
FINANCIAL SERVICES, INC. |
|
|
|
|
|
|
|
|
HISTORICAL
TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited) |
|
|
|
|
|
|
(continued) |
|
|
|
|
|
|
|
|
|
|
March 31,2023 |
|
December 31,2022 |
|
September 30,2022 |
|
June 30,2022 |
|
March 31,2022 |
Capital and credit quality
measures (1): |
|
|
|
|
|
|
|
|
|
Total
risk-based capital: |
|
|
|
|
|
|
|
|
|
Orrstown Financial Services, Inc |
|
12.8 |
% |
|
|
12.7 |
% |
|
|
12.7 |
% |
|
|
13.5 |
% |
|
|
14.3 |
% |
Orrstown Bank |
|
12.4 |
% |
|
|
12.3 |
% |
|
|
12.9 |
% |
|
|
13.3 |
% |
|
|
13.8 |
% |
Tier 1
risk-based capital: |
|
|
|
|
|
|
|
|
|
Orrstown Financial Services, Inc |
|
10.4 |
% |
|
|
10.3 |
% |
|
|
10.2 |
% |
|
|
10.9 |
% |
|
|
11.7 |
% |
Orrstown Bank |
|
11.2 |
% |
|
|
11.2 |
% |
|
|
11.8 |
% |
|
|
12.2 |
% |
|
|
12.7 |
% |
Tier 1 common equity
risk-based capital: |
|
|
|
|
|
|
|
|
|
Orrstown Financial Services, Inc |
|
10.4 |
% |
|
|
10.3 |
% |
|
|
10.2 |
% |
|
|
10.9 |
% |
|
|
11.7 |
% |
Orrstown Bank |
|
11.2 |
% |
|
|
11.2 |
% |
|
|
11.8 |
% |
|
|
12.2 |
% |
|
|
12.7 |
% |
Tier 1
leverage capital: |
|
|
|
|
|
|
|
|
|
Orrstown Financial Services, Inc |
|
8.5 |
% |
|
|
8.5 |
% |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
|
8.8 |
% |
Orrstown Bank |
|
9.2 |
% |
|
|
9.2 |
% |
|
|
9.6 |
% |
|
|
9.5 |
% |
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
Average equity to average assets |
|
7.97 |
% |
|
|
7.68 |
% |
|
|
8.59 |
% |
|
|
8.64 |
% |
|
|
9.47 |
% |
Allowance for credit losses to total loans |
|
1.28 |
% |
|
|
1.17 |
% |
|
|
1.18 |
% |
|
|
1.15 |
% |
|
|
1.09 |
% |
Total nonaccrual loans to total loans |
|
0.96 |
% |
|
|
0.96 |
% |
|
|
0.25 |
% |
|
|
0.27 |
% |
|
|
0.28 |
% |
Nonperforming assets to total assets |
|
0.71 |
% |
|
|
0.70 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
|
|
0.19 |
% |
Allowance for credit losses to nonaccrual loans |
|
134 |
% |
|
|
122 |
% |
|
|
466 |
% |
|
|
432 |
% |
|
|
390 |
% |
|
|
|
|
|
|
|
|
|
|
Other information: |
|
|
|
|
|
|
|
|
|
Net (recoveries) charge-offs |
$ |
(34 |
) |
|
$ |
116 |
|
|
$ |
70 |
|
|
$ |
4 |
|
|
$ |
(28 |
) |
Classified loans |
|
34,024 |
|
|
|
36,325 |
|
|
|
19,576 |
|
|
|
19,682 |
|
|
|
23,421 |
|
Nonperforming and other risk assets: |
|
|
|
|
|
|
|
|
|
Nonaccrual loans (3) |
|
21,246 |
|
|
|
20,583 |
|
|
|
5,303 |
|
|
|
5,387 |
|
|
|
5,510 |
|
Other real estate owned |
|
85 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total nonperforming assets |
|
21,331 |
|
|
|
20,583 |
|
|
|
5,303 |
|
|
|
5,387 |
|
|
|
5,510 |
|
Financial difficulty modifications / Troubled debt restructurings
still accruing (2) |
|
— |
|
|
|
682 |
|
|
|
689 |
|
|
|
568 |
|
|
|
575 |
|
Loans past due 90 days or more and still accruing (3) |
|
28 |
|
|
|
439 |
|
|
|
232 |
|
|
|
322 |
|
|
|
238 |
|
Total nonperforming and other risk assets |
$ |
21,359 |
|
|
$ |
21,704 |
|
|
$ |
6,224 |
|
|
$ |
6,277 |
|
|
$ |
6,323 |
|
(1) Capital
ratios are estimated, subject to regulatory filings. The Company
elected the three-year phase in option for the day-one impact of
ASU 2016-13 for current expected credit losses ("CECL") to
regulatory capital. In the first year of adoption in 2023, the
Company adjusted retained earnings, allowance for credit losses
includable in tier 2 capital and the deferred tax assets from
temporary differences in risk weighted assets by the permitted
percentage of the day-one impact from adopting the new CECL
standard. |
(2) On January 1,
2023, the Company adopted ASU No. 2022-02, Financial Instruments –
Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures (“ASU 2022-02”), which eliminated the troubled debt
restructuring ("TDR") accounting model and requires that the
Company evaluate, based on the accounting for loan modifications,
whether the borrower is experiencing financial difficulty and the
modification results in a more-than-insignificant direct change in
the contractual cash flows and represents a new loan or a
continuation of an existing loan. At March 31, 2023, the Company
did not have loans meeting the “Financial Difficulty Modification”
criteria in accordance with ASU 2022-02. |
(3) Includes
zero, $0.4 million, $0.2 million, $0.3 million and $0.2 million of
purchased credit impaired loans at March 31, 2023,
December 31, 2022, September 30, 2022, June 30,
2022, and March 31, 2022, respectively, in accordance with ASC
310-30. Upon adoption of the CECL standard, purchased credit
deteriorated loans were evaluated on an individual loan level and
reported on an individual loan basis under ASC 310-20,
Nonrefundable Fees and Other Costs. |
|
Appendix A- Supplemental Reporting of Non-GAAP Measures
and GAAP to Non-GAAP Reconciliations
As a result of acquisitions, the Company has
intangible assets consisting of goodwill and core deposit and other
intangible assets, which totaled $21.6 million and $21.8 million at
March 31, 2023 and December 31, 2022, respectively.
Additionally, the Company incurred $3.2 million and $13.0 million
in restructuring charges and a provision for legal settlement,
respectively, during the three months ended September 30, 2022.
Management believes providing certain other
“non-GAAP” financial information will assist investors in their
understanding of the effect on recent financial results from
non-recurring charges.
Tangible book value per common share and the
impact of the restructuring charge and legal settlement on net
income and associated ratios, 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 and shares in thousands)
Tangible Book Value
per Common Share |
|
March 31,2023 |
|
December 31,2022 |
|
September 30,2022 |
|
June 30,2022 |
|
March 31,2022 |
Shareholders' equity (most directly comparable GAAP-based
measure) |
|
$ |
240,161 |
|
|
$ |
228,896 |
|
|
$ |
217,378 |
|
|
$ |
237,527 |
|
|
$ |
254,804 |
|
Less: Goodwill |
|
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
|
|
18,724 |
|
Other intangible assets |
|
|
2,828 |
|
|
|
3,078 |
|
|
|
3,338 |
|
|
|
3,610 |
|
|
|
3,891 |
|
Related tax effect |
|
|
(594 |
) |
|
|
(646 |
) |
|
|
(701 |
) |
|
|
(758 |
) |
|
|
(817 |
) |
Tangible common equity
(non-GAAP) |
|
$ |
219,203 |
|
|
$ |
207,740 |
|
|
$ |
196,017 |
|
|
$ |
215,951 |
|
|
$ |
233,006 |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
10,692 |
|
|
|
10,671 |
|
|
|
10,686 |
|
|
|
10,676 |
|
|
|
11,079 |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share (most
directly comparable GAAP-based measure) |
|
$ |
22.46 |
|
|
$ |
21.45 |
|
|
$ |
20.34 |
|
|
$ |
22.25 |
|
|
$ |
23.00 |
|
Intangible assets per
share |
|
|
1.96 |
|
|
|
1.98 |
|
|
|
2.00 |
|
|
|
2.02 |
|
|
|
1.97 |
|
Tangible book value per share
(non-GAAP) |
|
$ |
20.50 |
|
|
$ |
19.47 |
|
|
$ |
18.34 |
|
|
$ |
20.23 |
|
|
$ |
21.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars and shares in thousands) |
|
Adjusted Ratios for
Restructuring Charges and Provision for Legal
Settlement |
September 30, 2022 |
|
Three Months Ended |
Net loss (A) - most directly comparable GAAP-based measure |
$ |
(4,828 |
) |
Plus:
Restructuring expenses (B) |
|
3,155 |
|
Plus:
Provision for legal settlement (B) |
|
13,000 |
|
Less:
Related tax effect (C) |
|
(3,393 |
) |
Adjusted net income (D=A+B-C) - Non-GAAP |
$ |
7,934 |
|
|
|
Average
assets (E) |
$ |
2,815,040 |
|
Return on average assets (= A / E) - most directly
comparable GAAP-based measure |
|
(0.68 |
)% |
Return on average assets, adjusted
(1) (= D / E) - Non-GAAP |
|
1.12 |
% |
|
|
Average
equity (F) |
$ |
241,866 |
|
Return on average equity (= A / F) - most directly
comparable GAAP-based measure |
|
(7.92 |
)% |
Return on average equity, adjusted
(1) (= D / F) - Non-GAAP |
|
13.02 |
% |
|
|
Weighted
average shares - basic (G) - most directly comparable GAAP-based
measure |
|
10,369 |
|
Basic loss per share (= A / G) - most directly comparable
GAAP-based measure |
$ |
(0.47 |
) |
Basic earnings per share, adjusted (= D / G) -
Non-GAAP |
$ |
0.77 |
|
|
|
Weighted
average shares - diluted (H) - most directly comparable GAAP-based
measure |
|
10,369 |
|
Diluted loss per share (= A / H) - most directly comparable
GAAP-based measure |
$ |
(0.47 |
) |
Diluted earnings per share, adjusted (= D / H) -
Non-GAAP |
$ |
0.75 |
|
|
|
Noninterest expense (I) - most directly comparable GAAP-based
measure |
$ |
36,412 |
|
Less:
Restructuring expenses (B) |
|
(3,155 |
) |
Less:
Provision for legal expenses (B) |
|
(13,000 |
) |
Adjusted noninterest expense (J = I - B) -
Non-GAAP |
$ |
20,257 |
|
|
|
Net
interest income (K) |
$ |
25,455 |
|
Noninterest income (L) |
|
6,058 |
|
Total operating income (M = K + L) |
$ |
31,513 |
|
|
|
Efficiency ratio (= I / M) - most directly comparable
GAAP-based measure |
|
115.5 |
% |
Efficiency ratio, adjusted (= J / M) -
Non-GAAP |
|
64.3 |
% |
|
|
Appendix B- Investment Portfolio
Concentrations
The following table summarizes the credit ratings and collateral
associated with the Company's investment security portfolio,
excluding equity securities, at March 31, 2023:
(dollars in thousands)
Sector |
Portfolio Mix |
|
Amortized Book |
|
Fair Value |
|
Credit Enhancement |
|
AAA |
|
AA |
|
A |
|
BBB |
|
NR |
|
Collateral / Guarantee Type |
Unsecured ABS |
1 |
% |
|
$ |
4,610 |
|
$ |
4,055 |
|
33 |
% |
|
— |
% |
|
— |
% |
|
— |
% |
|
— |
% |
|
100 |
% |
|
Unsecured Consumer Debt |
Student Loan ABS |
1 |
|
|
|
6,542 |
|
|
6,309 |
|
27 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
Seasoned Student Loans |
Federal Family Education Loan
ABS |
19 |
|
|
|
108,157 |
|
|
105,437 |
|
8 |
|
|
89 |
|
|
11 |
|
|
— |
|
|
— |
|
|
— |
|
|
Federal Family Education Loan
(1) |
PACE Loan ABS |
— |
|
|
|
2,633 |
|
|
2,402 |
|
6 |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
PACE Loans (4) |
Non-Agency CMBS |
4 |
|
|
|
24,299 |
|
|
24,390 |
|
19 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
|
Non-Agency RMBS |
3 |
|
|
|
16,862 |
|
|
13,050 |
|
14 |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Reverse Mortgages (2) |
Municipal - General
Obligation |
19 |
|
|
|
104,797 |
|
|
95,481 |
|
|
|
4 |
|
|
90 |
|
|
6 |
|
|
— |
|
|
— |
|
|
|
Municipal - Revenue |
22 |
|
|
|
120,511 |
|
|
108,121 |
|
|
|
— |
|
|
82 |
|
|
12 |
|
|
— |
|
|
6 |
|
|
|
SBA ReRemic (5) |
1 |
|
|
|
4,827 |
|
|
4,741 |
|
|
|
— |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
SBA Guarantee (3) |
Small Business
Administration |
2 |
|
|
|
10,043 |
|
|
10,708 |
|
|
|
— |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
SBA Guarantee (3) |
Agency MBS |
24 |
|
|
|
137,290 |
|
|
127,475 |
|
|
|
— |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
Residential Mortgages (3) |
U.S. Treasury securities |
4 |
|
|
|
20,067 |
|
|
17,693 |
|
|
|
— |
|
|
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
U.S. Government Guarantee
(3) |
Bank CDs |
— |
|
|
|
249 |
|
|
249 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
FDIC-Insured CD |
|
100 |
% |
|
$ |
560,887 |
|
$ |
520,111 |
|
|
|
21 |
% |
|
67 |
% |
|
4 |
% |
|
— |
% |
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) 97%
guaranteed by U.S. government |
(2) Non-agency
reverse mortgages with current structural credit enhancements |
(3) Guaranteed by
U.S. government or U.S. government agencies |
(4) PACE acronym
represents Property Assessed Clean Energy loans |
(5) SBA ReRemic
acronym represents Re-Securitization of Real Estate Mortgage
Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Ratings in
table are the lowest of the six rating agencies (Standard &
Poor's, Moody's, Fitch, Morningstar, DBRS and Kroll Bond Rating
Agency). Standard & Poor's rates U.S. government obligations at
AA+. |
|
About the Company
With $3.0 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.
The Company's lending area also includes adjacent counties in
Pennsylvania and Maryland, as well as Loudon County, Virginia and
Berkeley, Jefferson and Morgan Counties, West Virginia. Orrstown
Bank is an Equal Housing Lender and its deposits are insured up to
the legal maximum by the FDIC. Orrstown Financial Services, Inc.’s
common stock is traded on Nasdaq (ORRF). For more information about
Orrstown Financial Services, Inc. and Orrstown Bank, visit
www.orrstown.com.
Cautionary Note Regarding Forward-Looking
Statements:
This press release contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. Forward-looking statements
reflect the current views of the Company's management with respect
to, among other things, future events and the Company's financial
performance. These statements are often, but not always, made
through the use of words or phrases such as “may,” “should,”
“could,” “predict,” “potential,” “believe,” “will likely result,”
“expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,”
“intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would”
and “outlook,” or the negative variations of those words or other
comparable words of a future or forward-looking nature. These
forward-looking statements are not historical facts, and are based
on current expectations, estimates and projections about the
Company's industry, management’s beliefs and certain assumptions
made by management, many of which, by their nature, are inherently
uncertain and beyond the Company's control. Forward-looking
statements are statements that include projections, predictions,
expectations, estimates or beliefs about events or results or
otherwise are not statements of historical factors, many of which,
by their nature, are inherently uncertain and beyond the Company's
control, and include, but are not limited to, statements related to
new business development, new loan opportunities, growth in the
balance sheet and fee-based revenue lines of business, merger and
acquisition activity, cost savings initiatives, reducing risk
assets and mitigating losses in the future. Accordingly, the
Company cautions you that any such forward-looking statements are
not guarantees of future performance and are subject to risks,
assumptions and uncertainties that are difficult to predict.
Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable as of the date
made, actual results may prove to be materially different from the
results expressed or implied by the forward-looking statements and
there can be no assurances that the Company will achieve the
desired level of new business development and new loans, growth in
the balance sheet and fee-based revenue lines of business,
successful merger and acquisition activity and cost savings
initiatives and continued reductions in risk assets or mitigate
losses in the future. 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 and cost savings initiatives, or taking
longer than estimated for such savings, efficiencies and synergies
to be realized; changes in laws and regulations; interest rate
movements; changes in credit quality; inability to raise capital,
if necessary, under favorable conditions; volatility in the
securities markets; the demand for our products and services;
deteriorating economic conditions; geopolitical tensions; changes
in litigation matters, including the failure to obtain Court
approval of proposed settlements, the number of plaintiffs who
opt-out of proposed settlements and whether a proposed settlement
is appealed; operational risks including, but not limited to,
cybersecurity incidents, fraud, natural disasters and future
pandemics; expenses associated with pending litigation and legal
proceedings; and other risks and uncertainties, including those
detailed in our Annual Report on Form 10-K for the year ended
December 31, 2022 under the sections titled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and in subsequently filings made with the
Securities and Exchange Commission. The statements are valid only
as of the date hereof and we disclaim any obligation to update this
information. The foregoing list of factors is not exhaustive.
If one or more events related to these or other
risks or uncertainties materializes, or if the Company's underlying
assumptions prove to be incorrect, actual results may differ
materially from what the Company anticipates. Accordingly, you
should not place undue reliance on any such forward-looking
statements. Any forward-looking statement speaks only as of the
date on which it is made, and the Company does not undertake any
obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future
developments or otherwise. New risks and uncertainties arise from
time to time, and it is not possible for the Company to predict
those events or how they may affect it. In addition, the Company
cannot assess the impact of each factor on its business or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements. All forward-looking statements,
expressed or implied, included in this press release are expressly
qualified in their entirety by this cautionary statement. This
cautionary statement should also be considered in connection with
any subsequent written or oral forward-looking statements that the
Company or persons acting on the Company's behalf may issue.
The review period for subsequent events extends
up to and includes the filing date of a public company’s financial
statements, when filed with the Securities and Exchange Commission.
Accordingly, the consolidated financial information presented in
this announcement is subject to change.
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