Orrstown Financial Services (ORRF) 8-K Orrstown Financial Services, Inc. Announces Record Quarterly Earnings, Fourth Quarter Dividend

Exhibit 99.1

Section 2: EX – 99.1 (PRESS RELEASE)	EXHIBIT 99.1
	Filed by Orrstown Financial Services, Inc. Commission
	File No.: 001-34292

FOR IMMEDIATE RELEASE:
	Contact:
	Bradley S. Everly
	EVP, Chief Financial Officer
	Phone 717.530.2604
	77 East King Street  |  Shippensburg PA

Orrstown Financial Services, Inc. Announces Record Quarterly Earnings, Fourth Quarter Dividend

and Reduction in Risk Assets

SHIPPENSBURG, PA(October 28, 2010)

• Third quarter 2010 earnings increased 26.2% vs. third quarter 2009

• 11.0% reduction of risk assets in the third quarter 2010

• Nonperforming assets declined 29.0% since March 31, 2010

• Basic earnings per share of $0.61 for the third quarter 2010, matches third quarter 2009, despite an increase in the number of shares from the March 2010 stock offering

• The Company announced a 2.3% increase in the quarterly dividend over the fourth quarter 2009

Orrstown Financial Services, Inc. (NASDAQ: ORRF) announced today that net income increased 26.2% to $4,896,000 for the quarter ended September 30, 2010, from $3,880,000 for the third quarter of 2009. Diluted earnings per share amounted to $0.61 for the quarter ended September 30, 2010, as compared to $0.60 for the corresponding prior year period. The Company also announced that its Board of Directors declared a fourth quarter cash dividend of $0.225 per share for shareholders of record on November 12, 2010. The dividend will be paid on November 24, 2010.

Commenting on the Company’s results, Thomas R. Quinn, Jr., President and CEO, said, “We are very pleased to report record net income, by quarter, for three sequential quarters and a 17.8% increase in year-to-date earnings compared to the same period last year.”

“Our capital raise in the first quarter of 2010, which increased capital by $37.6 million, combined with our ability to generate deposit growth, allowed us to grow assets 27.4% since September 30, 2009. Our regulatory capital ratios of 9.5% Tier 1 leverage, 13.7% Tier 1 risk-based, and 14.9% Total risk-based are well above the minimums to be considered well capitalized, and position the Company to take advantage of future opportunities.”

Quinn concluded, “Despite a tough banking environment, we have been able to produce consistent operating results, bolster our reserves and capital, and continue our efforts in addressing asset quality. This forward momentum will continue to serve us well during the remainder of 2010 and into 2011.”

Results of Quarterly Operations

Net interest income for the quarter ended September 30, 2010 increased to $11,668,000 as compared to $9,479,000 in the same prior year period. The net interest margin decreased slightly to 3.62% for the three months ended September 30, 2010, a reduction of one basis point versus the same quarter in 2009. The Company continues to lower its cost of funds as evidenced by a decrease of 62 basis points to 0.92% for the three months ended September 30, 2010, as compared to 1.54% in the same prior year period. Average interest-earning assets increased by $286 million for the three months ended September 30, 2010, as compared to the same prior year period.

Other income increased to $6.2 million for the three months ended September 30, 2010, as compared to $4.4 million in the same prior year period. This includes an increase in securities gains from $338,000 during third quarter 2009, to $1,074,000 during third quarter 2010. Noninterest income generation increased across all business lines, including Orrstown Financial Advisors, mortgage origination and deposit based fees. Operating expenses amounted to $9.7 million for the three months ended September 30, 2010, as compared to $8.0 million for the corresponding prior year period.

Results of Year-to-Date Operations

Net interest income for the nine months ended September 30, 2010, increased to $33,465,000 as compared to $26,313,000 in the same prior year period, reflecting a higher net interest margin and higher levels of interest-earnings assets. The net interest margin increased to 3.72% for the nine months ended September 30, 2010, a gain of 19 basis points versus the same period in 2009. The yield on interest-earning assets decreased to 4.76%, as compared to 5.25% in the prior year period. Year to date, the cost of funds decreased to 1.04% for the nine months ended September 30, 2010, as compared to 1.72% in the same prior year period. Average interest-earning assets increased by $225 million for the nine months ended September 30, 2010, as compared to the same prior year period. The provision for loan losses increased to $7,550,000 for the nine months ended September 30, 2010, as compared to $1,265,000 for the corresponding prior year period.

Other income increased to $18.3 million for the nine months ended September 30, 2010, as compared to $12.6 million in the same prior year period. This includes an increase in securities gains from $796,000 through September 30, 2009, to $3,253,000 through September 30, 2010. Operating expenses amounted to $27.1 million for the nine months ended September 30, 2010, as compared to $23.9 million for the corresponding prior year period.

Financial Condition

Assets grew $282 million to $1.478 billion at September 30, 2010, up from $1.196 billion at December 31, 2009. Securities available for sale have increased $232.9 million, or 118.7%, since December 31, 2009. Deposits increased to $1.139 billion at September 30, 2010, from $915 million at December 31, 2009. Stockholders’ equity increased to $163.9 million at September 30, 2010, as compared to $110.9 million at December 31, 2009, boosted by the completion of a common stock offering, in March 2010, that netted approximately $37.6 million in additional capital.

Asset Quality

The Company’s non-accrual loans totaled $14.4 million at September 30, 2010, down $8.6 million, or 37%, from the high of $23.0 million at March 31, 2010. Improvement was made through the reduction in the level of non-accrual loans, loans past due 90 or more days and still accruing, and total delinquency. The Company continues to be diligent in its handling of nonperforming and other risk assets and has been able to reduce the level of risk assets from a high of $32.8 million at March 31, 2010, to $20.5 million as of September 30, 2010. Two large credits, totaling $7.6 million, have been worked off the books since March 2010, which resulted in a $2.0 million charge off in the second quarter. Although the Company’s ratio of total risk assets to total assets increased from 0.96% at December 31, 2009, to 1.39% at September 30, 2010, increases have been noted across the financial services industry and within our peer group. The Company’s allowance for loan losses covered its nonperforming loans and stood at 107% at September 30, 2010.

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Summary of Financial Highlights:

For Quarter Ended:	September 30, 2010			September 30, 2009			% Change
Net Income	$	4,896,000		$	3,880,000			26.2	%
Basic Earnings Per Share	$	0.61		$	0.61			0.0	%
Diluted Earnings Per Share	$	0.61		$	0.60			1.7	%
Dividends Per Share	$	0.225		$	0.220			2.3	%
Return on Average Assets		1.36	%		1.36	%
Return on Average Equity		12.18	%		14.33	%
Return on Average Tangible Assets (1)		1.39	%		1.40	%
Return on Average Tangible Equity (1)		14.03	%		18.01	%
Net Interest Income	$	11,668,000		$	9,479,000			23.1	%
Net Interest Margin		3.62	%		3.63	%
For Nine Months Ended:	September 30, 2010			September 30, 2009			% Change
Net Income	$	12,206,000		$	10,359,000			17.8	%
Basic Earnings Per Share	$	1.62		$	1.62			0.0	%
Diluted Earnings Per Share	$	1.62		$	1.61			0.6	%
Dividends Per Share	$	0.665		$	0.660			0.8	%
Return on Average Assets		1.23	%		1.26	%
Return on Average Equity		11.47	%		13.13	%
Return on Average Tangible Assets (1)		1.26	%		1.30	%
Return on Average Tangible Equity (1)		13.57	%		16.60	%
Net Interest Income	$	33,465,000		$	26,313,000			27.2	%
Net Interest Margin		3.72	%		3.53	%
Balance Sheet Highlights:	September 30, 2010			September 30, 2009			% Change
Assets	$	1,477,780,000		$	1,159,996,000			27.4	%
Loans, Gross		921,807,000			867,435,000			6.3	%
Allowance for Loan Losses		15,386,000			7,963,000			93.2	%
Deposits		1,138,869,000			849,094,000			34.1	%
Shareholders’ Equity		163,933,000			110,649,000			48.2	%
Tangible Equity (1)		143,182,000			89,649,000			59.7	%

(1) Supplemental Reporting of Non-GAAP-based Financial Measures

Return on average tangible assets and return on average tangible equity are non-GAAP-based financial measures calculated using non-GAAP-based amounts. The most directly comparable GAAP-based measures are return on average assets and return on average equity, which are calculated using GAAP-based amounts. The Company calculates the return on average tangible assets and equity by excluding the balance of intangible assets and their related amortization expense, net of tax, from the calculation of return on average assets and equity. Management uses the return on average tangible assets and equity to assess the Company’s core operating results and believes that this is a better measure of our operating performance. In addition, this is consistent with the treatment by bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. A reconciliation of return on average assets and equity to the return on average tangible assets and equity, respectively, is set forth below.

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For Quarter Ended:	September 30, 2010			September 30, 2009
Return on Average Assets (GAAP basis)		1.36	%		1.36	%
Effect of excluding average intangible assets and related amortization, net of tax		0.03	%		0.04	%
Return on Average Tangible Assets		1.39	%		1.40	%
Return on Average Equity (GAAP basis)		12.18	%		14.33	%
Effect of excluding average intangible assets and related amortization, net of tax		1.85	%		3.68	%
Return on Average Tangible Equity		14.03	%		18.01	%
For Nine Months Ended:	September 30, 2010			September 30, 2009
Return on Average Assets (GAAP basis)		1.23	%		1.26	%
Effect of excluding average intangible assets and related amortization, net of tax		0.03	%		0.04	%
Return on Average Tangible Assets		1.26	%		1.30	%
Return on Average Equity (GAAP basis)		11.47	%		13.13	%
Effect of excluding average intangible assets and related amortization, net of tax		2.10	%		3.47	%
Return on Average Tangible Equity		13.57	%		16.60	%

Tangible equity is a non-GAAP financial measure calculated using non-GAAP based amounts. The most directly comparable GAAP based measure is shareholders’ equity. In order to calculate tangible equity, Company management subtracts intangible assets from shareholders’ equity. A reconciliation of tangible equity to shareholders’ equity is set forth below.

Total At End of Quarter:	September 30, 2010		September 30, 2009
Shareholders’ Equity	$	163,933,000	$	110,649,000
Intangible Assets		20,751,000		21,000,000
Tangible Equity	$	143,182,000	$	89,649,000

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ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED

SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)	(Unaudited) September 30, 2010			(Audited) * December 31, 2009			(Unaudited) September 30, 2009
ASSETS
Cash and due from banks	$	14,966		$	13,940		$	13,976
Federal funds sold		18,645			8,000			23,250
Cash and cash equivalents		33,611			21,940			37,226
Short-term investments		2,728			6,388			0
Interest bearing deposits with banks		587			601			7,495
Member stock, at cost which approximates market value		8,596			8,056			8,056
Securities available for sale		429,156			196,253			165,281
Loans		921,807			881,074			867,435
Allowance for loan losses		(15,386	)		(11,067	)		(7,963	)
Net loans		906,421			870,007			859,472
Premises and equipment, net		28,163			29,601			29,994
Goodwill and intangible assets		20,751			20,938			21,000
Cash surrender value of life insurance		22,578			21,204			17,065
Accrued interest receivable		6,003			4,605			3,856
Other assets		19,186			16,839			10,551
Total assets	$	1,477,780		$	1,196,432		$	1,159,996
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	105,452		$	90,676		$	90,562
Interest bearing		1,033,417			824,494			758,532
Total deposits		1,138,869			915,170			849,094
Short-term borrowings		124,869			97,914			107,070
Long-term debt		40,828			64,858			85,700
Other liabilities		9,281			7,604			7,483
Total liabilities		1,313,847			1,085,546			1,049,347
Preferred stock $1.25 par value per share; 500,000 shares authorized; no shares issued or outstanding		0			0			0
Common stock, no par value - $0.05205 stated value per share; 50,000,000 shares authorized; 7,986,966, 6,469,508 and 6,469,508 shares issued; 7,976,018, 6,443,195 and 6,417,284 shares outstanding		416			337			337
Additional paid-in capital		121,534			82,895			82,933
Retained earnings		36,102			28,857			27,258
Accumulated other comprehensive income (loss)		6,129			(501	)		1,692
Treasury stock, 10,948, 26,313 and 52,224 shares, at cost		(248	)		(702	)		(1,571	)
Total shareholders’ equity		163,933			110,886			110,649
Total liabilities and shareholders’ equity	$	1,477,780		$	1,196,432		$	1,159,996

* The consolidated balance sheet at December 31, 2009 has been derived from audited financial statements at that date.

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ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED

SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
(Dollars in Thousands)	September 30, 2010		September 30, 2009
INTEREST INCOME
Interest and fees on loans	$	12,122	$	12,117
Interest and dividends on investment securities		2,627		1,415
Interest on short-term investments		31		6
Total interest income		14,780		13,538
INTEREST EXPENSE
Interest on deposits		2,645		3,023
Interest on short-term borrowings		95		128
Interest on long-term debt		372		908
Total interest expense		3,112		4,059
Net interest income		11,668		9,479
Provision for loan losses		1,130		750
Net interest income after provision for loan losses		10,538		8,729
OTHER INCOME
Service charges on deposits		1,979		1,842
Other service charges		1,135		697
Trust department income		928		671
Brokerage income		394		322
Gains on sale of loans		383		161
Other income		314		331
Securities gains		1,074		338
Total other income		6,207		4,362
OTHER EXPENSES
Salaries and employee benefits		5,296		4,293
Occupancy and equipment		1,268		1,215
Data processing		319		291
Advertising		128		146
Other operating expense		2,692		2,039
Total other expense		9,703		7,984
Income before income taxes		7,042		5,107
Income tax expense		2,146		1,227
Net income	$	4,896	$	3,880
PER SHARE DATA
Basic earnings per share	$	0.61	$	0.61
Diluted earnings per share	$	0.61	$	0.60
Dividends per share	$	0.225	$	0.22

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ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Nine Months Ended
(Dollars in Thousands)	September 30, 2010		September 30, 2009
INTEREST INCOME
Interest and fees on loans	$	36,166	$	35,319
Interest and dividends on investment securities		6,839		3,899
Interest on short term investments		94		39
Total interest income		43,099		39,257
INTEREST EXPENSE
Interest on deposits		8,072		9,679
Interest on short-term borrowings		340		309
Interest on long-term debt		1,222		2,956
Total interest expense		9,634		12,944
Net interest income		33,465		26,313
Provision for loan losses		7,550		1,265
Net interest income after provision for loan losses		25,915		25,048
OTHER INCOME
Service charges on deposits		5,556		5,103
Other service charges		2,916		2,324
Trust department income		2,497		1,957
Brokerage income		1,232		957
Gains on sale of loans		782		629
Other income		2,021		833
Securities gains		3,253		796
Total other income		18,257		12,599
OTHER EXPENSES
Salaries and employee benefits		14,844		12,832
Occupancy and equipment		3,657		3,605
Data processing		922		821
Advertising		319		372
Security impairment expense		0		36
Other operating expense		7,360		6,257
Total other expense		27,102		23,923
Income before income taxes		17,070		13,724
Income tax expense		4,864		3,365
Net income	$	12,206	$	10,359
PER SHARE DATA
Basic earnings per share	$	1.62	$	1.62
Diluted earnings per share	$	1.62	$	1.61
Dividends per share	$	0.665	$	0.66

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ORRSTOWN FINANCIAL SERVICES INC. AND SUBSIDIARIES

ANALYSIS OF NET INTEREST INCOME

	Three Months Ended
	September 2010							September 2009
(Dollars in thousands)	Average Balance		Tax Equivalent Interest		Tax Equivalent Rate			Average Balance		Tax Equivalent Interest		Tax Equivalent Rate
Interest Earning Assets:
Interest from short-term investments	$	26,666	$	31		0.46	%	$	12,827	$	6		0.19	%
Investment securities		394,927		2,956		2.99	%		169,786		1,568		3.70	%
Loans		907,026		12,325		5.33	%		859,597		12,285		5.55	%
Total interest-earning assets		1,328,619		15,312		4.54	%		1,042,210		13,859		5.17	%
Interest Bearing Liabilities:
Interest bearing demand deposits	$	424,375	$	594		0.56	%	$	309,444	$	802		1.03	%
Savings deposits		64,574		37		0.23	%		60,338		47		0.31	%
Time deposits		534,457		2,014		1.45	%		358,930		2,174		2.40	%
Short-term borrowings		63,818		95		0.59	%		88,766		128		0.57	%
Long-term debt		59,047		372		2.45	%		101,549		908		3.50	%
Total interest bearing liabilities		1,146,271		3,112		1.06	%		919,027		4,059		1.75	%
Overall cost of funds						0.92	%						1.54	%
Net interest income / net interest spread			$	12,200		3.48	%			$	9,800		3.42	%
Net interest margin						3.62	%						3.63	%

	Nine Months Ended
	September 2010							September 2009
(Dollars in thousands)	Average Balance		Tax Equivalent Interest		Tax Equivalent Rate			Average Balance		Tax Equivalent Interest		Tax Equivalent Rate
Interest Earning Assets:
Interest from short-term investments	$	27,571	$	94		0.46	%	$	21,891	$	39		0.24	%
Investment securities		308,200		7,586		3.29	%		149,695		4,356		3.89	%
Loans		899,697		36,734		5.40	%		839,201		35,798		5.62	%
Total interest-earning assets		1,235,468		44,414		4.76	%		1,010,787		40,193		5.25	%
Interest Bearing Liabilities:
Interest bearing demand deposits	$	392,799	$	2,005		0.68	%	$	297,407	$	2,466		1.11	%
Savings deposits		62,919		127		0.27	%		60,742		159		0.35	%
Time deposits		486,809		5,940		1.60	%		353,385		7,054		2.67	%
Short-term borrowings		84,196		340		0.53	%		76,551		309		0.53	%
Long-term debt		54,342		1,222		3.00	%		108,742		2,956		3.58	%
Total interest bearing liabilities		1,081,065		9,634		1.18	%		896,827		12,944		1.93	%
Overall cost of funds						1.04	%						1.72	%
Net interest income / net interest spread			$	34,780		3.58	%			$	27,249		3.32	%
Net interest margin						3.72	%						3.53	%

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Nonperforming Assets / Risk Elements

(Dollars in Thousands)	September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2009
Loans on nonaccrual (cash) basis	$	14,427		$	14,496		$	23,020		$	4,267
Loans whose terms have been renegotiated		0			0			0			0
				��
Total nonperforming loans		14,427			14,496			23,020			4,267
Other real estate owned		2,528			1,264			873			1,065
Total nonperforming assets		16,955			15,760			23,893			5,332
Loans past due 90 or more days and still accruing		3,526			7,255			8,929			6,155
Total risk assets	$	20,481		$	23,015		$	32,822		$	11,487
Ratio of total nonperforming loans to loans		1.57	%		1.61	%		2.56	%		0.48	%
Ratio of total nonperforming assets to assets		1.15	%		1.16	%		1.82	%		0.45	%
Ratio of total risk assets to total loans and other real estate owned		2.22	%		2.56	%		3.65	%		1.30	%
Ratio of total risk assets to total assets		1.39	%		1.69	%		2.49	%		0.96	%
Allowance for loan losses to non-performing loans		107	%		101	%		52	%		259	%

Roll Forward of Allowance for Loan Losses

	Three Months Ended						Nine Months Ended
(Dollars in Thousands)	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009
Balance at beginning of period	$	14,582		$	7,413		$	11,067		$	7,140
Provision for loan losses		1,130			750			7,550			1,265
Recoveries		6			3			91			15
Loans charged-off		(332	)		(203	)		(3,322	)		(457	)
Balance at end of period	$	15,386		$	7,963		$	15,386		$	7,963

With over $1.4 billion in assets, Orrstown Financial Services, Inc. and its subsidiary, Orrstown Bank, provide a full range of consumer and business financial services through twenty one banking offices and two remote service facilities located in Cumberland, Franklin and Perry Counties, Pennsylvania and Washington County, Maryland. Orrstown Financial Services, Inc.’s stock is traded on the NASDAQ Capital Market under the symbol ORRF.

Safe Harbor Statement: This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: ineffectiveness of the Corporation’s business strategy due to changes in current or future market conditions; the effects of competition, including industry consolidation and development of competing financial products and services; changes in laws and regulations, including the recent Dodd-Frank Wall Street Reform and Consumer Protection Act; interest rate movements; changes in credit quality; volatilities in the securities markets; and deteriorating economic conditions, and other risks and uncertainties, including those detailed in Orrstown Financial Services, Inc.’s filings with the Securities and Exchange Commission. The statements are valid only as of the date hereof and Orrstown Financial Services, Inc. disclaims any obligation to update this information.

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The review period for subsequent events extends up to and including 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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