•Net income of $18.1 million, or $0.93 per diluted share, for the three months ended March 31, 2025 compared to net income of $13.7 million, or $0.71 per diluted share, for the three months ended December 31, 2024; the first quarter of 2025 included $1.6 million in expenses related to the merger compared to $3.9 million in expenses related to the merger and $0.5 million for a legal settlement for the fourth quarter of 2024;

•Excluding the impact of the non-recurring charges referenced above, net of taxes, net income and diluted earnings per share were $19.3 million(1) and $1.00(1), respectively, for the first quarter of 2025 compared to $16.7 million(1) and $0.87(1), respectively, for the fourth quarter of 2024;

•Net interest margin, on a tax equivalent basis, was 4.00% in the first quarter of 2025 compared to 4.05% in the fourth quarter of 2024; the net accretion impact of purchase accounting marks was $6.9 million of net interest income, which represents 51 basis points of net interest margin for the first quarter of 2025 compared to $7.2 million of net interest income, which represents 52 basis points of net interest margin for the fourth quarter of 2024;

•Return on average assets was 1.35% and return on average equity was 13.98% for the three months ended March 31, 2025, compared to 1.00% and 10.54% for the return on average assets and return on average equity, respectively, for the three months ended December 31, 2024;

•Excluding the impact of non-recurring charges referenced above, net of taxes, adjusted return on average assets was 1.45%(1) and adjusted return on average equity was 14.97%(1) for the three months ended March 31, 2025 compared to 1.22% and 12.86%, respectively, for the three months ended December 31, 2024;

•Commercial loans declined by $49.7 million, or 2%, from December 31, 2024 to March 31, 2025 due primarily to strategic actions to reduce risk in the portfolio in an uncertain economic environment, including reducing commercial real estate ("CRE") loan concentrations;

•Noninterest expense decreased by $4.7 million from $42.9 million for the three months ended December 31, 2024 to $38.2 million for the three months ended March 31, 2025; salaries and benefits expense declined by $2.0 million from the fourth quarter of 2024 to the first quarter of 2025; merger-related expenses decreased by $2.3 million;

•Recovery of $0.6 million was recorded for the provision for credit losses for the three months ended March 31, 2025 compared to expense of $2.1 million for the three months ended December 31, 2024; the decrease in loans contributed to the negative provision for credit losses during the first quarter of 2025; during the fourth quarter of 2024, the provision was driven by charge-offs of $3.0 million;

•Total risk-based capital ratio was 13.1% at March 31, 2025 compared to 12.4% at December 31, 2024; the Tier 1 leverage ratio increased to 8.6% at March 31, 2025 compared to 8.3% at December 31, 2024; all capital ratios applicable to the Company were above relevant regulatory minimum levels to be deemed "well capitalized" under current bank regulatory guidelines;

•Tangible common equity increased to 7.9% at March 31, 2025 compared to 7.5% at December 31, 2024;

•Tangible book value per common share(1) increased to $21.99 per share at March 31, 2025 compared to $21.19 per share at December 31, 2024;

•The Board of Directors declared a cash dividend of $0.26 per common share, payable May 13, 2025, to shareholders of record as of May 6, 2025.

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

HARRISBURG, PA (April 22, 2025) -- Orrstown Financial Services, Inc. (NASDAQ: ORRF), the parent company of Orrstown Bank (the “Bank”), announced earnings for the three months ended March 31, 2025. Net income totaled $18.1 million for the three months ended March 31, 2025, compared to net income of $13.7 million for the three months ended December 31, 2024 and net income of $8.5 million for the three months ended March 31, 2024. Diluted earnings per share was $0.93 for the three months ended March 31, 2025, compared to diluted earnings per share of $0.71 for the three months ended December 31, 2024 and diluted earnings per share of $0.81 for the three months ended March 31, 2024. For the first quarter of 2025, excluding the impact of merger-related expenses, net of taxes, net income and diluted earnings per share were $19.3 million(1) and $1.00(1), respectively. For the fourth quarter of 2024, excluding the impact of merger-related expenses and other non-recurring charges, net of taxes, net income and diluted earnings per share were $16.7 million(1) and $0.87(1), respectively. For the first quarter of 2024, excluding the impact of the merger-related expenses, net of taxes, net income and diluted earnings per share were $9.2 million(1) and $0.88(1), respectively.

“While operating results continued to be impacted by merger-related expenses, core earnings were solid and net interest margin remained strong,” said Thomas R. Quinn, Jr., President and Chief Executive Officer. “We do not believe that merger-related expenses will be material going forward and expect operating results to normalize beginning later in the second quarter. A significant amount of our focus has been on completing a system conversion and creating a strong foundation for growth. The deliberate steps we have taken in the last few quarters to protect credit quality, build liquidity and enhance our capital ratios after the merger were intended to position the Company for growth, including the ability to accelerate commercial lending for strong credits and take advantage of strategic opportunities as they arise. We remain optimistic about the future, both in the short and long term.”

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

Balance Sheet

Loans held for investment decreased by $55.2 million and totaled $3.9 billion at both March 31, 2025 and December 31, 2024. The decrease from the fourth quarter of 2024 was primarily due to strategic actions to reduce risk in the portfolio, including reducing CRE loan concentrations.

Investment securities, all of which are classified as available-for-sale, increased by $25.8 million to $855.5 million at March 31, 2025 from $829.7 million at December 31, 2024. During the first quarter of 2025, the Bank purchased $39.6 million of investment securities and net unrealized gains were $3.8 million. These increases were partially offset by paydowns of $18.4 million. The overall duration of the Company's investment securities portfolio was 4.3 years at March 31, 2025 compared to 4.1 years at December 31, 2024. See Appendix B for a summary of the Bank's investment securities at March 31, 2025, highlighting their concentrations, credit ratings and credit enhancement levels.

During the first quarter of 2025, deposits increased by $10.6 million and totaled $4.6 billion at both March 31, 2025 and December 31, 2024. Interest-bearing demand deposits, non-interest bearing demand deposits and savings deposits increased by $52.5 million, $38.0 million and $4.1 million, respectively, from December 31, 2024 to March 31, 2025. These increases were partially offset by decreases in time deposits of $47.5 million and money market deposits of $36.5 million during the first quarter of 2025. The Bank has experienced some reductions in higher yielding promotional balances, but has been successful in retaining or replacing those deposits through demand deposit accounts. The Bank's loan-to-deposit ratio decreased slightly to 84% at March 31, 2025 from 85% at December 31, 2024.

The Bank actively manages its liquidity position through its various sources of funding to meet the needs of its clients. FHLB advances and other borrowings were $100.3 million at March 31, 2025 compared to $115.4 million at December 31, 2024 due to the maturity of a $15 million FHLB advance during the first quarter of 2025. The Bank seeks to maintain sufficient liquidity to ensure client needs can be addressed in a timely basis. The Bank had available alternative funding sources, such as FHLB advances and other wholesale options, of approximately $1.8 billion at March 31, 2025.

Income Statement

Net interest income was $48.8 million for the three months ended March 31, 2025 compared to $50.6 million for the three months ended December 31, 2024. The net interest margin, on a tax equivalent basis, decreased to 4.00% in the first quarter of 2025 from 4.05% in the fourth quarter of 2024, which was impacted by the Federal Funds rate cuts in the fourth quarter of 2024. Overall, the yield on loans declined by 23 basis points and the cost of deposits declined by 15 basis points from the fourth quarter of 2024 to the first quarter of 2025.

The net interest margin was positively impacted by the net accretion impact of purchase accounting marks on loans, securities, deposits and borrowings of $6.9 million, which represented 51 basis points of net interest margin during the first quarter of 2025. During the fourth quarter of 2024, the net accretion impact of purchase accounting marks was $7.2 million, which represented 52 basis points of net interest margin. Funding costs continue to decline as market rates have been reduced.

Interest income on loans, on a tax equivalent basis, decreased by $4.7 million to $63.4 million for the three months ended March 31, 2025 compared to $68.1 million for the three months ended December 31, 2024. Average loans decreased by $51.6 million during the three months ended March 31, 2025 compared to the three months ended December 31, 2024. There were also two fewer days in the first quarter of 2025 compared to the fourth quarter of 2024. The accretion of purchase accounting marks on loans totaled $6.6 million during the first quarter of 2025 compared to $7.6 million during the fourth quarter of 2024. This decrease reduced net interest margin by six basis points during the first quarter of 2025.

Interest income on investment securities, on a tax equivalent basis, was $10.1 million for the first quarter of 2025 compared to $9.9 million in the fourth quarter of 2024. Average investment securities increased by $15.7 million during the three months ended March 31, 2025 compared to the three months ended December 31, 2024 primarily due to the aforementioned purchases.

Interest expense, on a tax equivalent basis, decreased by $2.6 million to $26.8 million for the three months ended March 31, 2025 compared to $29.4 million for the three months ended December 31, 2024. Average interest-bearing deposits decreased by $77.1 million during the three months ended March 31, 2025 compared to the three months ended December 31, 2024. The cost of interest-bearing deposits declined by 16 basis points from the fourth quarter of 2024 to the first quarter of 2025. In addition, interest expense includes $0.6 million and $0.9 million of amortization of purchase accounting marks for the three months ended March 31, 2025 and December 31, 2024, respectively.

The allowance for credit losses ("ACL") on loans decreased to $47.8 million at March 31, 2025 from $48.7 million at December 31, 2024. The ACL to total loans was 1.23% at March 31, 2025 compared to 1.24% at December 31, 2024. The Company recorded a recovery in the provision for credit losses on loans of $0.6 million for the three months ended March 31, 2025 compared to provision expense of $2.1 million for the three months ended December 31, 2024. Net charge-offs were $0.3 million for the three months ended March 31, 2025 compared to $3.0 million for the three months ended December 31, 2024. During the fourth quarter of 2024, the Bank sold $6.0 million of loans, most of which were C&I loans, which resulted in a charge-off totaling $0.6 million. There was a corresponding $0.6 million of purchase accounting accretion associated with these loans during the fourth quarter of 2024.

Classified loans decreased by $12.4 million to $76.2 million at March 31, 2025 from $88.6 million at December 31, 2024 primarily due to repayments. Non-accrual loans decreased by $1.4 million to $22.7 million at March 31, 2025 from $24.1 million at December 31, 2024. Nonaccrual loans to total loans decreased to 0.59% at March 31, 2025 compared to 0.61% at December 31, 2024. Management believes the ACL to be adequate based on current asset quality metrics and economic forecasts. Substantial efforts have been made in the last few quarters to reduce risk in the loan portfolio and properly position the Bank for future growth

Noninterest income increased by $0.4 million to $11.6 million in the three months ended December 31, 2024 from $11.2 million in the three months ended December 31, 2024.

Wealth management income increased by $0.5 million to $5.4 million for the three months ended March 31, 2025 compared to $4.9 million for the three months ended December 31, 2024. While current market conditions are expected to negatively impact wealth management fees in the near term, the team continues to focus on alternative revenue sources and seeks to continuously grow the business.

Income from service charges was $2.4 million for the three months ended March 31, 2025 compared to $2.1 million for the three months ended December 31, 2024. There were reduced service charges in the fourth quarter due to fee waivers provided to clients in the post-conversion period from November through the end of the year.

Income from mortgage banking activities decreased from $0.5 million in the three months ended December 31, 2024 to $0.3 million in the three months ended March 31, 2025. This decrease was primarily due to a reduction in the fair value of mortgage servicing rights, which was driven by interest rate movements in the first quarter of 2025.

Noninterest expenses decreased by $4.7 million to $38.2 million in the three months ended March 31, 2025 from $42.9 million in the three months ended December 31, 2024.

For the three months ended March 31, 2025, merger-related expenses totaled $1.6 million, a decrease of $2.3 million, compared to $3.9 million for the three months ended December 31, 2024. The merger costs incurred during the first quarter of 2025 included software conversion costs and professional fees associated with the conversion and the external audit. While the Company expects to incur some residual merger-related expenses in the second quarter of 2025, they are not expected to be significant.

Salaries and benefits expense decreased by $2.0 million to $20.4 million for the three months ended March 31, 2025 compared to $22.4 million for the three months ended December 31, 2024. The decrease during the first quarter of 2025 is reflective of the continued synergies being achieved as a result of the merger. The generated savings are being partially offset by investments in talent designed to prepare the Company for additional growth and further enhance operational efficiency. In addition, salaries and benefits expense is typically elevated during the first quarter of the year due to employee benefit costs, including social security and unemployment taxes.

Professional services expense increased by $0.2 million from the three months ended December 31, 2024 to the three months ended March 31, 2025. The Company continued to utilize an elevated level of third-party assistance to enhance daily functions and operational processes throughout the organization. It is anticipated that the reliance on these services will decline in the second quarter of 2025.

Taxes other than income increased by $1.3 million in the three months ended March 31, 2025 compared to the three months ended December 31, 2024. This increase reflects an increase in the estimated state shares tax expense and the impact of certain tax credits recognized during the fourth quarter of 2024.

The Company's effective tax rate was 20.7% for the first quarter of 2025 compared to 20.1% for the fourth quarter of 2024. The Company's effective tax rate for the three months ended March 31, 2025 is less than the 21% federal statutory rate primarily due to tax-exempt income, including interest earned on tax-exempt loans and securities and income from life insurance policies and tax credits partially offset by the disallowed portion of interest expense against earnings in association with the Bank's tax-exempt investments under the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") and the impact of nondeductible merger-related costs. The Company regularly analyzes its projected taxable income and makes adjustments to the provision for income taxes accordingly.

Capital

Shareholders’ equity totaled $532.9 million at March 31, 2025 compared to $516.7 million at December 31, 2024. The increase is due to net income of $18.1 million and other comprehensive income of $4.7 million, primarily due to an increase in unrealized gains in the investment portfolio, partially offset by dividend payments of $5.0 million and share-based compensation activity of $1.6 million.

Tangible book value per share(1) increased to $21.99 per share at March 31, 2025 from $21.19 per share at December 31, 2024.

The Company's tangible common equity ratio was 7.9% at March 31, 2025 compared to 7.5% at December 31, 2024. The Company's total risk-based capital ratio was 13.1% at March 31, 2025 compared to 12.4% at December 31, 2024 driven by earnings and the effect of the decrease in loans on risk weighted assets. The Company's Tier 1 leverage ratio increased to 8.6% at March 31, 2025 compared to 8.3% at December 31, 2024 driven by earnings during the first quarter of 2025.

At March 31, 2025, all four capital ratios applicable to the Company were above regulatory minimum levels to be deemed “well capitalized” under current bank regulatory guidelines. The Company continues to believe that capital is adequate to support the risks inherent in the balance sheet, as well as growth requirements.

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

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.

As a result of acquisitions, the Company has intangible assets consisting of goodwill, core deposit and other intangible assets, which totaled $113.3 million and $115.9 million at March 31, 2025 and December 31, 2024, respectively. In addition, during the three months ended March 31, 2025, December 31, 2024, September 30, 2024, June 30, 2024 and March 31, 2024, the Company incurred $1.6 million, $3.9 million, $17.0 million, $1.1 million and $0.7 million in in merger-related expenses, respectively. During the three months ended December 31, 2024 and September 30, 2024, the Company incurred other non-recurring charges totaling $0.5 million and $20.2 million, respectively.

Tangible book value per common share and the impact of the non-recurring expenses 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: