Core Insights - Orrstown Financial Services (ORRF) reported revenue of $64.37 million for Q3 2025, marking a year-over-year increase of 0.5% and a surprise of +2.01% over the Zacks Consensus Estimate of $63.1 million [1] - The earnings per share (EPS) for the same quarter was $1.13, compared to $1.11 a year ago, with an EPS surprise of +6.6% against the consensus estimate of $1.06 [1] Financial Performance Metrics - Efficiency ratio stood at 56.4%, slightly better than the three-analyst average estimate of 56.6% [4] - Average interest-earning assets were reported at $4.99 billion, exceeding the $4.97 billion average estimate [4] - Net interest margin was consistent at 4.1%, matching the three-analyst average estimate [4] - Total non-interest income reached $13.38 million, surpassing the three-analyst average estimate of $12.15 million [4] - Other income was reported at $2.1 million, slightly above the $2.02 million average estimate [4] - Interchange income was $1.62 million, exceeding the $1.22 million average estimate [4] - Service charges on deposit accounts totaled $3 million, higher than the two-analyst average estimate of $2.75 million [4] - Wealth management income was reported at $5.28 million, compared to the $5.07 million average estimate [4] - Net interest income was $50.99 million, slightly below the $51.28 million estimated by two analysts [4] Stock Performance - Shares of Orrstown have returned -5% over the past month, while the Zacks S&P 500 composite has increased by +1.2% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Core Insights - Orrstown Financial Services, Inc. reported a net income of $21.9 million for Q3 2025, an increase from $19.4 million in Q2 2025 and a recovery from a net loss of $7.9 million in Q3 2024 [1][2] - The diluted earnings per share (EPS) rose to $1.13 in Q3 2025, compared to $1.01 in Q2 2025 and a loss of $0.41 in Q3 2024 [1][2] - The company achieved its strongest quarter of earnings on record, with a return on assets of 1.60% and a return on equity of nearly 16% [2] Financial Performance - Net interest income for Q3 2025 was $51.0 million, up from $49.5 million in Q2 2025, with a net interest margin of 4.11% [8][9] - Noninterest income increased by $0.5 million to $13.4 million in Q3 2025 from $12.9 million in Q2 2025 [16] - Noninterest expenses decreased by $1.3 million to $36.3 million in Q3 2025, with no merger-related expenses incurred during this period [20] Balance Sheet Highlights - Loans held for investment increased by $48.4 million to $4.0 billion as of September 30, 2025, with commercial loans up by approximately 5% [3] - Total deposits remained stable at $4.5 billion, with increases in money market and time deposits [5] - The company redeemed $32.5 million in subordinated notes during Q3 2025, impacting its capital ratios [6][28] Capital and Equity - Shareholders' equity rose to $571.9 million at September 30, 2025, compared to $548.4 million at June 30, 2025 [26] - Tangible book value per common share increased to $24.12 from $22.77 during the same period [27] - The company's capital ratios remained above regulatory minimums, with tier 1 common equity at 11.1% [28][29] Credit Quality - The allowance for credit losses on loans increased slightly to $48.1 million, representing 1.21% of total loans [14] - Classified loans decreased to $64.1 million, with delinquent loans also showing a decline [15] - Nonaccrual loans increased to $26.2 million, reflecting a rise in nonaccrual status for certain commercial and residential loans [15]

Core Viewpoint - Orrstown Financial Services (ORRF) is positioned well to potentially beat earnings estimates in its upcoming quarterly report, supported by a solid history of exceeding expectations [1]. Group 1: Earnings Performance - Orrstown Financial Services has a track record of surpassing earnings estimates, particularly in the last two quarters, with an average surprise of 5.16% [2]. - In the last reported quarter, the company achieved earnings of $1.04 per share, exceeding the Zacks Consensus Estimate of $0.99 per share, resulting in a surprise of 5.05% [3]. - For the previous quarter, Orrstown was expected to report earnings of $0.95 per share but delivered $1 per share, yielding a surprise of 5.26% [3]. Group 2: Earnings Estimates and Predictions - Earnings estimates for Orrstown have been trending upward, influenced by its history of earnings surprises [6]. - The stock currently has a positive Zacks Earnings ESP (Expected Surprise Prediction) of +2.83%, indicating increased analyst optimism regarding its near-term earnings potential [9]. - The combination of a positive Earnings ESP and a Zacks Rank of 3 (Hold) suggests a strong possibility of another earnings beat in the upcoming report [9]. Group 3: Earnings ESP Insights - Research indicates that stocks with a positive Earnings ESP and a Zacks Rank of 3 or better have a nearly 70% chance of producing a positive surprise [7]. - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions [8]. - It is crucial for investors to check a company's Earnings ESP prior to quarterly releases to enhance the likelihood of successful investment decisions [11].

Core Points - Orrstown Financial Services, Inc. will report its third quarter 2025 earnings on October 21, 2025, after market close [1] - A conference call and webcast to discuss the quarterly results will take place on October 22, 2025, at 9:00 am ET [1] Earnings Release Details - Earnings Release Date: October 21, 2025, After Market Close [1] - Conference Call and Webcast Date: October 22, 2025, 9:00 am ET [1] - Webcast Link: https://events.q4inc.com/attendee/959187028 [2] - Telephone Participation: - USA / International Toll: +1 (646) 307-1963 - USA Toll-Free: (800) 715-9871 - Canada Toll: (647) 932-3411 - Canada Toll-Free: (800) 715-9871 - Conference ID: 5555102 [2] Recorded Playback Information - Audio Recording Availability: Until October 29, 2025 - Playback Numbers: - US & Canada Toll-Free: +1(800) 770-2030 - US Toll: +1(609) 800-9909 - Canada Toll: +1(647) 362-9199 - Playback ID: 5555102 [3] - Audio recording will also be available on the Investor Relations section of the Company's website [3] Company Overview - Orrstown Financial Services, Inc. has $5.4 billion in assets and offers a variety of consumer and business financial services across multiple counties in Pennsylvania and Maryland [4] - The lending area includes counties in Pennsylvania, Maryland, Delaware, Virginia, West Virginia, and the District of Columbia within a 75-mile radius of the Company's offices [4] - The common stock of Orrstown Financial Services, Inc. is traded on NASDAQ under the symbol "ORRF" [4]

Core Viewpoint - Orrstown Financial Services (ORRF) has shown a downtrend recently, with a 7.4% loss over the past two weeks, but a hammer chart pattern suggests a potential trend reversal [1][2] Technical Analysis - The hammer chart pattern indicates a possible bottoming out, suggesting that selling pressure may be subsiding [2][5] - A hammer pattern forms when there is a small candle body with a long lower wick, indicating that buyers are starting to emerge after a downtrend [4][5] - The occurrence of this pattern at the bottom of a downtrend signals that bears may be losing control, which could lead to a trend reversal [5] Fundamental Analysis - There has been a positive trend in earnings estimate revisions for ORRF, which is a bullish indicator [7] - The consensus EPS estimate for the current year has increased by 2.8% over the last 30 days, indicating analysts' confidence in the company's earnings potential [8] - ORRF holds a Zacks Rank of 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks, which typically outperform the market [9][10]

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and related disclosures. [Glossary of Defined Terms](index=3&type=section&id=Glossary%20of%20Defined%20Terms) This section defines key financial and operational terms and acronyms for clarity and consistent understanding. - Defines key financial and operational terms like ACL (Allowance for credit losses), CECL (Current expected credit losses), AFS (Available-for-sale), and various regulatory bodies and financial instruments[9](index=9&type=chunk) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements and notes on accounting policies and key financial items. - The company operates as a financial holding company through Orrstown Bank, providing banking and financial advisory services in Pennsylvania and Maryland[24](index=24&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC rules[25](index=25&type=chunk) [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) - Total assets decreased by $53.9 million to $5,387.6 million at June 30, 2025, from $5,441.6 million at December 31, 2024. Total liabilities decreased by $85.7 million, while total shareholders' equity increased by $31.8 million over the same period[11](index=11&type=chunk) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $5,387,645 | $5,441,589 | | Total liabilities | $4,839,197 | $4,924,907 | | Total shareholders' equity | $548,448 | $516,682 | | Cash and cash equivalents | $149,377 | $248,874 | | Securities available for sale | $885,373 | $829,711 | | Net loans | $3,883,481 | $3,882,525 | | Total deposits | $4,516,625 | $4,623,096 | [Condensed Consolidated Statements of Income (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) - Net income for the three months ended June 30, 2025, was $19.4 million, up from $7.7 million in the prior year, and for the six months, it was $37.5 million, up from $16.3 million, primarily due to the Codorus Valley merger[12](index=12&type=chunk)[204](index=204&type=chunk) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $19,448 | $7,738 | $37,499 | $16,269 | | Diluted earnings per share | $1.01 | $0.73 | $1.94 | $1.55 | | Total interest income | $74,833 | $43,281 | $150,352 | $85,931 | | Total interest expense | $25,321 | $17,178 | $52,079 | $32,947 | | Net interest income | $49,512 | $26,103 | $98,273 | $52,984 | | Total noninterest income | $12,915 | $7,172 | $24,539 | $13,802 | | Total noninterest expenses | $37,614 | $22,639 | $75,790 | $45,108 | | Income tax expense | $5,256 | $2,086 | $9,968 | $4,299 | | Dividends paid per share | $0.26 | $0.20 | $0.52 | $0.40 | [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) - Total comprehensive income increased significantly to **$18.99 million** for the three months and **$39.34 million** for the six months ended June 30, 2025, driven by higher net income and a shift from unrealized losses to gains on available-for-sale securities for the six-month period[15](index=15&type=chunk) - Unrealized gains on AFS securities arising during the six months ended June 30, 2025, were **$3,752 thousand**, a significant improvement from a **$1,769 thousand loss** in the prior year[15](index=15&type=chunk) - Unrealized losses on interest rate swaps used in cash flow hedges for the six months ended June 30, 2025, were **$(1,374) thousand**, compared to a **$1,862 thousand gain** in the prior year[15](index=15&type=chunk) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $19,448 | $7,738 | $37,499 | $16,269 | | Total other comprehensive (loss) income, net of tax | $(455) | $264 | $1,837 | $72 | | Total comprehensive income | $18,993 | $8,002 | $39,336 | $16,341 | [Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(Unaudited)) - Total shareholders' equity increased to **$548.4 million** at June 30, 2025, from **$516.7 million** at January 1, 2025, primarily due to net income of **$37.5 million** and other comprehensive income of **$1.8 million**, partially offset by **$10.1 million** in cash dividends[16](index=16&type=chunk)[329](index=329&type=chunk) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | | Balance, January 1 | $516,682 | $265,056 | | Net income | $37,499 | $16,269 | | Total other comprehensive income, net of taxes | $1,837 | $72 | | Cash dividends paid | $(10,116) | $(4,266) | | Balance, June 30 | $548,448 | $278,376 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) - Net cash provided by operating activities increased to **$35.4 million** for the six months ended June 30, 2025, from **$19.1 million** in the prior year, but overall cash and cash equivalents decreased by **$99.5 million** due to investing and financing activities[20](index=20&type=chunk) - Cash paid for interest increased to **$52,645 thousand** for the six months ended June 30, 2025, from **$33,044 thousand** in the prior year[21](index=21&type=chunk) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $35,430 | $19,103 | | Net cash used in investing activities | $(42,688) | $(73,312) | | Net cash (used in) provided by financing activities | $(92,239) | $121,557 | | Net (decrease) increase in cash and cash equivalents | $(99,497) | $67,348 | | Cash and cash equivalents at end of period | $149,377 | $132,509 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes provide detailed disclosures on significant accounting policies and various financial statement components. - The notes provide detailed disclosures on significant accounting policies, the Codorus Valley merger, investment securities, loans and allowance for credit losses, leases, goodwill and other intangible assets, share-based compensation, deposits, derivative financial instruments, shareholders

Financial Data and Key Metrics Changes - GAAP earnings were strong with core earnings continuing to increase, return on average assets was 1.51% and return on average equity was 15.12% for Q2 2025 compared to 1.45% and 14.97% respectively for Q1 2025 [5][6] - Net interest margin (NIM) increased to 4.07% in Q2 2025 from 4% in Q1 2025, with expectations for further upside [6][14] - Noninterest income increased by $1.3 million quarter-over-quarter, with fee income as a percentage of operating revenue improving to 21% [6][15] Business Line Data and Key Metrics Changes - Total loan growth was 6% on an annualized basis for the quarter, with commercial loan growth at 2% [9][10] - Wealth management fees remained the largest component of fee income, with assets under management reaching $3 billion [7][15] - Noninterest expense declined by approximately $600,000 in the quarter, indicating improved cost management [18][19] Market Data and Key Metrics Changes - The loan pipeline is reported to be the strongest since the merger, reflecting a resilient regional economy [10][11] - Credit quality remains sound with net charge-offs being nominal and classified loans decreasing by 14% [11][21] - The average yield on loans was 6.5%, impacted by lower purchase accounting accretion [23] Company Strategy and Development Direction - The company aims to enhance its wealth management business and is focused on talent acquisition to support growth [7][48] - A share repurchase program of up to 500,000 shares was authorized, indicating confidence in the company's valuation [11][12] - The company is considering strategic opportunities, including potential acquisitions, while maintaining a focus on shareholder value [26][70] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future earnings growth as loan growth accelerates and expenses are expected to decline [5][8] - The competitive lending environment is acknowledged, but management remains confident in their ability to grow loans prudently [10][15] - The company is asset sensitive, and potential rate cuts could negatively impact net interest income, but management is focused on managing deposit costs [42][44] Other Important Information - The efficiency ratio improved to 58.7% in Q2 2025 from 60.5% in Q1 2025, with expectations for further improvement [8][19] - The board voted to increase the quarterly dividend by $0.01 per share, marking the third increase in the past year [12] Q&A Session Summary Question: Are there still other credits in the Codorus Valley deal that you are looking to move off of or sell? - Management indicated that while there may be a couple of loans to consider selling, they have been successful in working them out with minimal charge-offs [31] Question: Is there a capital level you would like to reach before considering another acquisition? - Management stated they are at premerger capital levels and feel confident about their position for potential acquisitions [36] Question: Can you provide commentary on the potential for NIM expansion in Q3 with possible rate cuts? - Management acknowledged that rate cuts could negatively impact net interest income but emphasized the importance of properly pricing loans [42][44] Question: What initiatives are in place for growth in the wealth management business? - Management highlighted opportunities for growth through talent acquisition and expanding in markets like Maryland and Lancaster [48] Question: How has the sentiment of commercial clients changed recently? - Management reported that the loan pipeline is the largest since the merger, indicating positive sentiment among commercial clients [52] Question: What is the current line utilization rate in the commercial portfolio? - Management noted that line utilization rates have remained stable and modest [61] Question: Are you ready for another transaction a year after the Codorus Valley deal? - Management expressed that they are looking for opportunities that add value and are focused on best practices for future acquisitions [70]

Financial Data and Key Metrics Changes - GAAP earnings were strong with core earnings continuing to increase, return on average assets was 1.51% and return on average equity was 15.12% for Q2 2025 compared to 1.45% and 14.97% respectively for Q1 2025 [5][6] - Net interest margin (NIM) increased to 4.07% in Q2 2025 from 4% in Q1 2025, with expectations for further upside [6][15] - Fee income as a percentage of operating revenue was 21% during the quarter, an improvement from prior periods, with noninterest income increasing by $1.3 million quarter over quarter [6][16] Business Line Data and Key Metrics Changes - Total loan growth was 6% on an annualized basis, with commercial loan growth at 2% [9][10] - Wealth management fees remained the largest component of fee income, with assets under management reaching $3 billion [7][16] - Noninterest expense declined by approximately $600,000 in the quarter, including merger-related expenses of almost $1 million [19][20] Market Data and Key Metrics Changes - The loan pipeline is reported to be the highest since the merger, reflecting a strong regional economy and engagement with clients [11][12] - Credit quality remains sound with net charge-offs being nominal and classified loans decreasing by 14% [12][22] - The average yield on loans was 6.5%, impacted by lower purchase accounting accretion [24] Company Strategy and Development Direction - The company is focused on enhancing liquidity, building capital, and accelerating commercial lending while considering share buybacks due to perceived undervaluation [27] - There is a strong emphasis on talent acquisition to support growth, particularly in the wealth management sector [48][55] - The company is open to future acquisitions that add value to the franchise, focusing on geographic proximity and complementary services [66][67] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong loan pipeline and positive client sentiment despite market noise [52] - The company anticipates continued improvement in profitability and efficiency, with expectations for expenses to decline further [8][20] - Management acknowledged the competitive lending environment but remains confident in their ability to grow loans prudently [11][16] Other Important Information - The board authorized a share repurchase program of up to 500,000 shares and increased the quarterly dividend by $0.01 per share [13] - Regulatory capital ratios are now at or above pre-merger levels, providing options for growth [26] Q&A Session Summary Question: Are there still other credits in the Codorus Valley deal that you are looking to move off of or sell? - Management indicated that while there might be a couple of loans to consider for sale, they have been successful in working them out with minimal charge-offs [32] Question: Is there a capital level you would like to reach before considering another acquisition? - Management stated they are at pre-merger levels and feel comfortable moving forward without needing outside capital for future deals [35] Question: How would potential Fed rate cuts impact NIM? - Management noted that while rate cuts could negatively impact net interest income, they would continue to push on the loan side to offset some of that impact [42][43] Question: What initiatives are in place for growth in the wealth management business? - Management highlighted opportunities for growth through talent acquisition and expansion in key markets [48][49] Question: How has the sentiment of commercial clients changed recently? - Management reported that the pipeline is the largest since the merger, indicating positive sentiment among commercial clients [52] Question: What is the current line utilization rate on the commercial portfolio? - Management stated that line utilization rates have remained stable and modest [58] Question: Are you ready for another transaction a year after the Codorus Valley deal? - Management expressed that they are looking for opportunities that add value and are focused on best practices for future acquisitions [66][67]

Financial Performance Highlights - Net income for 2Q25 was $19.4 million, a 7.7% increase quarter-over-quarter and a 151.3% increase year-over-year[7] - Adjusted net income for 2Q25 was $20.2 million, up 4.5% from the previous quarter and 131.2% compared to 2Q24[7] - Diluted EPS reached $1.01, showing a 7.7% increase from 1Q25 and a 37.1% increase from 2Q24[7] - Adjusted diluted EPS was $1.04, a 4% increase from 1Q25 and a 25.3% increase from 2Q24[7] - The company's assets totaled $5,387.6 million, representing a 68.4% increase compared to $3,198.8 million in 2Q24, but a decrease of 1% from $5,441.6 million in 1Q25[7] - Loans amounted to $3,931.4 million, a 1.4% increase from the previous quarter and a 67.5% increase from $2,347.6 million in 2Q24[7] - Deposits totaled $4,516.6 million, a decrease of 2.5% from the previous quarter but a 67.1% increase from $2,702.9 million in 2Q24[7] Profitability and Efficiency - Annualized ROAA was 1.45%, a 10 bps increase from the previous quarter and a 48 bps increase year-over-year[7] - Adjusted annualized ROAA was 1.51%, a 6 bps increase from 1Q25 and a 42 bps increase from 2Q24[7] - The efficiency ratio improved to 60.25%, a decrease of 297 bps from the previous quarter and 778 bps from 2Q24[7] - Adjusted efficiency ratio was 58.70%, a decrease of 180 bps from 1Q25 and 590 bps from 2Q24[7] - Net interest margin improved to 4.07%, a 7 bps increase from the previous quarter and a 52 bps increase year-over-year[7]

[Second Quarter 2025 Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Highlights) [Overview of Q2 2025 Performance](index=1&type=section&id=Overview%20of%20Q2%202025%20Performance) Orrstown Financial Services reported strong Q2 2025 results with increased net income, improved net interest margin, and balance sheet growth Q2 2025 Financial Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Income | $19.4 million | $18.1 million | $7.7 million | | Diluted EPS | $1.01 | $0.93 | $0.73 | | Adjusted Net Income (Non-GAAP) | $20.2 million | $19.3 million | $8.7 million | | Adjusted Diluted EPS (Non-GAAP) | $1.04 | $1.00 | $0.83 | - Net interest margin (tax-equivalent) expanded to **4.07%** in Q2 2025 from **4.00%** in Q1 2025, positively impacted by **50 basis points** from purchase accounting accretion[3](index=3&type=chunk) - Loans grew by **$55.4 million** (**6% annualized**) from the previous quarter, while classified loans decreased by **$10.4 million**, indicating improved credit quality[3](index=3&type=chunk) - The Board of Directors increased the quarterly cash dividend by **$0.01** to **$0.27 per share** and authorized a new share repurchase program for up to **500,000 shares**[3](index=3&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Management expressed satisfaction with post-merger performance, highlighting strong loan pipeline, improved margin, and efficiency focus - Management is pleased with achieving metrics near the top of peers one year after the merger with Codorus Valley Bancorp[4](index=4&type=chunk) - The commercial loan pipeline remains strong for Q3, despite lower-than-expected growth in Q2, with a continued focus on maintaining credit quality[4](index=4&type=chunk) - Meaningful merger-related expenses are not anticipated in the future, and the company is implementing process improvements to boost efficiency and support growth[4](index=4&type=chunk) [Discussion of Results](index=3&type=section&id=DISCUSSION%20OF%20RESULTS) [Balance Sheet Analysis](index=3&type=section&id=Balance%20Sheet%20Analysis) The balance sheet showed loan and investment growth funded by decreased deposits and increased FHLB borrowings [Loans](index=3&type=section&id=Loans) - Loans held for investment increased by **$55.4 million** to **$3.9 billion** at June 30, 2025. The growth was driven by a **$37.9 million** increase in residential mortgages and a **$16.1 million** increase in commercial loans. This included a **$25.4 million** purchase of property assessed clean energy (PACE) loans[5](index=5&type=chunk) [Investment Securities](index=3&type=section&id=Investment%20Securities) - Investment securities increased by **$29.9 million** to **$885.4 million** at June 30, 2025. The bank purchased **$50.1 million** in securities, offset by **$20.4 million** in paydowns. The portfolio's duration slightly increased from **4.3 to 4.5 years**[6](index=6&type=chunk) [Deposits](index=3&type=section&id=Deposits) - Total deposits decreased by **$117.1 million** to **$4.5 billion**, primarily due to a **$58.0 million** decline in time deposits and a **$35.8 million** drop in money market deposits from the run-off of higher-yielding promotional balances. This caused the loan-to-deposit ratio to increase from **84% to 87%**[7](index=7&type=chunk) [Borrowings](index=3&type=section&id=Borrowings) - FHLB advances and other borrowings increased by **$36.0 million** to **$136.3 million**. This was due to higher utilization of overnight borrowings to compensate for the decline in deposit balances and fund lending and investing activities. The Bank maintained approximately **$1.7 billion** in available alternative funding sources[8](index=8&type=chunk) [Income Statement Analysis](index=4&type=section&id=Income%20Statement%20Analysis) Q2 2025 income statement shows improved profitability with increased net interest income, expanded margin, and controlled expenses [Net Interest Income and Margin](index=4&type=section&id=Net%20Interest%20Income%20and%20Margin) Net Interest Income and Margin | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Net Interest Income | $49.5 million | $48.8 million | | Net Interest Margin (Tax-Equivalent) | 4.07% | 4.00% | - The increase in NIM was primarily driven by a **12 basis point** decline in the cost of funds, which was partially offset by a **7 basis point** decrease in the yield on loans[9](index=9&type=chunk) - The net accretion impact of purchase accounting marks positively contributed **$5.2 million** to NII in Q2 2025, down from **$6.9 million** in Q1 2025 due to lower accelerated accretion[10](index=10&type=chunk) [Provision for Credit Losses on Loans](index=4&type=section&id=Provision%20for%20Credit%20Losses%20on%20Loans) Provision for Credit Losses on Loans | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Provision Expense | $0.2 million | ($0.6 million) recovery | | Net Charge-offs | $0.1 million | $0.3 million | | ACL to Total Loans | 1.22% | 1.23% | - Credit quality improved as classified loans decreased by **$10.4 million** to **$65.8 million**, and non-accrual loans to total loans fell to **0.57%** from **0.59%**[15](index=15&type=chunk) [Noninterest Income](index=4&type=section&id=Noninterest%20Income) - Noninterest income increased by **$1.3 million** to **$12.9 million** in Q2 2025. Key contributors to the increase were swap fee income (up **$0.3 million**), income from service charges (up **$0.2 million**), mortgage banking activities (up **$0.2 million**), and other income (up **$0.7 million**)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) [Noninterest Expenses](index=5&type=section&id=Noninterest%20Expenses) - Noninterest expenses decreased by **$0.6 million** to **$37.6 million** in Q2 2025. This was primarily due to a **$0.6 million** reduction in merger-related expenses, which are not expected to be meaningful going forward. The decrease was partially offset by a **$1.0 million** increase in salaries and benefits, which included **$0.6 million** in severance costs[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) [Income Taxes](index=5&type=section&id=Income%20Taxes) - The effective tax rate was **21.3%** for Q2 2025, compared to **20.7%** for Q1 2025. The rate is higher than the **21%** federal statutory rate mainly due to the disallowed portion of interest expense related to tax-exempt investments[25](index=25&type=chunk) [Capital Position](index=5&type=section&id=Capital%20Position) The company's capital position strengthened in Q2 2025, with increased shareholders' equity and improved regulatory ratios - Shareholders' equity increased by **$15.5 million** to **$548.4 million** at June 30, 2025, primarily due to **$19.4 million** in net income, partially offset by **$5.1 million** in dividend payments[26](index=26&type=chunk) Capital Metrics | Capital Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Tangible Book Value per Share | $22.77 | $21.99 | | Tangible Common Equity Ratio | 8.3% | 7.9% | | Tier 1 Leverage Ratio | 9.0% | 8.6% | | Tier 1 Common Equity Capital Ratio | 10.9% | 10.6% | | Total Risk-Based Capital Ratio | 13.3% | 13.1% | - All four capital ratios applicable to the Company were above regulatory minimum levels to be deemed 'well capitalized' under current bank regulatory guidelines[28](index=28&type=chunk) - On June 20, 2025, the Board of Directors authorized a share repurchase program for up to **500,000 shares** of its common stock[29](index=29&type=chunk) [Financial Tables](index=7&type=section&id=Financial%20Tables) [Financial Highlights](index=7&type=section&id=Financial%20Highlights) This section summarizes key financial results, ratios, balance sheet data, and credit quality for Q2 2025 and prior periods [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) This table presents the unaudited consolidated balance sheets, detailing assets, liabilities, and equity as of June 30, 2025 [Condensed Consolidated Statements of Income](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section provides unaudited consolidated income statements, detailing income, expenses, and per-share data for Q2 2025 [Analysis of Net Interest Income](index=12&type=section&id=Analysis%20of%20Net%20Interest%20Income) These tables analyze net interest income on a taxable-equivalent basis, detailing average balances, interest, and yields/rates [Historical Trends in Quarterly Financial Data](index=16&type=section&id=Historical%20Trends%20in%20Quarterly%20Financial%20Data) This section presents five-quarter trends of key financial data, including profitability, ratios, balance sheet, and credit quality [Appendices](index=20&type=section&id=Appendices) [Appendix A: Non-GAAP Reconciliations](index=20&type=section&id=Appendix%20A-%20Supplemental%20Reporting%20of%20Non-GAAP%20Measures%20and%20GAAP%20to%20Non-GAAP%20Reconciliations) This appendix reconciles non-GAAP financial measures to GAAP, explaining adjustments for non-recurring items like merger expenses - Management provides non-GAAP measures to help investors understand the financial results without the effect of non-recurring charges, such as merger-related expenses[48](index=48&type=chunk) - The company incurred merger-related expenses of **$1.0 million** in Q2 2025 and **$1.6 million** in Q1 2025, which are adjusted for in the non-GAAP calculations[49](index=49&type=chunk) - The document provides detailed tables to reconcile GAAP measures like Shareholders' Equity, Net Income, and Efficiency Ratio to their non-GAAP counterparts (Tangible Common Equity, Adjusted Net Income, Adjusted Efficiency Ratio)[51](index=51&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) [Appendix B: Investment Portfolio Concentrations](index=24&type=section&id=Appendix%20B-%20Investment%20Portfolio%20Concentrations) This appendix details the high credit quality and composition of the $885.2 million investment portfolio as of June 30, 2025 Investment Portfolio Mix | Portfolio Mix | % of Total | Key Collateral/Guarantee | | :--- | :--- | :--- | | Agency CMO | 38% | U.S. government agencies | | Agency MBS | 22% | U.S. government agencies | | Municipal - Revenue | 13% | N/A | | Municipal - General Obligation | 11% | N/A | | Federal Family Education Loan ABS | 8% | 97% guaranteed by U.S. government | - The investment portfolio demonstrates high credit quality, with **85%** of its rated holdings rated **AA** and **4%** rated **AAA**. The majority of the portfolio is guaranteed by the U.S. government or its agencies[55](index=55&type=chunk) [Company Information and Forward-Looking Statements](index=25&type=section&id=Company%20Information%20and%20Forward-Looking%20Statements) [About the Company](index=25&type=section&id=About%20the%20Company) Orrstown Financial Services, Inc. is a $5.4 billion financial holding company offering diverse services across PA and MD - The company has **$5.4 billion** in assets and operates through its subsidiary, Orrstown Bank[56](index=56&type=chunk) - Primary service areas include Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties in Pennsylvania, and Anne Arundel, Baltimore, Harford, Howard, and Washington Counties in Maryland[56](index=56&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=25&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This note warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements are subject to risks and uncertainties and are not guarantees of future performance[57](index=57&type=chunk) - Key risk factors include interest rate volatility, general economic conditions, competition, credit quality changes, and the possibility that anticipated merger benefits are not realized[57](index=57&type=chunk) - The company disclaims any obligation to publicly update forward-looking statements[58](index=58&type=chunk)