Net income of $8.5 million and diluted earnings per share of $0.81 for the three months ended March 31, 2024 compared to net income of $7.6 million and diluted earnings per share of $0.73 for the three months ended December 31, 2023; Excluding the impact of $0.7 million in expenses related to the pending merger of equals transaction with Codorus Valley Bancorp, Inc., net income and diluted earnings per share, respectively, were $9.2 million(1) and $0.88(1) for the first quarter of 2024 compared to net income and diluted earnings per share of $8.6 million(1) and $0.83(1), respectively, excluding the impact of $1.1 million in merger-related expenses recorded for the fourth quarter of 2023; As a result of the payoff of a commercial real estate loan which totaled $13.4 million at December 31, 2023, nonaccrual loans decreased to $12.9 million at March 31, 2024 from $25.5 million at December 31, 2023; nonaccrual loans to total loans declined to 0.56% at March 31, 2024 from 1.11% at December 31, 2023; Net interest margin, on a tax equivalent basis, was 3.77% in the first quarter of 2024 compared to 3.71% in the fourth quarter of 2023; during the three months ended March 31, 2024, the Bank recognized interest income previously applied to principal of $1.6 million from the loan payoff noted above; Return on average equity for the three months ended March 31, 2024 was 12.79% compared to 12.21% for the three months ended December 31, 2023; excluding the aforementioned merger-related expenses in both periods, return on average equity was 13.79%(1) for the three months ended March 31, 2024 compared to 13.77%(1) for the three months ended December 31, 2023; Deposit growth was $137.1 million during the first quarter of 2024 compared to $12.4 million during the fourth quarter of 2023; Total risk-based capital was 13.4% at March 31, 2024 compared to 13.0% at December 31, 2023; Tangible book value per common share(1) improved to $23.47 per share at March 31, 2024 compared to $23.03 per share at December 31, 2023; The Board of Directors declared a cash dividend of $0.20 per common share, payable May 14, 2024, to shareholders of record as of May 7, 2024. SHIPPENSBURG, Pa., April 23, 2024 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. ("Orrstown" or the "Company") (NASDAQ:ORRF), the parent company of Orrstown Bank (the "Bank"), announced earnings for the three months March 31, 2024. Net income totaled $8.5 million for the three months ended March 31, 2024, compared to $7.6 million for the three months ended December 31, 2023 and $9.2 million for the three months ended March 31, 2023. Diluted earnings per share totaled $0.81 for the three months ended March 31, 2024, compared to $0.73 for the three months ended December 31, 2023 and $0.87 for the three months ended March 31, 2023. Merger-related expenses totaled $0.7 million and $1.1 million for the three months ended March 31, 2024 and December 31, 2023, respectively. For the first quarter of 2024, excluding the impact from the merger-related expenses, net income and diluted earnings per share were $9.2 million(1) and $0.88(1), respectively. For the fourth quarter of 2023, excluding the impact from the merger-related expenses, net income and diluted earnings per share were $8.6 million(1) and $0.83(1), respectively. (1) Non-GAAP measure. See Appendix A for additional information. "We began this year with another solid quarter, highlighted by strong earnings. The successful workout of a large commercial real estate loan that entered non-accrual status at the end of 2022 aided our first quarter performance. Our team remains conscious of the current credit environment as we seek to limit risk while still taking steps to grow prudently. Excluding loan payoff activity that we initiated, we experienced modest loan growth and expect that to continue throughout the year. Orrstown's Wealth Management team is leading the way in generating strong fee income. As in prior years, expenses were higher in the first quarter and, excluding merger-related costs, are expected to normalize in the second quarter. Our liquidity position was bolstered by strong deposit growth, which included successful CD and money market production, as well as seasonal and short-term balances from which we expect some runoff," commented Thomas R. Quinn, Jr., President and Chief Executive Officer. DISCUSSION OF RESULTS Balance Sheet Loans Loans held for investment increased by $4.8 million from December 31, 2023 to March 31, 2024. The residential mortgage portfolio increased by $7.9 million in the three months ended March 31, 2024 from continued portfolio production. Commercial loans decreased by $2.3 million from December 31, 2023 to March 31, 2024; however, the balance at March 31, 2024 reflected the payoffs of a commercial real estate loan on nonaccrual status totaling $13.4 million and a special mention commercial loan totaling $7.2 million during the first quarter of 2024. Loans held-for-sale decreased by $5.3 million to $0.5 million at March 31, 2024 from $5.8 million at December 31, 2023. During the first quarter of 2024, the Bank sold a portfolio of residential mortgage loans that had a book value, which approximated fair value, of $5.1 million at December 31, 2023. Investment Securities Investment securities, all of which are classified as available-for-sale, increased by $1.4 million to $514.9 million at March 31, 2024 compared to $513.5 million at December 31, 2023. During the first quarter of 2024, purchases of $21.8 million were partially offset by a call of a non-agency collateralized mortgage obligation ("CMO") totaling $10.0 million, paydowns of $8.1 million and an increase in net unrealized losses on investment securities of $1.8 million. The overall duration of the Company's investment securities portfolio was 4.4 years at March 31, 2024. See Appendix B for a summary of the Bank's investment securities at March 31, 2024, highlighting their concentrations, credit ratings and credit enhancement levels. Deposits During the first quarter of 2024, deposits increased by $137.1 million totaling approximately $2.7 billion at March 31, 2024 compared to $2.6 billion at December 31, 2023. In the first quarter of 2024, interest-bearing demand deposits increased by $56.9 million, time deposits increased by $50.4 million and money market deposits increased by $48.7 million. These increases were partially offset by decreases in non-interest bearing deposits of $12.4 million and savings deposits of $6.5 million. The increase in interest-bearing demand deposits reflects some seasonal public funds activity in addition to balances that are believed to be short-term in nature. The increase in time deposits was attributable to promotional offerings of up to 18-month terms. The declines in noninterest-bearing deposits and savings deposits were primarily due to clients shifting to higher-yielding products within the Bank. At March 31, 2024, deposits that are uninsured and not collateralized totaled $413.5 million, or 15%, of total deposits compared to $442.7 million, or 17%, of total deposits at December 31, 2023. The Bank's loan-to-deposit ratio was lowered to 85% at March 31, 2024 compared to 90% at December 31, 2023 due to the increase in deposits during the first quarter of 2024. Borrowings 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 decreased by $22.5 million to $115.0 million at March 31, 2024 compared to $137.5 million at December 31, 2023. The Bank repaid overnight borrowings during the first quarter of 2024 based on available liquidity from deposits. 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 $1.0 billion at March 31, 2024. Income Statement Net Interest Income and Margin Net interest income was $26.9 million for the three months ended March 31, 2024 compared to $26.0 million for the three months ended December 31, 2023. The net interest margin, on a tax equivalent basis, increased to 3.77% in the first quarter of 2024 from 3.71% in the fourth quarter of 2023. During the three months ended March 31, 2024, the Bank recognized interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan on nonaccrual status, which contributed 21 basis points to net interest margin. The net interest margin was negatively impacted by the increase in funding costs of 27 basis points due primarily to higher interest-bearing deposit balances. Also, the interest rate increased on the subordinated notes, which converted from a fixed rate to a floating rate on December 30, 2023. In addition, the net interest margin was lower by six basis points from excess cash compared to the fourth quarter of 2023. Interest income on loans, on a tax equivalent basis, increased by $2.3 million to $36.4 million for the three months ended March 31, 2024 compared to $34.1 million for the three months ended December 31, 2023, which was primarily due to the aforementioned interest recovery. Interest income on investment securities, on a tax equivalent basis, was $5.7 million for the first quarter of 2024 compared to $5.9 million in the fourth quarter of 2023. The decrease in interest income on investment securities was primarily caused by the call of one higher-yielding non-agency CMO of $10.0 million during the three months ended March 31, 2024 as well as accelerated discount accretion in the fourth quarter of 2023. Interest expense, on a tax equivalent basis, increased by $1.8 million to $15.8 million for the three months ended March 31, 2024 compared to $14.0 million for the three months ended December 31, 2023 due primarily to higher average deposit balances and an increase in rates on deposits and the subordinated notes. Average interest-bearing deposits increased by $55.1 million during the three months ended March 31, 2024 compared to the three months ended December 31, 2023. Provision for Credit Losses The Company recorded a provision for credit losses of $0.3 million for the three months ended March 31, 2024 compared to $0.4 million for the three months ended December 31, 2023. The allowance for credit losses ("ACL") on loans increased to $29.2 million at March 31, 2024 from $28.7 million at December 31, 2023. The ACL was impacted primarily by a reduction in prepayment speed assumptions within the quantitative model due to current economic conditions partially offset by an improvement in the gross domestic product forecast. The ACL to total loans was 1.27% at March 31, 2024 compared to 1.25% at December 31, 2023. Net recoveries were less than $0.1 million for both the three months ended March 31, 2024 and December 31, 2023. Special mention loans decreased by $8.2 million from $24.2 million at December 31, 2023 to $16.0 million at March 31, 2024 primarily due to repayments, including $7.2 million from one commercial client. Classified loans decreased by $6.0 million to $49.0 million at March 31, 2024 from $55.0 million at December 31, 2023. The decrease in classified loans was primarily due to repayments of $15.4 million, including the payoff of one commercial real estate loan totaling $13.4 million, partially offset by downgrades of $9.5 million, including one commercial relationship totaling $6.3 million. Non-accrual loans decreased by $12.6 million to $12.9 million at March 31, 2024 from $25.5 million at December 31, 2023 primarily due to the payoff of one commercial real estate loan totaling $13.4 million. Management believes the ACL 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, 2024, the Company had $225.9 million in loans related to office space compared to $236.4 million at December 31, 2023. The weighted average loan-to-value ratio was 56% and the weighted average debt coverage ratio was 1.82x at March 31, 2024. Management believes that the office space portfolio is well-diversified and includes only limited exposure to properties located in major metro markets (approximately 2% of the total commercial real estate loan balance as of March 31, 2024). Noninterest Income Noninterest income increased by $0.1 million to $6.6 million in the three months ended March 31, 2024 compared to $6.5 million in the three months ended December 31, 2023. For the three months ended March 31, 2024, mortgage banking income increased by $0.4 million compared to the fourth quarter of 2023. During the first quarter of 2024, residential mortgage sales totaled $14.7 million, including a portfolio of loans to another financial institution, compared to $3.7 million during the fourth quarter of 2023. Market conditions and elevated interest rates continued to hinder mortgage production. Wealth management income increased by $0.2 million in the three months ended March 31, 2024 compared to the three months ended December 31, 2023 due to both new client generation and strong market conditions. During the first quarter of 2024, the Company recorded swap fee income of $0.2 million compared to $0.6 million in the three months ended December 31, 2023. Swap fee income fluctuates based on market conditions and client demand. Noninterest Expenses Noninterest expenses increased by $0.1 million to $22.5 million in the three months ended March 31, 2024 from $22.4 million in the three months ended December 31, 2023. Salaries and benefits expense increased by $1.0 million to $13.8 million for the three months ended March 31, 2024 compared to $12.8 million for the three months ended December 31, 2023. The increase is primarily attributable to an increase in employee benefit costs, including social security and unemployment taxes, which are typically higher at the beginning of the year, and increased incentive compensation associated with the prior year's performance. Other operating expenses decreased by $0.6 million to $2.0 million during the first quarter of 2024 compared to $2.6 million during the fourth quarter of 2023 due to a decrease of $0.6 million in credit value adjustments on derivatives for the three months ended March 31, 2024 compared to the three months ended December 31, 2023. For the three months ended March 31, 2024, merger-related expenses totaled $0.7 million, a decrease of $0.4 million, compared to $1.1 million for the three months ended December 31, 2023. The decrease is due to higher due diligence costs and professional fees incurred during the fourth quarter of 2023. The Company expects to incur additional merger-related expenses until the completion of the merger of equals. Taxes other than income increased by $0.3 million to $0.5 million in the three months ended March 31, 2024 compared to $0.2 million in the three months ended December 31, 2023. The increase reflects the tax credits recognized on charitable contributions during the fourth quarter of 2023. Income Taxes The Company's effective tax rate for the first quarter of 2024 was 20.6% compared to 21.2% for the fourth quarter of 2023. The Company's effective tax rate for the three months ended March 31, 2024 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 nondeductible merger-related costs increased the effective tax rate by 1.2% for the first quarter of 2024. The effective tax rate for the fourth quarter of 2023 was higher due to an increase in state taxes in addition to the disallowed portion of interest expense against earnings in association with the Bank's tax-exempt investments under the TEFRA. The nondeductible merger-related costs increased the effective tax rate by 1.4% for the fourth quarter of 2023. The Company regularly analyzes its projected taxable income and makes adjustments to the provision for income taxes accordingly. Capital Shareholders' equity totaled $271.7 million at March 31, 2024, an increase of $6.6 million from $265.1 million at December 31, 2023. The increase was primarily attributable to net income of $8.5 million, partially offset by dividends paid of $2.1 million. Other comprehensive losses totaled $0.2 million for the first quarter of 2024, which consisted of after-tax net unrealized losses on investment securities of $1.3 million partially offset by net unrealized gains on cash flow hedges of $1.1 million. The remaining activity is related to share-based compensation. Tangible book value per share(1) increased to $23.47 per share at March 31, 2024 from $23.03 per share at December 31, 2023 due to the increase in shareholders' equity. The Company's tangible common equity ratio decreased to 7.9% at March 31, 2024 from 8.0% at December 31, 2023, as total assets increased primarily due to the increase in deposits during the first quarter of 2024. The Company's total risk-based capital ratio was 13.4% at March 31, 2024 compared to 13.0% at December 31, 2023. The increase in the total risk-based capital ratio was partially due to the payoff of a commercial real estate loan on nonaccrual status, which reduced risk weighted assets by $20.0 million. The Company's Tier 1 leverage ratio was 8.9% at both March 31, 2024 and December 31, 2023. At March 31, 2024, 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. Investor Relations Contact: Neelesh Kalani Executive Vice President, Chief Financial Officer Phone (717) 510-7097 ORRSTOWN FINANCIAL SERVICES, INC.         FINANCIAL HIGHLIGHTS (Unaudited)                                 Three Months Ended     March 31,   March 31, (Dollars in thousands)     2024       2023             Profitability for the period:         Net interest income   $ 26,881     $ 26,294   Provision for credit losses     298       729   Noninterest income     6,630       6,078   Noninterest expenses     22,469       20,255   Income before income tax expense     10,744       11,388   Income tax expense     2,213       2,232   Net income available to common shareholders   $ 8,531     $ 9,156             Financial ratios:         Return on average assets (1)     1.11 %     1.27 % Return on average assets, adjusted (1) (2) (3)     1.19 %     1.27 % Return on average equity (1)     12.79 %     15.88 % Return on average equity, adjusted (1) (2) (3)     13.79 %     15.88 % Net interest margin (1)     3.77 %     3.94 % Efficiency ratio     67.0 %     62.6 % Efficiency ratio, adjusted (2) (3)     65.0 %     62.6 % Income per common share:         Basic   $ 0.82     $ 0.88   Basic, adjusted (2) (3)   $ 0.89     $ 0.88   Diluted   $ 0.81     $ 0.87   Diluted, adjusted (2) (3)   $ 0.88     $ 0.87             Average equity to average assets     8.66 %     7.97 %           (1) Annualized for the three months ended March 31, 2024 and 2023. (2) Ratio for the three months ended March 31, 2024 has been adjusted for merger-related costs. (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.       FINANCIAL HIGHLIGHTS (Unaudited)       (continued)         March 31,   December 31, (Dollars in thousands, except per share amounts)   2024       2023   At period-end:       Total assets $ 3,183,331     $ 3,064,240   Total deposits   2,695,951       2,558,814   Loans, net of allowance for credit losses   2,273,908       2,269,611   Loans held-for-sale, at fair value   535       5,816   Securities available for sale, at fair value   514,909       513,519   Borrowings   127,099       147,285   Subordinated notes   32,111       32,093   Shareholders' equity   271,682       265,056           Credit quality and capital ratios(1):       Allowance for credit losses to total loans   1.27 %     1.25 % Total nonaccrual loans to total loans   0.56 %     1.11 % Nonperforming assets to total assets   0.40 %     0.83 % Allowance for credit losses to nonaccrual loans   226 %     112 % Total risk-based capital:       Orrstown Financial Services, Inc.   13.4 %     13.0 % Orrstown Bank   13.1 %     12.8 % Tier 1 risk-based capital:       Orrstown Financial Services, Inc.   11.2 %     10.8 % Orrstown Bank   11.9 %     11.6 % Tier 1 common equity risk-based capital:       Orrstown Financial Services, Inc.   11.2 %     10.8 % Orrstown Bank   11.9 %     11.6 % Tier 1 leverage capital:       Orrstown Financial Services, Inc.   9.0 %     8.9 % Orrstown Bank   9.6 %     9.5 %         Book value per common share $ 25.38     $ 24.98           (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. Beginning 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 CECL standard.   ORRSTOWN FINANCIAL SERVICES, INC.       CONSOLIDATED BALANCE SHEETS (Unaudited)               (Dollars in thousands, except per share amounts) March 31, 2024   December 31, 2023 Assets       Cash and due from banks $ 23,552     $ 32,586   Interest-bearing deposits with banks   159,170       32,575   Cash and cash equivalents   182,722       65,161   Restricted investments in bank stocks   11,453       11,992   Securities available for sale (amortized cost of $552,155 and $549,089 at March 31, 2024 and December 31, 2023, respectively)   514,909       513,519   Loans held for sale, at fair value   535       5,816   Loans   2,303,073       2,298,313   Less: Allowance for credit losses   (29,165 )     (28,702 ) Net loans   2,273,908       2,269,611   Premises and equipment, net   28,952       29,393   Cash surrender value of life insurance   73,656       73,204   Goodwill   18,724       18,724   Other intangible assets, net   2,189       2,414   Accrued interest receivable   13,496       13,630   Deferred tax assets, net   21,181       22,017   Other assets   41,606       38,759   Total assets $ 3,183,331     $ 3,064,240   Liabilities       Deposits:       Noninterest-bearing $ 418,512     $ 430,959   Interest-bearing   2,277,439       2,127,855   Total deposits   2,695,951       2,558,814   Securities sold under agreements to repurchase and federal funds purchased   12,099       9,785   FHLB advances and other borrowings   115,000       137,500   Subordinated notes   32,111       32,093   Accrued interest and other liabilities   56,488       60,992   Total liabilities   2,911,649       2,799,184   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; 11,203,221 shares issued and 10,705,077 outstanding at March 31, 2024; 11,204,599 shares issued and 10,612,390 outstanding at December 31, 2023   583       583   Additional paid—in capital   187,267       189,027   Retained earnings   124,075       117,667   Accumulated other comprehensive losses   (28,668 )     (28,476 ) Treasury stock— 498,144 and 592,209 shares, at cost at March 31, 2024 and December 31, 2023, respectively   (11,575 )     (13,745 ) Total shareholders' equity   271,682       265,056   Total liabilities and shareholders' equity $ 3,183,331     $ 3,064,240                   ORRSTOWN FINANCIAL SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)       Three Months Ended       March 31,   March 31, (In thousands)       2024       2023   Interest income           Loans     $ 36,233     $ 28,744   Investment securities - taxable       4,584       4,370   Investment securities - tax-exempt       877       865   Short-term investments       956       298   Total interest income       42,650       34,277   Interest expense           Deposits       13,516       6,202   Securities sold under agreements to repurchase and federal funds purchased       25       25   FHLB advances and other borrowings       1,474       1,252   Subordinated notes       754       504   Total interest expense       15,769       7,983   Net interest income       26,881       26,294   Provision for credit losses       298       729   Net interest income after provision for credit losses       26,583       25,565   Noninterest income           Service charges       1,200       1,157   Interchange income       911       965   Swap fee income       199       —   Wealth management income       3,102       2,747   Mortgage banking activities       458       478   Investment securities losses       (5 )     (8 ) Other income       765       739   Total noninterest income       6,630       6,078   Noninterest expenses           Salaries and employee benefits       13,752       12,196   Occupancy, furniture and equipment       2,639       2,333   Data processing       1,265       1,217   Advertising and bank promotions       398       405   FDIC insurance       441       504   Professional services       631       734   Taxes other than income       494       457   Intangible asset amortization       225       250   Merger-related expenses       672       —   Other operating expenses       1,952       2,159   Total noninterest expenses       22,469       20,255   Income before income tax expense       10,744       11,388   Income tax expense       2,213       2,232   Net income     $ 8,531     $ 9,156                       Share information:                   Basic earnings per share     $ 0.82     $ 0.88   Diluted earnings per share     $ 0.81     $ 0.87   Dividends paid per share     $ 0.20     $ 0.20   Weighted average shares - basic       10,349       10,385   Weighted average shares - diluted       10,482       10,496                       ORRSTOWN FINANCIAL SERVICES, INC.         ANALYSIS OF NET INTEREST INCOME         Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)       Three Months Ended   3/31/2024   12/31/2023   9/30/2023   6/30/2023   3/31/2023       Taxable-   Taxable-       Taxable-   Taxable-       Taxable-   Taxable-       Taxable-   Taxable-       Taxable-   Taxable- (Dollars in thousands) Average   Equivalent   Equivalent   Average   Equivalent   Equivalent   Average   Equivalent   Equivalent   Average   Equivalent   Equivalent   Average   Equivalent   Equivalent Balance   Interest   Rate   Balance   Interest   Rate   Balance   Interest   Rate   Balance   Interest   Rate   Balance   Interest   Rate Assets                                                           Federal funds sold & interest-bearing bank balances $ 74,523   $ 956     5.16 %   $ 37,873   $ 460     4.82 %   $ 57,778   $ 633     4.35 %   $ 37,895   $ 418     4.42 %   $ 29,599   $ 298     4.07 % Investment securities (1)(2)   519,851     5,694     4.39       508,891     5,890     4.63       521,234     5,548     4.26       526,225     5,510     4.19       525,685     5,465     4.18   Loans (1)(3)(4)(5)   2,308,103     36,382     6.34       2,286,678     34,055     5.91       2,256,727     32,878     5.78       2,233,312     31,329     5.63       2,180,224     28,844     5.36   Total interest-earning assets   2,902,477     43,032     5.96       2,833,442     40,405     5.67       2,835,739