ORRSTOWN FINANCIAL SERVICES INC Q1 FY2025 earnings call

• Completed core conversion and refocused on growing the company, enhancing shareholder value, and building a premier community bank franchise.
• Added Chris Orr and Ben Colvard to the Executive Team, and Barbara Brobst to the Board; Adam Metz promoted.
• Proactively managed CRE portfolio to reduce concentration, stress tested C&I portfolio for tariff impact, reevaluated lending relationships above $2 million.
• Loan pipelines up over 40% since year-end, with a focus on loan and deposit growth, deploying excess liquidity, evaluating expansion and acquisition opportunities, and building capital.

Loans: Total loans are at $3.9 billion with an average yield of 6.6%. Loans declined $55 million from December 31, 2024, with $50 million of that from commercial loans. Payoffs drove the reduction in Q1 2025, with most payoffs being loans not fitting the bank's long-term credit profile. Deposits: Remained stable around $4.6 billion since the merger, with a cost of 2.14%. Deposits grew by about $11 million in Q1 2025, with demand deposits up $95 million while CDs and money markets decreased. Non-interest bearing deposits represented 20% of total deposits. Investment Portfolio: The investment book is at $856 million, with about $40 million of securities purchased in Q1. Net Interest Margin: Remained strong at 4% for Q1 2025, including net purchase account accretion impact. Fee Income: Up ~$400,000 from prior quarter, driven by wealth management, but mortgage banking income decreased due to market rates.

• Operating results expected to normalize from Q2 2025, with merger-related expenses not expected to be significant going forward.
• Anticipate further reductions in funding costs as promotional deposits mature.
• Plan to deploy excess liquidity for prudent loan growth with an 84% loan to deposit ratio.
• Evaluate expansion and acquisition opportunities, both organic and potential.
• Continue to build capital, with capital ratios increasing and remaining well capitalized.

• Economic uncertainty and market volatility may cause borrowers to take a wait-and-see approach on expansion plans.
• Impact of tariffs on clients and potential uncertainty in loan portfolio performance.
• Dependence on retaining deposits as promotional deposits mature, which poses a challenge in managing funding costs.

Q: Good morning, everyone. As a growth-oriented bank, what are you hearing from commercial customers and how does that play into mid-single-digit loan growth outlook?

A: We're having daily conversations with clients, pipeline has grown significantly in last three months. Economy in covered markets is sound, but there's uncertainty. We're having those daily conversations and feel good about our position.

Q: Can you discuss a bit about the NII and NIM trajectory from here? Assuming no rate cuts going forward and then the impact of rate cuts?

A: Core NIM expected to be around 3.50% range. There's opportunity to improve margin by managing funding costs, reinvesting excess cash into higher yielding assets like loans or investments. NII will be impacted as we reinvest funds from payoffs into higher yielding loans.

Q: Curious of what your CRE concentration level was at quarter end and if there's a percentage or a goal you have in mind of where you want it to get to?

A: Our ratio of total CRE to risk-based capital was 302 at quarter end. We have an internal tolerance limit of 350%, and we have runway to accommodate CRE if right opportunities present.