Orrstown Financial (ORRF) Announces Strategic Initiatives to Drive Long-Term Growth and Improve Operating Efficiencies

September 28, 2022 4:06 PM EDT

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Orrstown Financial Services, Inc. ("Orrstown" or the “Company”) (NASDAQ: ORRF), the parent company of Orrstown Bank (the “Bank”), today announced initiatives designed to drive long-term growth, focus the organization on a rapidly changing banking environment and improve operating efficiencies. These initiatives include the closing of five branch locations and certain staffing model adjustments.

As a result of these initiatives, the Company expects to incur a one-time pre-tax charge of approximately $3.1 million (consisting of building and fixed asset write-offs of $1.9 million and early retirement/severance costs of $1.2 million) in the third quarter of 2022.

The initiatives currently are expected to generate approximately $3.4 million of pre-tax annual expense savings once completed ($2.7 million from staffing model adjustments and $700,000 from reduced facilities costs). The Company intends to utilize a portion of the savings generated from these initiatives to address ongoing wage pressures and make additional investments in technology to both create operational efficiencies and enhance the Bank’s digital client experience. Based on the Company’s expected third quarter operating expense rate (excluding the one-time charge), the Company estimates that the impact of these net savings on operating expenses will be a reduction of approximately $1.0 million annually.

“The actions announced today serve as a critical step towards repositioning the franchise to focus on emerging delivery channels and digital solutions and maximizing our efficiency through continued automation. We will still seek to expand the franchise through strategic placement of brick-and-mortar locations along with providing best in class digital solutions. We intend to continue to provide the service our clients have come to expect while broadening our impact across the region. The savings generated will allow for expense control while also supporting the investments needed to achieve our long-term vision, which includes a robust digital experience to align with evolving client needs,” commented Thomas R. Quinn, Jr., Orrstown’s President and Chief Executive Officer.

The five branches expected to be closed are located in Chambersburg, PA (Lincoln Way East), East Earl, PA (Shady Maple), Mechanicsburg, PA (Simpson Street), Orrstown, PA (Orrstown) and Spring Run, PA (Path Valley). The branch closures, subject to regulatory approval, are expected to be completed in the fourth quarter of 2022. The Bank is not exiting any markets and is simply adjusting its distribution model within existing markets. Clients will continue to have access to full service in-person banking services at nearby branch locations. In addition, we intend to maintain a physical presence, including an ATM, at the Orrstown and Path Valley locations.

When combined with the 11 branch closures completed in 2020 and 2021, the Company will have eliminated 16 branches, or 43% of its physical branch locations, since December 31, 2019. Once the branch closures are completed, the Bank’s average branch size, based on deposits as of June 30, 2022, is expected to be approximately $118 million, a significant increase from approximately $50 million in December of 2019.

The staffing model adjustments will be comprised of the elimination of certain positions within the Bank and early retirement packages for three officers. The Company expects to retain many of the impacted retail employees to fill existing vacancies within the organization. Employees impacted by the branch closures will be given preference in filling the remaining open positions. Employees who will not be retained will be paid severance based on their years of service with the Bank and be provided with outplacement services to assist them with identifying other employment opportunities.

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