ORRSTOWN FINANCIAL SERVICES INC (ORRF)·Q2 2025 Earnings Summary

Executive Summary

• Adjusted diluted EPS of $1.04, up 4% q/q, and GAAP diluted EPS of $1.01; net interest margin expanded 7 bps to 4.07%; efficiency ratio improved to 60.3% (58.7% adjusted) .
• Revenue (total operating income) of ~$62.4M rose q/q, driven by lower funding costs and stronger fee income; noninterest income increased by $1.3M q/q to $12.9M .
• Management raised the quarterly dividend to $0.27 and authorized repurchases up to 500,000 shares; TCE rose to 8.3% with capital ratios at/above pre-merger levels; loan-to-deposit ratio increased to 87% .
• Consensus vs actual: EPS beat by ~$0.06 and revenue beat by ~$10–11M; noninterest income strength (swap fees, service charges) and lower deposit costs were key drivers; management guides to potential NIM upside into Q3 then stabilization .
• Catalysts: NIM trajectory into Q3, buyback activation, dividend hike, and continued fee income resilience; watch rate-cut sensitivity (asset sensitive) and deposit attrition normalization .

What Went Well and What Went Wrong

What Went Well

• Margin expansion and cost control: NIM rose to 4.07% (from 4.00%), and adjusted efficiency ratio improved to 58.7%; management cited deposit pricing discipline and declining merger-related costs .
• Fee income strength and mix: Noninterest income increased $1.3M q/q to $12.9M, with ~$0.7M swap fees and higher service charges; wealth management remained the largest component with ~$5.2M in fees (AUM ~$3B) .
• Capital and shareholder returns: TCE up to 8.3%; dividend increased to $0.27; new 500,000-share repurchase authorization (initial 2,134 shares repurchased) .

Management quotes:

• “We believe that we are pricing loans prudently and managing funding costs well, which is evidenced by the improving margin.”
• “We do see further upside in the margin into the third quarter with the expectation that [it] stabilizes after that point.”

What Went Wrong

• Deposit balances fell $117.1M q/q (runoff in higher-rate promotional time deposits and money markets), increasing L/D to 87% .
• Loan yields declined 7 bps due to lower purchase accounting accretion; average loans decreased $14.7M q/q, partially offset by securities purchases .
• Expenses still include noise: $1.0M merger-related and ~$0.6M severance; elevated consulting spend (expected to decline over next quarters) .

Financial Results

Segment and component breakdown (Noninterest Income):

Key KPIs:

Consensus vs Actual (Q2 2025):

*Values retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Excluding… merger-related charges, return on average assets was 1.51%, and return on average equity was 15.12%… We expect stronger net income going forward as loan growth accelerates.”
• “Fee income… was 21% during the quarter… swap fees just short of $700,000… service charges increased by $200,000… wealth management had another very strong quarter.”
• “We do see further upside in the margin into the third quarter… assuming rates remain unchanged, and we do remain asset-sensitive.”
• “The board… authorized a share repurchase program… up to 500,000 shares… [and] increased our quarterly dividend… to $0.27 per share.”
• “Pipeline is the highest… since the merger… talent matters… confident in our ability to grow loans the right way… credit quality remains sound.”

Q&A Highlights

• NIM path and rate cuts: Asset sensitive; rate cuts would pressure NII/NIM, partially offset by further deposit cost reductions and prudent loan pricing .
• Wealth management expansion: Strategic hires; opportunities in Maryland, Lancaster, Harrisburg; ~$3B AUM base to build on .
• Loan pipeline/composition: Strongest since merger; mix of C&I and CRE; CRE concentration at ~293% leaves capacity for select deals .
• M&A optionality: Capital rebuilt to pre-merger levels; could pursue opportunities without outside capital depending on deal size/type .
• Tariff stress testing: Full C&I stress at 10–20% NOI decline still below internal classified capital threshold; portfolio resilient .

Estimates Context

• Q2 2025 beats: Adjusted EPS 1.04 vs 0.978 consensus; revenue ~$62.4M vs ~$52.0M consensus; normalized net income ~$20.2M vs ~$18.8M consensus; strength in fee income, lower funding costs, and improved efficiency drove upside .
• Q1 2025 also modestly above consensus on adjusted EPS and revenue; the trajectory supports potential upward revisions to H2 margin and fee income run-rate assumptions if deposit costs stay stable and loan pipeline converts .
• Forward consensus implies continued solid EPS; management commentary on margin stabilization and expense run rate likely anchors estimates; watch asset sensitivity to rate-cut scenarios .
  *Values retrieved from S&P Global.

Key Takeaways for Investors

• Earnings quality improved: Adjusted ROA/ROE at 1.51%/15.12% and NIM expansion signal core strength; efficiency improvements are tracking toward ~55% next year .
• Shareholder returns accelerating: Dividend up to $0.27 and repurchase program authorized; capital ratios rebuilt above pre-merger levels .
• Fee income diversification: Wealth management and swaps provide noninterest ballast; aim to sustain ~20%+ fee mix; monitor quarterly timing variability .
• Deposit dynamics manageable: Promotional runoff drove deposit declines, but cost of deposits fell; L/D at 87% still leaves liquidity to fund pipeline .
• Loan growth set-up: Strong pipeline and selective CRE capacity (~293% of risk-based capital) support prudent growth; credit metrics improving (classified/nonaccrual down) .
• Rate path is key: Asset sensitivity means multiple 2025 rate cuts would pressure NII/NIM; offset levers include deposit repricing, mix, and disciplined loan pricing .
• Near-term trading lens: Watch Q3 margin print and fee income run-rate; buyback execution and dividend increase are supportive; any signs of deposit stabilization could be a positive narrative shift .