Executive Summary

Record profitability with diluted EPS of $1.13, ROA 1.60% and ROE 15.72%, driven by stable NIM (4.11%), higher fee mix (~21% of revenue), and lower expenses (efficiency ratio 56.4%) .
EPS and revenue beat S&P Global consensus; EPS $1.13 vs $1.05*, operating revenue $64.37M vs $51.13M*; beats were supported by stronger loan yields, fee income, and purchase accounting accretion .*
Operating leverage inflected positively: noninterest expense fell $1.3M q/q to $36.3M while operating revenue rose to $64.37M; efficiency ratio improved 390 bps q/q to 56.4% .
Prudent balance sheet actions: 4.9% annualized loan growth; deposit costs edged down and pricing was cut late in Q3 (more impact in Q4); sub notes ($32.5M) redeemed, modestly elevating Q3 funding costs but reducing go-forward interest expense .
Management tone confident: NIM guided to 4.00–4.15% with only modest downside from incremental rate cuts; fee income run-rate nudged up to $12.5–$13.0M/quarter; expense run-rate ~ $36M/quarter, with a sub-55% efficiency target .

What Went Well and What Went Wrong

What Went Well

Record earnings and operating efficiency: “strongest quarter of earnings on record with diluted EPS of $1.13, ROA of 1.60% and ROE of nearly 16%,” and efficiency ratio down to 56.4% .
Fee income mix and stability: Noninterest income rose to $13.4M; “fee income as a percentage of operating revenue was 20.8%,” with wealth management strength and swap fees of ~$0.8M; run-rate guided to $12.5–$13.0M/quarter .
Capital and funding discipline: Subordinated notes redeemed ($32.5M), positioning lower future interest expense; deposit pricing was reduced late in Q3 with more benefit expected in Q4; L/D ratio at 88% supports loan pipeline without heavy wholesale reliance .

What Went Wrong

Credit optics: Nonaccrual loans rose to $26.2M (0.66% of loans) largely from a single commercial construction/development relationship; classified loans remain elevated at $64.1M despite sequential improvement .
Competitive intensity: Management flagged “heavy competition on both loan and deposit pricing,” which could pressure NIM if loan pricing or growth is prioritized .
Purchase accounting dependence: Net accretion positively impacted NIM by 52 bps; management is focused on generating organic growth to offset declining accretion over time .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Operating Revenue (NII + Noninterest) ($M)	$64.08	$62.43	$64.37
Net Interest Income ($M)	$51.70	$49.51	$50.99
Noninterest Income ($M)	$12.39	$12.92	$13.38
Diluted EPS ($)	($0.41)	$1.01	$1.13
ROA (%)	(0.57%)	1.45%	1.60%
ROE (%)	(5.85%)	14.56%	15.72%
Net Interest Margin (%)	4.14%	4.07%	4.11%
Efficiency Ratio (%)	94.1%	60.3%	56.4%

Consensus vs. Actual (S&P Global)

Metric	Consensus (Q3 2025)	Actual (Q3 2025)
EPS	$1.05*	$1.13
Operating Revenue ($M)	$51.13*	$64.37
Values retrieved from S&P Global.*

Noninterest Income Mix

Noninterest Income Component ($M)	Q3 2024	Q2 2025	Q3 2025
Service Charges	$2.36	$2.63	$2.997
Interchange	$1.78	$1.44	$1.62
Swap Fee Income	$0.505	$0.669	$0.816
Wealth Management	$5.04	$5.27	$5.28
Mortgage Banking	$0.491	$0.478	$0.522
Other & Securities Gains/Losses	$2.21	$2.43	$2.15
Total Noninterest Income	$12.39	$12.92	$13.38

Balance Sheet & Credit KPIs

KPI	Q3 2024	Q2 2025	Q3 2025
Loans (period-end, $M)	$3,981.44	$3,931.38	$3,979.74
Deposits (period-end, $M)	$4,650.85	$4,516.63	$4,533.56
Loan-to-Deposit Ratio (%)	n/a	87%	88%
ACL / Total Loans (%)	1.25%	1.22%	1.21%
Nonaccrual Loans / Total Loans (%)	0.68%	0.57%	0.66%
Net Charge-offs ($000)	$269	$115	$189
Classified Loans ($000)	$105,465	$65,754	$64,089
Tangible Common Equity Ratio (%)	n/a	8.3%	8.8%
Tangible Book Value/Share ($)	$21.12	$22.77	$24.12

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin	Near-term	“Upside into Q3, then stabilize” (no range)	4.00%–4.15% range; modest contraction with additional cuts; competition biggest swing factor	Introduced explicit range
Noninterest Expense Run-rate	Q4 onward	$35–$36M/quarter expected, trending lower with less consulting	~$36M/quarter, with consulting tapering; add routine inflation in 2026	Maintained
Fee Income Run-rate	Q4 onward	~$12.0M/quarter (11.5–12.5)	$12.5–$13.0M/quarter	Raised
Efficiency Ratio	Medium-term	Approaching ~55% inclusive of amortization	56% in Q3 with goal to be <55%	Maintained target
Deposit Pricing	Q4 timing	Cost of deposits declining; shifting away from promos	Pricing reduced late Q3; larger benefit expected in Q4	Execution underway
Loan Growth Outlook	2026 prelim	n/a	“Early 5% loan guide for next year” referenced; mix includes CRE capacity and middle market C&I	Framed by Q&A (maintained qualitative outlook)
Dividend	Q4 payable	$0.26 (Q2)	Declared $0.27 per share, payable Nov 12, 2025	Raised sequentially

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
NIM & Asset Sensitivity	NIM 4.00% (Q1) to 4.07% (Q2); asset sensitive; potential modest pressure if cuts resume	NIM 4.11%; guidance 4.00–4.15%; modest downside if 1–2 cuts; competition biggest factor	Stable to slightly pressured
Deposit Costs	Declining; away from promotional balances	Pricing reduced late Q3; more reductions to show in Q4	Improving in Q4
Fee Income Strategy	Wealth mgmt rising; swap fees strong; run-rate ~$12M	Noninterest income $13.4M; run-rate $12.5–$13.0M	Positive mix; modestly higher run-rate
Loan Growth & Pipeline	Pipeline “highest since merger”; mix of C&I and CRE; disciplined growth	4.9% annualized growth; $224M production; near $4B loans	Building momentum
Credit Quality	ACL ~1.22%; NPLs/Loans 0.57% (Q2)	Nonaccruals 0.66% (one CRE/development relationship); charge-offs nominal; classifieds down q/q	Generally stable; watch list concentrated
Capital Actions	Buyback authorized (500k shares); considering sub-debt redemption	Redeemed $32.5M sub notes; TCE 8.8%	Accretive to future NII; stronger TCE
Competition	Competitive on loans/deposits; disciplined pricing	“Heavy competition” remains; relationship model helps pricing	Persistent headwind
Macro/Tariffs	C&I stress tested for tariff shock; resilient outcomes	Ongoing client dialogues on tariffs, shutdown, PA budget; risk posture maintained	Vigilant risk management

Management Commentary

“We delivered another quarter of excellent results… Net interest margin was 4.11%… Fee income… nearly 21%… Non-interest expense declined by $1.3 million… efficiency ratio… 56.4%… strongest quarter of earnings on record, with a diluted EPS of $1.13.” – CEO Tom Quinn .
“On September 30, the company redeemed $32.5 million of subordinated debt notes… This action will reduce interest expense going forward.” – CFO Neelesh Kalani .
“We adjusted deposit pricing downward later in the third quarter… impact expected to be reflected in the fourth quarter.” – CFO Neelesh Kalani .
“Guidance… 4.0% to 4.15% range… a couple [rate] cuts isn’t going to impact us substantially… competition… is more so a factor.” – CFO Neelesh Kalani (Q&A) .
“Talent wins… we hired additional middle-market C&I talent… we have capacity for the right CRE deals with the right relationships.” – COO Adam Metz (Q&A) .

Q&A Highlights

NIM sensitivity: Management expects modest NIM contraction with 1–2 additional cuts, but sees offset via deposit repricing and disciplined loan pricing; maintains 4.00–4.15% range with purchase accounting variability .
Competitive dynamics: Competition intense across geographies; relationship model supports pricing discipline and win rates .
Credit concentration details: Largest classified credits include some CRE and an auto dealer; top 2–3 total ~$20M; ~50% of nonaccruals are current on payments; subsequent paydown on a newly nonaccrual owner-occupied credit .
Loan mix & growth: Early 5% loan growth guide for next year discussed; focus on middle-market C&I and selective CRE capacity after proactive de-risking .
Expense levers: Tools to offset NIM pressure include deposit cost reductions, loan pricing discipline, and balancing growth vs. margin; expense run-rate around $36M with declining consulting costs .

Estimates Context

Q3 2025 EPS beat: $1.13 vs $1.05*; revenue beat: $64.37M operating revenue vs $51.13M*; beats reflect higher loan yields, stable margin, and resilient fee income .*
Prior quarter context: Q2 2025 EPS $1.01 vs $0.978*; revenue $62.43M vs $51.98M* .*
Note: S&P’s historical “actual” EPS for Q3 2024 reflects adjusted results, while GAAP EPS was a loss (-$0.41) due to non-recurring charges; adjusted diluted EPS was $1.11 in that period .
Values retrieved from S&P Global.*

Key Takeaways for Investors

Positive operating leverage and record profitability should support upward estimate revisions and sentiment into Q4, especially as deposit repricing benefits flow through .
Margin durability looks better than feared: management set a 4.00–4.15% NIM range and highlighted competition—not rate cuts—as the main swing factor near term .
Fee income resilience (20.8% of revenue) and a higher run-rate ($12.5–$13.0M) provide diversification and cushion to NII pressure .
Credit remains manageable with concentrated watch items; allowance at 1.21% and nominal net charge-offs imply no broad-based deterioration, but construction/CRE relationships bear monitoring .
Capital actions (sub debt redemption) lower go-forward interest expense; TCE at 8.8% provides strategic flexibility for growth and potential capital return .
Loan growth momentum is building with strong pipelines and added middle-market talent; selective CRE capacity now available post de-risking .
Near-term catalysts: Q4 margin tailwind from deposit repricing, continued fee income execution, and efficiency ratio progress toward sub-55% could support multiple expansion .

Appendix: Additional Context from Primary Sources

Earnings release highlights including operating revenue, EPS, NIM, efficiency ratio, fee mix, dividend declaration, and historical trend tables .
Call transcript commentary on NIM guidance, deposit pricing actions, sub-debt redemption, expense run-rate, fee run-rate, loan pipeline, competition, and credit .
Q1 2025 baseline context: margin strength (4.00%), de-risking actions (lower CRE concentrations), and capital build set the foundation for subsequent growth .

Note on 8-K 2.02: The filing catalogue did not list a standalone “8-K 2.02” for Q3 2025; this recap uses the company’s Q3 2025 earnings press release and full earnings call transcript as the primary sources – –.

ORRSTOWN FINANCIAL SERVICES INC (ORRF)·Q3 2025 Earnings Summary