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Orrstown Financial Services NASDAQ: ORRF used its fourth-quarter 2025 earnings call to highlight record full-year profitability, continued fee-income growth, and a capital position the company said provides flexibility as it invests in talent and balances margin pressure from recent rate cuts.
Record full-year earnings and strong fourth-quarter results
President and CEO Tom Quinn said the company delivered the highest reported annual net income in its 106-year history. For 2025, Orrstown reported net income of $80.9 million, or $4.18 per diluted share, with return on average equity of 14.76% and return on average assets of 1.49%. Net interest margin was 4.04%, and fee income totaled $52.3 million, which management said represented 21% of total operating income.
Senior EVP and COO Adam Metz said fourth-quarter results were similarly strong, with net income of $21.5 million, or $1.11 per diluted share. Non-interest income represented 22% of operating revenue in the quarter, marking the third consecutive quarter above 20%, according to the company.
Net interest margin outlook shaped by rate cuts and deposit repricing
CFO Neil Kalani said fourth-quarter net interest margin was 4.00%, down from 4.11% in the third quarter. He attributed the decline to lower purchase accounting accretion—about six basis points less than the prior quarter—and to reduced interest income from variable-rate loans following Federal Reserve rate cuts in September and October. Kalani also said ongoing market pressure has lengthened the lag in deposit rate reductions.
Looking ahead, Kalani said the company expects funding costs to begin declining in the first quarter of 2026 and projected 2026 net interest margin in the range of 3.90% to 4.00%. He added that if there were no rate cuts in 2026, margin would be expected to come in “a little higher.” Excluding purchase accounting impact, fourth-quarter margin was 3.53% versus 3.59% in the third quarter, primarily due to the deposit-rate lag.
During the Q&A, Kalani said purchase accounting accretion, excluding unanticipated acceleration, typically declines about 2 to 3 basis points per quarter. He also said the company’s projections assume three 25-basis-point rate cuts in 2026 and reiterated management’s focus on lowering funding costs and maintaining margin “at or near that 4% level,” while noting factors could push it lower.
Fee income growth and investments in wealth management
Management emphasized expanding fee income as a strategic priority. Metz pointed to the recent hiring of Matt Alpert as chief wealth officer, describing the move as part of the bank’s approach of investing in people to drive growth. Kalani said fourth-quarter fee income increased to $14.4 million from $13.4 million in the third quarter, with wealth management income of $5.7 million and swap fees of $1.1 million.
Kalani said service charges increased as the company grows treasury management, including merchant services. He noted merchant services has “grown substantially since the prior year” and accounted for 17% of treasury management revenue. Mortgage activity was described as stable, and due to volatility in some components of non-interest income, Kalani projected a 2026 quarterly run-rate range of $13 million to $14 million.
In response to questions about higher guidance for both non-interest income and expenses, management said the change did not reflect a shift in strategy but rather continued hiring and investments to drive future earnings. Executives cited additions on the lending side and planned investments in the wealth and advisory platform. They also cautioned that swap fees and market-driven wealth revenue can vary quarter to quarter, even as the company pointed to the fourth quarter as its highest historical quarter for non-interest income.
On wealth scale, management said total assets under management were “a little over $3 billion” at quarter-end. When asked about the retention of former Codorus Valley customers, executives said they had not seen a significant decline in the wealth or depository portfolios and described customer “stickiness” as solid.
Loan growth, credit trends, and capital return
Orrstown reported 4% loan growth in the fourth quarter, which Metz said was tempered by some projected closings moving into the first quarter of 2026. Kalani said the company produced $207 million of loan production during the quarter and said management feels good about achieving loan growth of 5% or better in 2026. He also noted loan yields declined during the quarter due to the impact of lower rates on the variable-rate portfolio.
Deposits were “relatively flat,” declining $5 million, with a loan-to-deposit ratio of 89%. Kalani said the cost of deposits was 1.98% for the quarter and expects cost reductions to become more visible in the first quarter of 2026 as deposit repricing catches up.
Credit quality was described as strong. Metz said the quarter included provision expense of $0.1 million and net charge-offs of $0.5 million, while classified loans declined by $5.7 million from the prior quarter. Kalani cited provision expense of $75,000 and said net charge-offs were “mostly offset” by favorable economic factors in the allowance calculation. The allowance for credit losses ended the quarter at 1.19% of loans, down slightly from 1.21% at the end of the prior quarter. Kalani added that non-accruals increased primarily due to one relationship and said it was not indicative of broader trends, while non-performing assets remained “very low” relative to total assets.
The company also announced a dividend increase. Metz said the board raised the quarterly dividend by $0.03 per share to $0.30, marking the fourth increase in the past 18 months and a 50% increase since the merger date.
Balance sheet positioning and capital allocation flexibility
On the securities portfolio, Kalani said the company bought $125 million of agency mortgage-backed securities and collateralized mortgage obligations and sold about $42 million of securities during the quarter. He said the repositioning was intended to address asset sensitivity, with the purchases largely at fixed rates that should benefit as rates decline. In Q&A, management said the average yield on the purchases was 4.92% and indicated the investment portfolio is viewed not only as a liquidity tool but also as an earnings generator.
Management said capital ratios increased quarter over quarter and that the bank remains well-capitalized. In Q&A, the company said it is focused primarily on organic growth, while acknowledging that capital build provides optionality. Executives also said they are monitoring share repurchase opportunities and still have authorization available, but indicated recent stock price levels have not put them in position to act.
Kalani said the company’s guidance reflects what management believes it can achieve and said Orrstown remains confident it can meet or exceed current analyst consensus.
About Orrstown Financial Services NASDAQ: ORRF
Orrstown Financial Services, Inc is the bank holding company for Orrstown Bank, a community banking organization headquartered in Shippensburg, Pennsylvania. The roots of Orrstown Bank date back to 1865, and the holding company structure was established to support its growth and diversification. As a regional financial institution, Orrstown Financial Services focuses on delivering personalized banking solutions to individuals, families and businesses across Central Pennsylvania.
The company’s core offerings include a full suite of deposit products such as checking and savings accounts, money market accounts and certificates of deposit.
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