Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Orrstown Financial Services Inc (ORRF, Financial) successfully completed a core conversion, allowing the company to focus on growth and enhancing shareholder value.
- The company made strategic leadership additions, including a new Chief Information Officer and Chief Operations Officer, to strengthen technological and operational capabilities.
- Orrstown Financial Services Inc (ORRF) reported strong core earnings with a return on average assets of 1.45% and return on average equity of 14.97%, excluding merger-related expenses.
- Net interest margin remained robust at 4%, with funding costs continuing to decline, positioning the company well for future asset growth.
- The company has a strong liquidity position with an 84% loan-to-deposit ratio, providing flexibility to fund loan growth without relying heavily on alternative funding sources.
Negative Points
- Economic uncertainty and market volatility, partly due to new government policies, may impact borrower expansion plans and capital needs.
- Loan balances decreased by 1.4% quarter-to-quarter, primarily due to strategic decisions to manage risk, which could affect short-term growth.
- The company experienced higher-than-expected loan payoffs, which impacted loan growth despite a strong pipeline.
- There is ongoing pressure from competitive loan and deposit pricing, which could affect net interest margin and overall profitability.
- Merger-related expenses and system conversion costs have been significant, although they are expected to decline in the coming quarters.
Q & A Highlights
Q: As a growth-oriented bank, what are you hearing from your commercial customers regarding their outlook, and how does this affect your mid-single-digit loan growth projection for the year?
A: Adam Metz, Senior Executive Vice President and Chief Operating Officer, stated that while there is some uncertainty, the pipeline has grown significantly in the last three months, and the economy in their markets remains sound. They are having daily conversations with clients and feel positive about their positioning despite the headwinds.
Q: With non-accrual and classified balances declining, but the economic outlook worsening, how do you balance these factors in determining the appropriate reserve level?
A: Robert Coradi, Chief Risk Officer, explained that they use qualitative factors to adjust reserves based on the current environment. Neelesh Kalani, CFO, added that they have made prior adjustments to account for potential future losses and feel comfortable with their current reserve levels.
Q: Can you explain the reshuffling within certain deposit buckets on the average balance sheet this quarter?
A: Neelesh Kalani, CFO, clarified that the reshuffling was due to system conversion and identification of misclassifications, leading to necessary adjustments.
Q: What is the outlook for Net Interest Income (NII) and Net Interest Margin (NIM) assuming no rate cuts, and how does purchase accounting accretion factor into this?
A: Neelesh Kalani, CFO, expects NIM to remain around the 3.50% range, with opportunities to improve through managing deposit costs and reinvesting excess cash. Purchase accounting accretion is expected to be around $6 million, though it can vary with payoff activity.
Q: What is your current CRE concentration level, and do you have a target for this metric?
A: David Chajkowski, Chief Credit Officer, stated that the CRE to risk-based capital ratio was 302% at quarter-end, below their internal tolerance limit of 350%. They have room to accommodate CRE if the right opportunities arise, while maintaining a focus on credit risk.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
