Orrstown Financial Services, Inc. Aktie

Good morning. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. Third Quarter 2026 Earnings Conference Call. After the speaker's remarks, there will be a question and answer session. [Operator Instructions]

I will now turn the call over to Adam Metz, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown, who will begin the conference. Mr. Metz, please go ahead.

Thank you, Holly, and good morning, everyone. I would like to thank everyone for participating in Orrstown's third quarter 2026 earnings conference call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial aid, tables, and schedules by going to our website, orstown.com. There you can click on the investor relations link and then on the events and presentations link. Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in the earnings release, the investor presentation, and our SEC filings. The earnings release and investor presentation also include non-GAAP financial measures. The appropriate reconciliations to GAAP are included in those documents. Joining me today on the call is Neelesh Kalani, Orrstown's Chief Financial Officer.

Also participating in the discussion are Zach Corey, Chief Revenue Officer, Bob Carotti, Chief Risk Officer, and Dave Chikowsky, Chief Credit Officer. Orrstown delivered another strong quarter with solid execution across the franchise. Net income was $22.8 million, or $1.17 per diluted share. Return on average equity and return on average assets both increased quarter to quarter and continued to exceed peer multiples. Net interest income rose $4.5 million to $53.3 million. Net interest margin improved to 4.12%, an increase of 25 basis points on an absolute basis, and 12 basis points after adjusting the prior quarter for a one-time charge. Total loans increased by $95.3 million, or 9% annualized, with growth across the commercial, consumer, and residential mortgage portfolios.

Significant loan growth combined with net deposit outflows, some of which were seasonal, required increased reliance on borrowings. Available alternative funding sources remained strong at $1.7 billion. Our efficiency ratio declined to 56% from adjusted 58.6% the prior quarter, reflecting improved operating leverage. Credit quality remains sound. Classified loans and non-accrual loans both decreased quarter to quarter. We remain prudent in our lending decisions, but we believe that the credit environment remains stable and without significant signs of stress, even in a rising rate environment. Neelesh Kalani, our CFO, will now discuss our quarterly results in more detail.

Thanks, Adam, and good morning, everyone. We had an outstanding quarter with return on average assets of 1.60% and return on average equity was 14.62%. As noted on slide four of the earnings deck, our net interest margin expanded this quarter to 4.12%. This is 12 basis points higher than the prior quarter margin adjusted for the one-time $1.6 million charge from the subordinated debt redemption. During the third quarter, our asset yields increased by eight basis points and our cost of interest bearing liabilities decreased to 2.40%. We continue to maintain a disciplined loan pricing philosophy and also had the benefit of lower funding costs after redeeming our subordinated debt. Since we remain asset sensitive, our asset yields will benefit from the rate increase in September as well as any subsequent hikes.

Through the end of 2027, I'm projecting net interest margin range of 4.05% to 4.15%. We'll reevaluate this range next quarter as we get a better sense of the market dynamics. Since the Cadence Valley merger in 2024, we've been focused on replacing the loan accretion as it winds down. We've been addressing this with strong loan growth and prudent pricing. While we've been achieving that goal, it hasn't been clearly evident given some of the purchase accounting noise. This quarter we can clearly demonstrate that accomplishment. Our interest income on loans, excluding purchase accounting accretion was $62.6 million for the third quarter of '26 compared to $59.0 million in the second quarter.

We believe our loan production capability along with pricing and overall balance sheet management approach will lead to continued net interest income growth going forward. On slide five, fee income decreased to $13.4 million in the quarter from $13.8 million in the second quarter. Wealth management income increased to $6.0 million from $5.9 million in the second quarter. This is the second consecutive quarter in which Orrstown Financial Advisors recorded historical revenues. Swap fees declined slightly due to the impact of timing. And mortgage income also declined mainly due to mark to market adjustments on the held for sale portfolio and pipeline. In the third quarter, non-interest income was 20% of total revenue.

While this is down from the second quarter, it was driven by the growth in non-interest income noted earlier. Fee income remains a meaningful contributor to earnings, supported by continued strength across multiple fee categories. Annualized guidance for fee income into 2027 is in the range of $54 million to $56 million. Moving to slide six, non-interest expenses decreased by $400,000 to $37.3 million in the third quarter of '26. We maintain a focus on managing expenses and have continued to reduce reliance on outside professional services. The efficiency ratio came down to 56% in the third quarter. And on an annualized basis, I'm projecting the expense run rate to be between $153 million and $157 million.

In addition to normal inflationary increases, this assumes some investments in our sales force and technology to ultimately drive higher revenues. Our credit quality is discussed on slide seven. Provision expense was $1.1 million for the third quarter of '26. This is inclusive of $1.0 million of net charge-offs. There were several moving parts to the provision this quarter with the impact of the strong loan production and qualitative factor adjustments being offset by the impact of improving economic data on the quantitative inputs. Our allowance coverage ratio was 1.11% at September 30th, '26, which we believe is adequately aligned with the risk profile of our loan portfolio. Classified loans declined by another $4 million in the third quarter, and non-accrual loans also declined by $900,000 from the second quarter.

We continue to see solid credit metrics in our portfolio. The earnings and performance metrics are on slide eight. Our earnings metrics increased meaningfully in the third quarter. We believe we have the opportunity and ability to continue our growth trajectory. We did experience a decline in the tangible common equity ratio to 9.1% at September 30th, '26 from 9.5% at June 30th, as well as a decline in tangible book value per share. These decreases were directly the result of a $41.6 million increase in unrealized losses investment portfolio, which was driven by the increase in market rates and spreads. The loan portfolio is covered on slide nine.

Loans grew by 9% on an annualized basis in the quarter with loan yields increasing. We had $166 million of commercial loan production during the third quarter and consumer loan growth remained a strength. We have reached our full year 5% loan growth goal at September 30th, 2026. Our loan growth goal remains in mid-single digits going forward. Depending on how rates move and how it impacts client demand, we can see that growth potentially being on the lower end of the mid-single digit range. But we remain confident in our team's ability continue to replicate their success from 2026. Moving over to slide 10, deposits remain up $53 million year to date, despite some seasonal pressure during the quarter. The cost of total deposits declined to 1.83% for the third quarter from 1.88% in the second quarter, reflecting our focus on overall mix.

The loan to deposit ratio increased to 92% at September 30th, '26, as we utilized borrowings to fund the loan growth. The team will maintain its attention on the deposit mix and driving growth in low-cost deposits. The investment portfolio is covered on slide 11. The yield in the portfolio is very strong at 4.54%. The higher unrealized losses I referenced earlier were driven by rapid increase in treasury rates and widening of credit spreads. While it's had a substantial impact on the fair value of the investment portfolio, we are comfortable with the positions that we hold. Slide 12 highlights our capital position.

There was a modest increase in the ratios during the third quarter of '26. The deferred tax asset associated with the increased investment losses partially offset the increase in the capital ratios. We remain confident in further capital generation being driven by strong earnings. Overall, the third quarter of '26 highlighted our ability to achieve substantial loan growth and also effectively manage our balance sheet. Fee income continues to be a significant source of earnings and our declining efficiency ratio demonstrates our enhanced operating leverage. Looking forward, we plan to prudently invest in technology and people while continuing our growth story at the same time. Thank you for your time this morning, and I'll turn the call back to Adam Metz for his closing remarks.

Thank you, Neil. We are proud of our third quarter performance, which reflected continued expansion in net interest margin, robust loan growth across several segments, successful management of funding costs, and disciplined expense control. Although the economic interest rate and competitive environments remain dynamic, we enter the remainder of the year from a position of strength and remain confident in our ability to execute across a range of economic conditions. As we approach 2027, we believe the company is operating from a position of strength. Our Core banking and wealth management business are all contributing to growth, while credit quality, capital levels, and expense discipline remain favorable. As always, I'd like to thank our employees for their dedication and our shareholders for the trust they place in us. We appreciate your continued support and look forward to updating you on our achievements next quarter. Before I close, I want to share a piece of exciting external recognition that we received this morning.

We are proud to share that Orrstown Bank has been ranked 77th on the Fortune 100 fastest growing companies list for 2026, which is based on annualized total return alongside our revenue and earnings growth over the last three years. A testament to the hard work of our team and the momentum we are building. We would now like to open the call to questions. Before we get started, Holly will briefly review the instructions with you.

[Operator Instructions]

Your first question comes from the line of Emily Graves with [Hathdate Group]. Emily, your line is now open. Please go ahead.

Good morning everyone. I'm stepping in for Dave Bishop today. I want to start off with, you know, third quarter loan growth was very good driven by multiple portfolios. What additional factors would need to improve for loan growth outlook to move even higher from here? And then also, what have prepayment volumes looked like over the past quarter?

Yes, we remain confident in our team's ability to generate loan growth. The pipeline, as we look at it today, remains robust. And so our guidance is the mid-single digits, but the team is focused. We're also cognizant of our rising interest rates and our team's ability to adapt and talk to our clients. But as of right now, as we look at going into 2027, we're pretty confident in our ability to produce.

And on the prepayment side, where the volume's lower, we're still experiencing some prepayment activity. It's certainly lower than what it was earlier in the year.

Great, thank you. And then, do you have a new loan origination yield versus roll off yields?

Yes, the new spreads on the floating rate loans are probably in the 225 to 250 range on average. Fixed rates are coming in at the low sevens.

Okay. And then, sorry, go ahead. You highlighted overall very sound credit quality in the quarter. I might've missed it. Are you seeing any signs of stress among commercial or consumer borrowers from these higher rates?

No, that's it. Sorry. No, we've not seen anything yet.

You know, we routinely, proactively look at the portfolio, form various stress tests. We've stressed the entire C&I portfolio under our most conservative stress test. It's the portfolio still holds up within our tolerance ranges. We recently conducted a repricing analysis for any fixed rate loans that are due to reset within the next 12 months. The results of that analysis have been very favorable as well. We've not identified anything where we would anticipate any risk ratings downgrades or losses of any kind. Great. Thank you guys for your time. Thank you.

Your next question comes from the line of Ken Kohut with Raymond James. Ken, your line is now open. Please go ahead.

Hi, good morning guys. Hope you're doing well.

Morning, Ken.

Yes, good morning. Maybe starting with the C&I loan growth during the quarter, it looked really impressive. I'm just wondering how much of that growth is attributable to the middle market lending team that you've been building out over the last year. And where are you seeing these strong growth opportunities? Is it in certain markets or certain industries? So any color there would be great. Thanks.

Yes, Ken, I don't have the exact number. I would say a significant portion of that increase was driven by our lower and middle market efforts. And it does span the entire footprint. And so as we brought in this expertise, we've enabled the teams to sort of serve that lower end middle market client more effectively. And so we continue to want to invest in that space and it's been very beneficial to us.

Great. Thanks. And then also on loans, I noticed you guys purchased $15.5 million of home equity loans during the quarter, and you recently discussed home equity as an area of focus. I don't recall you ever discussing purchases specifically, so I'm just wondering if this was organic growth or was it just like an opportunistic transaction that you guys took advantage of? We really, it was an opportunistic transaction.

If opportunities come up with loan portfolios that become available, if it makes sense from a, certainly from a yield standpoint, and if it fits in with our portfolio, that's something we, something we monitor, but I wouldn't necessarily say it's part of our overall growth strategy.

But the core of the growth, Ken, has come from our clients. Just as the mortgage market has been a little soft, our home equity product remains a very viable solution to our clients. And so we do have a very good product.

It's performed. And I would add that our core loan growth for the quarter was 7%, even without the purchases. So that is our priority.

Primary focus and will continue to be. Thanks for that, caller. Lastly for me, just on expenses, so you guide to 153, 157 annualized through 2027. I think Neil, you said it's primarily coming from technology and people. So do you expect to be at that low end of the range, or annualized range in 4Q, and then kind of gradually increase throughout 2027? Is that the right way to think about it?

Yes, 4Q, I would expect to be somewhat consistent with third quarter. We'll see, we'll continue to see the impact of new hires and obviously once we hit mid-year next year, salary increases. So it'll slowly build up, but I do have some assumptions in there of hiring new team members so that's built in. And continued investments on the technology side, but ultimately will facilitate our, really with the goal of setting up our sales teams with all the data and ability to do what we need them to do.

Got it. Thanks. Really appreciate you guys taking my questions.

Thank you. Your next question comes from the line of Jacob Civiello with D.A. Davidson. Jacob, your line is now open. Please go ahead.

Great. Thank you. Good morning, Adam.

Good morning, everybody.

So the new '27 outlook calls for NIM of the range of 405 to 415. Is it fair to say that core NIM would probably be expected to be flat-ish and then accretion income will continue to trail lower through next year?

I would expect some increase in the core NIM. And as we have shown, the core NIM, if we exclude the purchase accounting, we're at 372. If you recall a couple of quarters ago, we were in the 340, 350 range. So we continue to see some gains growth there. I do think we'll get some benefit from increasing as well to help push the core NIM forward. And like I indicated in my comments, it is the focus of ours to which we have accomplished is replacing that accretion.

That's helpful. I mean, what rate assumptions do you have kind of baked in for, for that 405 to 415 range?

So our modeling assumes another two increases over the course of the next year. Yes, yes. 25 basis points, I assume.

Yes. Okay. Thank you. The... wanted to ask about... really, this is kind of the first outlook extending through '27. What do you think are the biggest risks to hitting what your expectations are? And then ultimately, I guess what my question is driving at is, how do you drive incremental profitability improvement?

The biggest risk is just the economic environment, some of the assumptions we've laid out, whether they do occur. So that is a focus of ours and ultimately the team is pushing towards hitting our goals. The opportunities that we have continue to be the lending team maintaining and improving upon the loan production volumes. We do think we can potentially do higher higher than the 5% that we put out there. And that is the internal focus for the team. And so both on the lending side, and we've talked about OFA and opportunities there. And continued focus there. And we're internally having a lot of discussions on formalizing full relationships where they don't exist currently. So there's a lot of opportunity there and the investments that we're putting in on the technology side, which again, will arm our sales teams with more data. One example of that is some of that HELOC growth that we've seen in the last couple of quarters is because of the availability of more client data.

We're targeting certain groups, which is that haven't necessarily had the utilization in the past and we're starting to see the benefit from that. And we expect to continue to improve upon that.

No, I would just echo what Neil said. I think we're very well poised to laser focus on the goals. But the biggest unknown certainly is the economic factors and what that could play into the forecast. But right now as we look here and sit here today, are very engaged. They're moving forward with projects. Our pipelines remain strong.

That's helpful. Thank you both. And just one more question following up on Neil's comments about the kind of hopefulness for loan growth to either exceed that 5% number for next year. So how how comfortable are you funding loan growth with wholesale borrowings versus core deposits if the deposit efforts don't come to fruition as expected?

Our focus right now in the short term is there will be some reliance on time deposits, money markets wholesale deposits but overall the company's got a mid to longer term strategy that impacts the short term as well. But to focus on driving core deposits that It's across the sales team, the commercial side, as much as the retail side is heavily focused on that. And also on mix. So we've seen the bulk of that increase in deposits for the full year is on the at least from a mixed standpoint is on the non non-interest bearing deposit side, we've increased about $40 million year over year there and that's also benefited the margin. We continue to focus on that, but, so yes, So there will be near-term reliance on, to answer your primary question, we're comfortable with that strategy, but internally we're heavily focused on driving core deposit growth over time.

Yes, I would just add that our teams are laser focused on our deposit efforts and not only the growth but also the mix which I think we've demonstrated year to date. One of the key strengths of Orrstown Bank is our relationship centric approach and we'll be leaning into that more. We'll also be exploring additional talent and our efforts along with sort of our product suite and our technology offering. So it is a laser focus on it and we remain confident in our ability to execute.

I appreciate it. Thank you both. Yep.

Your next question comes from the line of Daniel Cardenas with [Breen Capital]. Daniel, your line is now open. Please go ahead.

Good morning, everybody. Good morning. So just a couple of follow-up questions here on the lending front. Maybe if you could give us some color on the lending front. What competitive factors are looking like? I'm assuming they're still fairly intense, but you know, you know, is the market still rational or are you beginning to see some irrational actions from competitors?

Now, I would not say that, you know, you certainly have those one-off situations where you scratch your head and you take a pass, whether it's pricing or credit structure. But for the most part, I would say that it's still, you know, people are acting in their normal fashion. And our ability to add value to the relationship really is what differentiates and leads to our success and our growth today, and we'll continue to focus on that. But I would not describe the market yet as irrational.

Okay, good, good. And then maybe just some color on the $15 million of home equity loans that you bought. What kind of yield were coming with those loans? Just maybe some additional information on the ventures and how average, you know, what's the average age of the portfolio that you bought?

So the yields are in the 8% range to confirm if we have the average life. I mean, I'm trying to see if I can get that answer for you as we're talking here. Let me see if I can get that answered for you.

Okay. Right. And they're all high quality performing products. Low loan values, et cetera.

Yes, it's all strong, strong FICO, good quality HELOCs for sure. Average weighted coupon is 8.58. Okay.

8.58 on the rate. Okay. Average life.

Are those in market loans?

They are not.

They're spread there throughout the country. Okay. The remaining average remaining term is 357 months.

The seasoning on those was the average seasoning was only three months. They were 360 month long.

Okay. So relatively new with their third year. Okay. All right, perfect, perfect.

As I think about capital levels for you guys, the capital levels themselves. And just kind of wondering if you could give us a little bit of color as to what you're seeing on the M&A front of anything.

Yes, I mean, I would say our focus remains internal. We feel like we have an incredible internal growth story. And, you know, we certainly are open to discussions if it makes right financial sense and culturally it makes sense, geographically it makes sense. But right now we're focused on the internal growth story.

Just backing up on your previous question, that's the estimated.

With our projected average life on the HELOC of six years. All right.

Great. And then, a last question for me. Just on the margin. Appreciate all the information you've provided. So for every 25 basis point increase that we see from the Fed, what kind of impact does that have on your net interest?

So from a net interest income standpoint, every 100 basis points is about $2 million. So about a quarter, so about $500,000 impact for every 25 on a run basis. And that would equate to about five basis points for every quarter to the margin.

Great. Great. Perfect. Appreciate that. I'll step back. Thank you guys. Great quarter. Thank you.

Your next question comes from the line of Timothy Switzer with KBW. Timothy, your line is now open. Please go ahead.

Hey, good morning. Thank you for taking my question.

Good morning, Tim.

One quick follow up on the impact of a Fed rate hike there. What are your deposit beta expectations? And how does that change maybe over the course of a Fed rate hike cycle? Say we get like three or four over the next year. Does that beta start to creep up a little bit higher as competition gets more intense?

Um, so we're still in the process of assessing that because this is a little early in this cycle. I can point to the previous, the previous rate hike cycle where our beta was on the lower side, 25 basis points. I do expect in this environment it'll be something higher than that. And that's what we've modeled. To your other question, it's a little bit unknown what's going to happen. Um, with it's going to be market driven and competition driven. So it's a little hard to predict whether that would change. We do see significant and are feeling it now as there is competition out there from a rate perspective, but I can't directly say whether the beta would significantly increase with each rate hike. It is something we've focused heavily on.

We've been successful, certainly, in the past in managing our funding costs, and both increasing and decreasing rate environments will continue to heavily focus on that on how to manage that.

Okay, how has deposit competition in your markets trended so far? Is it mostly in line with your expectations or a little bit more promos than you would have expected or rate increases?

It's mostly in line. There's some outliers out there with SP. I'm sure everybody's seeing these significant cash handouts particularly from some of the larger banks so it's interesting seeing the cities of the world and and those institutions getting getting heavily involved here and paying significant dollars. So I would say it's probably a little more than what I expected, but not complete surprise either.

But that beta in the last rate sort of cycle was low because of our relationship model and we will continue to lean into that. You know, we've modeled slightly more than what our historical performance has been, but, you know, we will continue to lean into that relationship model.

Okay, and then one last one for me, it sounds like you guys don't have a lot of interest in M&A right now. What would be your plans for capital deployment just given the excess capital levels you're sitting at right now? Is it continued dividend increases? Like, you've done more recently. Or should we see you kind of turn on the buyback at some point?

Yeah, we like the optionality that we have, Tim. I mean, certainly if the right M&A opportunity came up, we would explore that. But we also would look at our dividend share repurchase. Whether it's team lift outs, branch optimization, but that there are a number of things that we look at from a capital allocation perspective. And like I said, we sort of like the optionality that we have today.

All right, thank you for taking my question. Thank you.

That concludes the Q&A portion of the presentation. Mr. Metz, I turn the call back over to you for concluding remarks.

Thank you, Holly, and thanks, everybody, for participating today. As always, if we can clarify any of the items discussed on this call or in the earnings release, please contact us. Have a great day.

This concludes the Orrstown Financial Services, Inc. Third Quarter 2026 Earnings Conference Call. You may now disconnect your line at this time.

This live transcript is auto-generated without human intervention or review.

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Adam Metz, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown Bank, who will begin the conference. Mr. Metz, please go ahead.

Thank you, Regina, and good morning. I would like to thank everyone for participating in Orrstown's Second Quarter 2026 Earnings Conference Call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial tables and schedules by going to our website, www.orrstown.com. Once there, you can click the Investor Relations link and then on the Events and Presentations link.

Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in the earnings release, the investor presentation and our SEC filings. The earnings release and investor presentation also include non-GAAP financial measures. The appropriate reconciliations to GAAP are included in those documents. Joining me today on the call is Neil Kalani, Orrstown's Chief Financial Officer. Also participating in the discussion are Zach Khuri, Chief Revenue Officer; Bob Coradi, Chief Risk Officer; and Dave Chajkowski, Chief Credit Officer.

Orrstown produced another strong outstanding quarter highlighted by strong net income, earnings per share, return on average assets and return on average equity. Net income was $21.2 million or $1.09 per diluted share. Return on average equity and return on average assets continued to exceed peer multiples. Excluding the impact of a onetime charge to interest expense, the net interest margin improved 10 basis points to 4% during the quarter. Fee income of $13.8 million contributed 22.1% of total operating income.

Wealth management income continues to be a source of strength for the bank. We redeemed our remaining subordinated notes, which resulted in a charge of $1.6 million, but is expected to enhance go-forward results. Despite higher-than-expected payoffs and paydowns, the bank achieved annualized loan growth of 5% for the quarter, with a meaningful portion of that growth occurring late in the quarter and therefore, having a limited impact on second quarter interest income. Credit quality remains strong.

Classified loans and nonaccrual loans both decreased quarter-to-quarter. We remain prudent in our lending decisions, but we believe that the credit environment remains sound and without significant signs of stress. We maintain a long-term focus on generating earnings and growth to continually build shareholder value. In support of that, the Board declared a quarterly dividend of $0.30 per share payable in August. Neil Kalani, our CFO, will now discuss our quarterly results in more detail. Neil?

Thank you, Adam. Good morning, everyone. We had an excellent second quarter with net income of $21.2 million or $1.09 in earnings per diluted share. Return on average assets for the quarter was 1.53% and return on average equity was 13.96%. Most notable for the quarter was our net interest margin expansion. On Slide 4 of the earnings deck, you see that our reported net interest margin was 3.87% in the second quarter. But if you exclude the impact of a onetime $1.6 million charge due to the subordinated debt redemption, our margin got back to 4% even, which is where it was in the fourth quarter of 2025. This was accomplished by a combination of actions on the funding side.

We made some adjustments on deposit costs early this quarter and recognized early in the first quarter, sorry, and then recognized the full benefit of mid-quarter -- I apologize. We recognized the benefit of rate adjustments this quarter and recognized the full benefit of mid-quarter adjustments last quarter. Also, the influx of deposits in the first quarter enabled us to reduce reliance on overnight borrowings. I believe our deposit costs have bottomed out at this stage. The previous guidance for net interest margin in the range of 3.90% to 4% for 2026 remains, and that's excluding the $1.6 million charge.

With the deliberate steps we took in the first half of this year and our continued focus on deposit mix, I now expect that we'll be in the higher end of that range for the full year on an adjusted basis. The deposit environment remains very competitive, so there's always risk with future pricing pressures and deposit generation. And on the loan side, many of our fundings were pushed into late June, so the impact of that activity is not fully reflected in net interest income. So overall, I'm pleased with where we're positioned with the margin and its components.

On Slide 5, fee income declined to $13.8 million in the second quarter from $15.6 million in the first quarter of 2026. In the first quarter, $2.4 million of life insurance benefits were recognized. Excluding that item, fee income is approximately $600,000 higher than the previous quarter. In the second quarter, Orrstown Financial Advisors, our wealth management team, recorded income of $5.9 million, up from $5.6 million in the prior quarter. This was their highest quarterly income on record. We're very excited about both what the team -- that team has accomplished and the opportunities that lie ahead.

Swap fees were around $700,000 in the quarter. The balance will continue to fluctuate based on timing and -- but remains a consistent source of solid fee income for us. I expect noninterest income to be in a similar range as the second quarter for the remainder of the year, with full year guidance unchanged. Slide 6 is noninterest expenses. Expenses increased by $938,000 this quarter to $37.7 million. Salaries and benefits drove that increase due to the impact of annual merit increases and higher health care costs.

Due to a few one-off items, I would expect this number to come down a little bit in the third quarter. I still expect our expenses will fall into the lower end of the range previously provided for the full year. I provide my usual caveat here that we will not hesitate to make a strategic investment to help us in the future if an opportunity arises. Slide 7 covers credit quality. Provision expense was $338,000 for the quarter. We had approximately $1.2 million of net charge-offs. We had a few qualitative factor adjustments in our model due to improvements in certain underlying metrics, which offset some of the charge-off impact.

Our allowance coverage ratio was 1.13% at June 30, and we believe it remains adequately aligned with the risk profile of our loan portfolio. Classified loans have steadily declined for several quarters, which is a very positive trend. Nonaccruals declined by $6.2 million from the first quarter as our credit team continues to do an excellent job of managing our portfolio. The earnings and performance metrics are on Slide 8. All metrics remain strong. TCE has increased to 9.5% and tangible book value per share continues to grow at a nice rate.

Slide 9 addresses our loan portfolio. Loans grew by 5% in the quarter with stable loan yields. Growth was strong for consumer loans. We had $286 million of commercial loan production during the second quarter. The net fundings reflected some unexpected payoff activity. We still feel confident about the loan growth guidance as the pipeline remains strong.

As shown on Slide 10, deposits declined by $7.4 million in the second quarter. There is some seasonality in prior quarter deposit growth, so we feel good about our net deposit activity for the quarter. A specific highlight is the continued change in mix as noninterest-bearing deposits increased by $39 million during the quarter. Our team is actively seeking new low-cost deposit sources. Loan-to-deposit ratio increased a little bit to 89%, still in a good position to support balance sheet growth. Cost of total deposits declined to 1.88% for the second quarter from 1.96% with this improvement being driven by the actions taken that I referenced earlier.

The investment portfolio is discussed on Slide 11. The overall portfolio yield remains strong and the unrealized losses have declined to $18.9 million. As presented on Slide 12, our total risk-based capital ratio declined from the prior quarter. This is a result of the redemption of $31 million of subordinated debt at June 30, '26, and we expect to recover the capital impact of this redemption within 2 quarters. The anticipated strength of future earnings is expected to drive further capital generation. We continue to believe we're positioned to take advantage of various capital allocation options.

So to summarize the quarter, we had a strong expansion in our net interest margin. Our effective management of funding costs, coupled with the impact of the subordinated debt redemption will help us maintain the margin at current levels. We took a onetime charge to interest expense associated with the redemption, but the impact was offset with the benefit of a tax credit. Fee income remains a core strength, which also presents many future opportunities for growth. Expenses will continue to be managed closely. All combined are expected to drive us to strong future earnings generation. So thank you for your time this morning, and I'll now turn it back to Adam Metz for his closing remarks. Adam?

Thank you, Neil. As Neil has emphasized, it was another outstanding quarter. As we look ahead, we remain confident in our strategy, our team and the opportunities in front of us. While the operating environment will undoubtedly continue to evolve, our focus remains unchanged, serving our clients exceptionally well, investing thoughtfully in our people and technology, maintaining strong risk discipline and allocating capital to create long-term shareholder value.

Finally, I'd like to thank our employees for their dedication and our clients and shareholders for the trust they place in us. We appreciate your continued support and look forward to updating you on our achievements next quarter. We would now like to open the call to questions. Before we get started, Regina will briefly review the instructions with you.

[Operator Instructions] Our first question will come from the line of Tim Switzer with KBW.

First one I have is on the commentary around loan growth really picking up in June, it sounds like. Is there any more color you can provide on maybe either what drove the slower growth in the first half of the quarter, whether that was some of the macro concerns or something else and then the acceleration at the end, what drove that? And it kind of sounds like it's maybe following through into Q3 as well.

I think the loan growth, particularly the commercial really was just a timing thing, Tim. And so we did have some unexpected payoffs earlier in the quarter, but the pipeline remains strong and our clients continue to seek funding opportunities. And so we're very optimistic about our growth going forward. We feel strong about it, and the teams are excited.

But there's nothing -- to answer the other part of your question, there's nothing at a macro level that drove that. It's really just client-driven timing. Yes.

Okay. Okay. That's helpful. And then I mean, it sounds like it's kind of similar to last quarter to deposit trends at the end of the quarter. Could you maybe help us out with what the spot NIM was at the end of the quarter, excluding the debt redemption? And what are your expectations for the trajectory going forward, assuming obviously no more rate cuts, but we don't have any rate hikes, it sounds like we can continue to grind a little bit higher probably with deposit trends?

Potentially, once we get the full impact of the sub debt, we were kind of -- we're around that 4% level for most of the quarter, particularly back half. I expect to be around that level going forward. There is some opportunity potentially to improve that a little bit, but I think we're -- this is likely where we're going to sit. And like I said, I expect us to be excluding sub debt impact at the higher end of the broader range.

But we're -- as a team, we're constantly focused on what things we can do to help drive that margin higher. I did point to the change that's been several quarters now, we've seen a good shift in the mix. You see the time deposits coming down, noninterest-bearing and interest checking in a good spot, particularly noninterest-bearing with the growth there. So it's something we're continuing to focus on where we can kind of focus to keep -- maintain and drive that margin higher.

Okay. Okay. That's helpful. And then another one is on deposit competition right now in your markets? Are there any markets or deposit categories that have seen intensifying competition over the last few months?

Yes. I would say not really. I mean I wouldn't pick one particular area. I think we feel like we're very competitive. And like Neil said, I think we've -- teams have done a great job of sort of shifting our mix more towards noninterest-bearing and those are operating accounts and whatnot. So we feel good about where we are.

Okay. And can you guys remind us what is your positioning if we do get some Fed rate hikes? What's the impact on the overall margin?

We're now a position where we'll be -- we're still slightly asset sensitive, but more on the neutral side. So it's just continue to focus on pricing going forward.

And congratulations to Adam on your first conference call as CEO.

Our next question will come from the line of Ken Kohut with Raymond James. We'll take our next question from the line of Jake Civiello with D.A. Davidson.

This is Catherine Hubinger of D.A. Davidson for Jake Civiello. And we just had 2 questions for you. We were curious what geographies for your owner-occupied CRE loan growth in this quarter, where do you believe that will be coming from? And then we were also curious if you believe that the uptick in home equity loans is the start of a new trend.

Do you mind repeating the first part of your question? We missed on that.

Absolutely, yes. We were just curious what geographies are you focusing on for the owner-occupied CRE loan growth in this quarter?

There really wasn't any one particular geography that, that was concentrated in. It was within our core geographic markets, I would say, in terms of the concentration or the geographic locations of that owner-occupied real estate growth.

To your home equity question, it is a focus of the teams to try to drive that volume. We did see a nice uptick this quarter and started in previous quarter as well. So it's a nice boost to see this quarter, and it is something we're going to continue to focus on diversifying our opportunities across the board, particularly with loan growth.

And this concludes the Orrstown Financial Services, Inc. Second Quarter 2026 Earnings Conference Call. You may disconnect your line at this time.

Thank you for participating today. As always, if we can clarify any of the items discussed on this call or in the earnings release, please contact us. Have a great day.

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Tom Quinn, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown Bank, who will begin the conference. Mr. Quinn, please go ahead.

Thank you, operator, and good morning. I'd like to thank everyone for participating in Orrstown's First Quarter 2026 Earnings Conference Call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial tables and schedules by going to our website, www.orrstown.com. Once there, you can click on the Investor Relations link and then on the Events and Presentations link.

Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about this information are included in the earnings release, the investor presentation and our SEC filings. The earnings release and investor presentation also include non-GAAP financial measures. The appropriate reconciliations to GAAP are included in those documents.

Joining me on the call this morning are Orrstown's Senior Executive Vice President and Chief Operating Officer, Adam Metz; as well as Chief Financial Officer, Neil Kalani; our Chief Revenue Officer, Zach Khuri; Chief Risk Officer, Bob Coradi; and Chief Credit Officer, Dave Chajkowski, will also participate on the call.

For our financial highlights, Orrstown achieved another successful quarter, delivering strong results across the board. Net income increased to $21.8 million or $1.12 per diluted share. Return on average equity and return on average assets continued to exceed peer multiples. Fee income of $15.6 million contributed 24.1% of the total operating income. Noninterest expense declined, highlighting our continued commitment to creating efficiencies within the company.

Our net interest margin remained near the top of all peers. We started off the year with another profitable quarter and created momentum leading into the rest of the year.

I will now turn the call over to Adam Metz, who will speak about our balance sheet. Adam?

Thank you, Tom. Good morning, everyone. Loan growth was steady during the quarter, coming in at 4% on an annualized basis. Loan production was excellent, but overall growth was impacted by unexpected loan prepayments. Growth has occurred across our footprint and our product set, a mix of C&I and CRE. Our pipelines continue to be robust and support our growth targets.

On the credit front, we recorded moderate provision expense aligning with the portfolio growth and experienced a reduction in classified loans. We remain prudent in our lending decisions, but we feel that the credit environment remains sound and without significant signs of stress. We are pleased with our meaningful deposit growth during the quarter.

Deposits increased by $98.7 million, reflecting increases in interest-bearing demand deposits, noninterest demand deposits, time deposits and money market deposits. This deposit growth accelerated in the second half of the quarter, which enabled us to reduce borrowings at quarter end. This shift from borrowings to deposits reduced our go-forward funding costs, which we expect to become more apparent in the second quarter. Neil will discuss this in more detail during his presentation.

Our capital ratios continue to build quickly with our earnings generation, which will create flexibility for us in the future. Capital levels continue to support our growth as well as providing the ability to facilitate other capital allocation opportunities. We maintain a long-term focus on generating earnings and growth to continually build shareholder value. In support of that, the Board declared a quarterly dividend of $0.30 per share payable in May.

Neil Kalani, our CFO, will now discuss our quarterly results in more detail. Neil?

Thanks, Adam. Good morning, everyone. We started 2026 off strong with net income of $21.8 million or $1.12 in earnings per diluted share. Return on average assets for the quarter was 1.59%, and return on average equity was 14.76%. As noted on Slide 4 of the earnings deck, the net interest margin was 3.90% in the first quarter, down from 4.00% in the fourth quarter of '25. This was driven by a combination of the impact of the December Fed rate cut on interest income, reduced purchase accounting accretion and temporarily elevated funding costs.

We typically experience seasonal deposit outflows at the beginning of the year. This persisted for longer than in prior years, which drove borrowing balances higher for the first half of the quarter. In the second half of the quarter, deposit balances grew substantially, and we implemented some delayed deposit rate reductions. As a result of actions taken during the quarter, cost of funds was still down from the prior quarter but not by as much as previously projected.

With a full quarter of impact, I expect funding costs will decline further in the second quarter of '26. The previous guidance for net interest margin in the range of 3.90% to 4.00% for '26 remains with an expectation of the margin increasing from here. Overall, in an extremely competitive environment, we feel good about the first quarter's deposit growth, reduced reliance on borrowings and where our funding costs are settling in.

On Slide 5, fee income increased to $15.6 million in the first quarter from $14.4 million in the fourth quarter. In the first quarter, $2.4 million of life insurance proceeds were recognized. The quarter included wealth management income of $5.6 million, down only slightly from the prior quarter despite difficult stock market conditions. Swap fees were very strong at $1.3 million in the quarter. While there is expected volatility in some of the components, I expect normalized noninterest income to be in line with previously reported guidance.

Now I'll cover noninterest expenses on Slide 6. Expenses declined by $700,000 this quarter to $36.7 million. Salaries and benefits declined with lower health care costs and some year-end incentive adjustments. Professional services came down substantially as we continue to reduce our reliance on third-party support. And I anticipate our expenses will fall into the lower end of the guidance range unless we choose to make some strategic investments in personnel to drive or support growth.

Slide 7 discusses credit quality. Provision expense was $728,000 for the quarter, primarily due to loan growth. We had approximately $900,000 of net charge-offs, which was offset by the impact of favorable economic factors in the allowance calculation. Our allowance coverage ratio was 1.17% at March 31, '26, and we believe it remains adequately aligned with the risk profile of our loan portfolio.

Classified loans declined again in the first quarter. Nonaccruals increased by $2 million from the prior quarter, primarily due to 2 relationships. While we experienced some movement into the nonperforming category, we also continue to see payoffs and upgrades out of that bucket, resulting from our focus on achieving the best solutions for the bank.

Our earnings and performance metrics are on Slide 8. All metrics remain strong. TCE has increased to 9.2% despite an increase since December 31, '25, of $6.8 million in unrealized losses on investment securities due to changes in market rates.

Slide 9 addresses our loan portfolio. Loans again grew by 4% in the quarter. Loan yields declined during the first quarter due to the impact of lower rates on the variable rate loan portfolio. We did have $211 million of loan production during the first quarter and still have a strong pipeline.

As noted on Slide 10, deposits grew by $98.7 million or 9% annualized in the first quarter. The loan-to-deposit ratio declined slightly to 88%, leaving us plenty of room to support balance sheet growth. The cost of deposits declined to 1.96% for the first quarter with the timing of rate reductions in the middle of the first quarter and having 86% of the deposit growth being in demand deposits, we expect deposit costs to come down further.

Another positive trend for the quarter was the increase in noninterest-bearing deposits of $14 million or 7% annualized. Our sales team remains focused on expanding existing relationships and creating new ones to continue building lower-cost deposit balances.

The investment portfolio is covered on Slide 11. There is a little bit of purchase activity during the quarter in order to keep the portfolio flat. The overall portfolio yield declined during the quarter due to the impact of the December Fed rate cut on floating rate investments. We view the investment portfolio as a reliable source for income generation, and we'll continue to facilitate that by taking advantage of any market opportunities that correspond with our balance sheet strategy.

As presented on Slide 12, our regulatory capital ratios continue to build at a rapid pace. Capital generation is expected to remain strong going forward based on projected earnings, and we continue to believe we're positioned to take advantage of various capital allocation options.

So in summary, we believe the net interest margin has stabilized with the opportunity to grow from here with declining funding costs. Fee income remains a core strength and a differentiator, particularly with wealth management if the market can maintain or improve from current levels. And expense management remains a key focus for us in order to achieve our financial goals.

Thank you for your time this morning, and I'll turn it back to Adam Metz for his closing remarks. Adam?

Thank you, Neil. As Tom and Neil has emphasized, it was another highly successful quarter. Having spent nearly a decade at Orrstown, I've seen firsthand the strength of our franchise, the power of our culture and the collective commitment to our clients and community. An incredibly talented team with common alignment to our core principles will continue to build upon the foundation already in place, driving prudent growth, deepening client relationships, thoughtfully expanding fee-based businesses and continuing our unwavering commitment to sound risk management and long-term shareholder value.

We would now like to open the call to questions. Before we get started, the operator will briefly review the instructions with you.

[Operator Instructions] Your first question comes from the line of Tim Switzer with KBW.

I appreciate the commentary on kind of the puts and takes on the NIM this quarter. And it sounds like the primary driver here was that seasonal deposit runoff at the beginning was maybe a little bit stronger, lasted longer than normal. Was there anything that surprised you on like the loan or security yield side as well? Or is it just primarily the NIM -- sorry, deposits?

No, there's nothing surprising. It is primarily deposits. We -- as I've indicated in the past, since we are a little bit on the asset-sensitive side, we did expect the yields to drop on loans and investments. So it truly is driven by the deposit -- the timing of the deposits. So we are -- as I indicated, we do expect to see improvement in both the funding costs and translating into the reduction on the NIM side. On the asset side, the lending team continues to price well to help us maintain and improve the margin from here.

Okay. Got it. And are you able to help -- you said an upward trajectory from here. Are you help us -- can you help us quantify that at all? Like maybe what was the spot NIM at the end of Q1 once those deposits came back, and you're able to run off some of the higher cost borrowings? And any idea on maybe where we would end the year, say, if we get just a 0 rate cut?

So we ended the quarter a few basis points higher than the average for the quarter -- for the reported NIM for the quarter and expect to be able to go up a few basis points from there over the course of the remainder of the year.

Okay. Great. That's very helpful. And then one last one, if I can get it on the deposit side. There's been some chatter about increasing deposit competition, but it's more extreme in some markets than others. Have you guys experienced that? I get you still have some room to move downward. But are you starting to see some deposit competition? Is it more competitive in certain markets or deposit categories than others for you?

Yes, Tim, I would say competition remains. It's prevalent, but I would tell you, we challenged the team to reach out to the relationships and drive deposit growth. And the team has absolutely responded to that initiative. And so we're very pleased with the results, and we think that we have a lot of momentum going forward.

That concludes the Q&A portion of the presentation. Mr. Quinn, I turn the call back over to you for concluding remarks.

Thank you again, operator, and thank you all for participating today. As always, if we can clarify any of the items discussed on this call or in the earnings release, please contact us. Have a great day.

This concludes the Orrstown Financial Services, Inc. First Quarter 2026 Earnings Conference Call. You may disconnect your lines at this time.

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Tom Quinn, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown Bank, who will begin the conference. Mr. Quinn, please go ahead.

Thank you, operator, and good morning. I'd like to thank everyone for participating in Orrstown Fourth Quarter 2025 Earnings Conference Call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial tables and schedules by going to our website, www.orrstown.com. Once there, you can click on the Investor Relations link and then the Events and Presentations link.

Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about the information are included in the earnings release, the investor presentation and our SEC filings. The earnings release and investor presentations also include non-GAAP financial measures. The appropriate reconciliations to GAAP are included in those documents.

Joining me on the call this morning are Orrstown's Senior Executive Vice President and Chief Operating Officer, Adam Metz; as well as our Executive Vice President and Chief Financial Officer, Neil Kalani, our Chief Revenue Officer, Zach Khuri; Chief Risk Officer, Bob Crotty; and our Chief Credit Officer, Dave Chajkowski, will also participate in the call.

Our financial highlights. Orrstown achieved the highest reported annual net income in the company's history of 106 years. Net income was $80.9 million or $4.18 per diluted share. Our return on average equity was $14.76, Return on average assets was 1.49%. Net interest margin came in at $404 million and fee income of $52.3 million contributed to 21% of the total operating income.

We demonstrated our ability to maintain net interest margin near top of peers enhanced fee income and created efficiencies, all while maintaining our focus on leading with risk. Regularly investing in the future remains a key strategy for the bank. We brought in several talented team members in 2026 and will continue to do so. With that has come a strong loan pipeline and enhanced growth opportunities going forward.

Overall, it was a highly successful year for Orrstown, particularly with the numerous challenges presented to us along the way. We are proud that we have consistently demonstrated the ability to maintain strong profitability in any environment and expect that to continue going forward. I will now turn it over -- the call over to Adam Metz, who will speak about our quarterly results. Adam?

Thank you, Tom, and good morning, everyone. Our quarterly financial highlights are summarized on Slide 3 of our deck. As was the case with our annual results, our fourth quarter earnings were impressive. Net income was $21.5 million or $1.11 per diluted share. We maintained a strong net interest margin, which, coupled with noninterest income growth, drove our continued earnings and capital generation in the fourth quarter.

Noninterest income as a percentage of operating revenue was 22% in the fourth quarter, that's the third consecutive quarter where this ratio exceeded 20%. As Tom said, enhancing noninterest income and investing in the future remain key strategic priorities for the bank. We recently announced the hiring of Matt Albert as our Chief Wealth Officer. Matt's proven track record and team leadership and its client-first approach aligned perfectly with our mission to deliver personalized high-quality financial advice and trust services.

Over time, we will look to Matt to bring additional talent to the organization. Our proven philosophy remains that investing in the right people today will lead to continued growth in the future. We are also looking for newer sources of fee income, such as our recently increased presence in the merchant services space.

Loan growth was steady during the fourth quarter coming in at 4%. Loan growth was tempered by some projected closings being pushed into the first quarter of 2026. Growth has been balanced across our footprint and our product set, a nice mix of C&I and CRE, and we have also seen the benefit of our investment in the middle market team.

We remain confident in our pipelines, which remain strong and the ability of our experienced relationship bankers to continue to responsibly grow the loan portfolio. Credit quality remains strong, highlighted by minimal provision expense, a reduction in classified loans and a healthy reserve coverage ratio. The bank recorded a provision expense of $0.1 million and net charge-offs of $0.5 million during the quarter.

Classified loans decreased by $5.7 million from the prior quarter. The allowance for credit losses on loans as a percentage of total loans ended the quarter at 1.19% compared to 1.21% at the end of the prior quarter. We believe the allowance covered properly aligned with the makeup of the loan portfolio.

While delinquencies have increased, we do not believe it is indicative of a broader trend. We continue to build capital, which will create flexibility for us in the future. Capital ratios increased across the board quarter-to-quarter. We remain well capitalized by all measures. Our shareholders remain our top priority. We remain focused on building shareholder value through strong earnings and an attractive dividend.

As a result of our strong earnings performance, the Board voted to increase our quarterly dividend by $0.03 per share from $0.27 to $0.30 per share. This is the fourth dividend increase in the past 18 months, and our dividend has increased 50% since the merger date. Neil Kalani, our CFO, will now discuss our fourth quarter results in more detail. Neil?

Thank you, Adam. Good morning, everyone. As Adam noted, we finished 25 strong with $21.5 million of net income or $1.11 in earnings per diluted share. ROA was 1.55% for the quarter. and ROE was 14.7%. And then I'll start on Slide 4 of the earnings deck with my discussion.

The net interest margin was 4.0% in the fourth quarter, down from 4.11% in the third quarter. There are a couple of factors that played into this. First, purchase accounting accretion impact to the margin was about 6 basis points lower in the fourth quarter. Also, the Fed rate cuts in September and October resulted in reduced interest income on our variable rate loans. Continued market pressure has lengthened the lag in deposit rate reductions.

We expect funding costs to come down starting in the first quarter of '26 and I'm projecting a net interest margin in the range of 3.90% to 4% for 2026. As I've stated in previous earnings calls, we have anticipated some compression due to the asset-sensitive balance sheet, coupled with the lag in deposit pricing. So the fourth quarter margin compression was expected and will be focused on maintaining it around current levels.

If there were no rate cuts in 2026, the margin, I do expect would come in a little higher. The margin, excluding purchase accounting impact was 3.53% in the fourth quarter as compared to 3.59% in the third quarter, primarily because of deposit rate lag. Purchase accounting accretion impact, excluding any unanticipated acceleration should continue to decline modestly going forward.

The core margin, I believe, will increase in the first quarter and stabilize from there. We also maintain our focus on replacing the accretion income from the acquired loan portfolio as it runs off, and we remain on pace to do so. Slide 5 covers fee income, which increased to $14.4 million in the fourth quarter from $13.4 million in the third quarter. Noninterest income for the fourth quarter was more than 22% of total revenues.

Wealth management income was $5.7 million and swap fees were $1.1 million in the quarter. As Adam noted, we're excited about the opportunities ahead of us in the wealth space and expect to continue to make investments to grow that business. Service charges are up from the prior quarter as we grow our treasury management business, including merchant services, which has grown substantially since the prior year and represents 17% of treasury management revenue.

Mortgage activity has been stable for several quarters. And due to the volatility in some of the components, I'm projecting a quarterly run rate for noninterest income to be in the range of $13 million to $14 million in 2026.

Now I'll cover noninterest expenses on Slide 6. Expenses are elevated a little bit this quarter at $37.4 million, up $1.1 million from the third quarter. Salaries and benefits were higher with increased health care costs and some additional items that on the professional services line, which were a little elevated that drove the overall noninterest expense number up.

With recently communicated and planned future investments in wealth management and other sales teams, I expect expenses to run at rate around -- on a quarterly rate of around $37 million going forward. However, we do regularly seek opportunities to invest in talent that will drive future growth.

Slide 7 covers credit quality. Provision expense was just $75,000 for the quarter. We had approximately $500,000 in net charge-offs, which were mostly offset by the impact of favorable economic factors in the allowance calculation. Our allowance coverage ratio was 1.19% at December 31, '25, which was a slight decline from September 30 that we believe is more than adequately aligned with the risk profile of our loan portfolio. Classified loans are down mainly due to paydowns [indiscernible] from the prior quarter primarily due to one relationship and not indicative of any broader trends. Nonperforming assets remain low as a percentage of total assets.

Our earnings and performance metrics are shown on Slide 8. All metrics remain strong. TC is now at 9% and tangible book value per share continues to build at a rapid pace. Our loan portfolio is discussed on Slide 9. Loans grew 4% in the quarter with some anticipated closings pushing into January. Loan yields did decline during the quarter due to impact of lower rates on the variable loan portfolio. We had $207 million of loan during fourth quarter and continue to have a robust pipeline. We feel good about achieving loan growth of 5% or better in 2026.

On Slide 10, deposits were relatively flat declining slightly by $5 million. The loan to deposit ratio remains at a comfortable level of 89%. The cost to deposits was 1.98% for the fourth quarter. Due to the deposit pricing lag, I would expect deposit cost reductions to be more clearly reflected in the first quarter of 2026. Lowering overall funding cost is a regular discussion item for management as well as expanding wallet share and an emphasis on bringing in operating accounts.

The investment portfolio is covered on Slide 11. We gradually repositioned the portfolio over time taking opportunities as they present themselves in the market.

During the fourth quarter, market dynamics led us to making a bigger shift. We purchased $125 million of Agency MBS and CMOs and sold about $42 million of securities. This was a strategic decision to help address the asset sensitivity on the balance sheet. The sales did result in a small [ game ]. And the majority of the purchased securities are at a fixed rate, which will benefit us as rates decline.

The investment yield -- portfolio yield of 4.5% reflects a decrease from the prior quarter of 4.67% due to the impact of declining rates on the floating rate investments. With the still excellent yield and declining unrealized losses, we believe the investment portfolio is positioned well to be a driver of earnings growth as well as proper balance sheet alignment.

Our regulatory capital ratios are covered on Slide 12. After the redemption of subordinated debt on September 30, the total risk-based capital ratio has returned to where it was at June 30th. Capital generation is expected to be strong going forward based on projected earnings, and we believe we are positioned to take advantage of various capital allocation options.

Finally, the guidance that was presented in the deck presents a conservative look at what we know we can achieve. And we remain confident that we can either exceed current analyst consensus. I'd like to now turn the call back over to Adam Metz for some closing remarks.

Thank you, Neil. As Tom said, we are proud that we have consistently demonstrated the ability to maintain strong profitability in any environment. We intentionally guided to assumptions. We're confident we can deliver against. When you put these pieces together, unchanged loan growth, higher fee income, disciplined investment, the earnings profile for 2026 remains intact and, in our view, more reliable.

We are optimistic about the future, both in the short and long term. We would now like to open the call to questions. Before we get started, the operator will briefly review the instructions with you.

[Operator Instructions] Your first question comes from Tim Switzer with KBW.

You covered this briefly on the call a little bit, but I want to ask about the increase to the guidance on both the noninterest income and expenses. What was the primary driver for both of those? And does it reflect like any change in strategy or the business or anything from relative to last quarter?

So a couple of things. It doesn't reflect necessarily a change in strategy to start continuing strategy of finding talent to drive future earnings. So we've talked about in the past that we've constantly been successful by investing in talent, so part of starting with the expense side, which has translated to the income side and will translate further. We've taken some actions. We have brought in some talent on the lending side, we announced a new individual, [indiscernible] head of wealth to help drive us forward, there will be some investments in addition to that on the OFA side to help drive that business forward. So when we see opportunities to help us going forward, we will make those investments and strong talent to drive us forward.

So I would say that is modeled in the expense guidance right now, depending on opportunities, whether it's team lifts on the lending side or whatever it might be, we could kind of go further in that range. But currently, based on where we stand, we're on the -- I do project being on the lower side of that range. But I do want to allow for some opportunity to invest in talent, as I said, to drive not only net interest income higher on the loan side, but fee income higher.

So the flip side of that discussion is a noninterest income line, where we have had a couple of quarters where we've consistently been at a higher run rate than we were in the past. We broke $14 million. It was our highest quarter from a noninterest income standpoint that we've had historically. Not going to sit here and say that, that $14.4 million run rate is going to be something going forward because we can't -- as I talked about, swap fees, can be -- can change from quarter-to-quarter. It's a very strong quarter from that standpoint and there's the wealth revenue was driven by market.

So we can -- I'm comfortable that we can kind of increase that guidance and that is driven by talent that we have brought on board and talent that we've already seen the benefit from and that we will see the benefit from going forward in the future from bringing in new people.

Got it. Okay. That was very helpful. And then if you could help clarify a little bit the NIM trajectory over the course of the year. So it sounds like the core NIM should go up in Q1, and you're already at the top end of your guide going into the year. So I would assume that reflects some moderating purchase accounting accretion over the rest of the year that brings you down what you mentioned, are you able to maybe quantify like the pace of purchase accounting and how that should go down over time?

Yes. So on a quarterly basis, it's kind of true to excluding acceleration, which we can't. We don't really predict, it's generally 2 to 3 basis points each quarter that it will decline. But with the loan production that we're putting on, that's essentially replacing the impact, but that's obviously a little lower rates that will drive the margin down a little lower. But -- so it's about 2 to 3 basis points on that side. But I do -- the projections do assume 75 basis point, 3, 25 basis point cuts in 2026. So if that doesn't materialize, as I indicated in my comments, to we would expect to come in higher than that high end of the range. But again, just trying to account for what we're anticipating happening in the market, but there's potential certainly to do better than that, and we are -- we do remain focused on the funding cost side of the equation.

But all in all, we feel very good about the margin. We continue to manage it and hope to keep it at or near that 4% level, but there are some factors that can take it lower potentially.

The next question comes from Gregory Zingone with Piper Sandler.

Just pivoting into the wealth management side for a second. Would you be able to talk about AUM or AUA was at quarter end? And then also, if you have any numbers on how successful you've been in bringing some of the [indiscernible] customers on your platform.

Total AUM was at a little over $3 billion. Did you want to address the.

What was the second half of your question?

I was just curious if you had any numbers on how successful you've been in bringing some of the [indiscernible] customers on to your wealth management platform.

Yes. I don't know that I'm sitting here with an exact statistic, but we've seen no significant decline in the portfolio, either from the wealth side or from the depository side from -- or the commercial side. So as you saw in the first -- fourth quarter of last year, fourth quarter of 2024 and the first quarter of 2025, we did take a proactive approach from a commercial loan portfolio perspective where we identified certain loans that didn't necessarily meet our sort of credit box, and we proactively moved them out and you saw that. But from a client retention standpoint on the wealth side or on the depository side, we've seen pretty good stickiness.

Awesome. And then you guys had mentioned a little bit about the hiring aspect, and you guys are not too scared to hire new people, new teams as you see fit. Is there an area of the focus for the company this year, whether it is on the lending side, well technology or other back-of-the-house functions?

Yes, I can answer that. I would tell you that in mid-2025, we made a move to build out a middle market commercial lending platform. And that has already generated significant results in our investments. So we feel very good about that, and we feel like there's additional opportunity there. On the wealth management side, as I think we shared with several of you, is that we feel like there's additional opportunity in our growth markets: Maryland, Lancaster, Harrisburg. We feel -- we'll so go from there.

The next question comes from Kyle German with HOVD Group.

I'm on for Dave Bishop Kind of on that same question, could you provide an update on the company's current thinking around share buybacks and kind of what is like the near-term outlook for repurchases?

We're always looking closely at that opportunity. We're -- our valuation or tangible book is a big factor in that. we're going to take steps as needed to where the stock price has been recently, hasn't put us in that position, but it's -- we're certainly monitoring it, and we'll -- we still have the shares available to purchase. So we continue to be open to kind of all allocation, capital allocation methods based on where our position is.

Great. And then regarding the recent security purchases of the CMOs and MBS, could you share like the yields achieved on those purchases and maybe the overall goals of the portfolio going forward?

Yes. The yield on the -- average yield on the purchases of 4.92%. So we do -- we have always and we'll continue to view that not just as the investment portfolio, not just as a liquidity source and liquidity management tool. It's also a strong generator of earnings and obviously, cheap capital utilization as well. So we will continue to be active with the portfolio as kind of the situations arise.

We do -- just from a guidance perspective, we do kind of expect the fourth quarter doesn't fully reflect everything on an average basis. So we do expect some benefit going forward in addition to what we saw in the fourth quarter from the investment portfolio, but we expect it to kind of sit around the levels where it's at now.

That concludes the Q&A portion of the presentation. Mr. Quinn, I turn the call back over to you for concluding remarks.

Thank you, operator. As always, if we can clarify any of the items discussed this morning, on this call or in the earnings release, please feel free to give us a call. Wishing you a wonderful day. Thank you very much.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orrstown Financial Services, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Tom Quinn, President and Chief Executive Officer of Orrstown Financial Services, Inc. and Orrstown Bank, who will begin the conference. Mr. Quinn, please go ahead.

Thank you, Tiffany, and good morning. I'd like to thank everyone for participating in Orrstown's Third Quarter 2025 Earnings Conference Call, both by telephone and through the webcast. If you have not read the earnings release we issued yesterday afternoon, you may access it along with the financial tables and schedules by going to our website, www.orrstown.com. Once there, you can click on the Investor Relations link and then on the Events and Presentation link.

Also, before we start, I would like to mention that today's presentation may contain forward-looking information. Cautionary statements about the information are included in the earnings release, the investor presentation and our SEC filings. The presentation also includes non-GAAP financial measures as identified in the earnings release and the investor presentation. The appropriate reconciliations to GAAP are included in the appendices.

Joining me today on the call are Orrstown Bank's Senior Executive Vice President and Chief Operating Officer, Adam Metz; as well as Executive Vice President and Chief Financial Officer, Neil Kalani, our Chief Revenue Officer, Zach Khuri; Chief Risk Officer, Bob Coradi; and our Chief Credit Officer, Dave Chajkowski will also participate on the call.

Our financial highlights for the quarter are summarized on Slide 3 of the deck, we delivered another quarter of excellent results. Loan growth was strong. In the third quarter, we achieved 4.9% annualized loan growth after taking some steps early in the year to align the acquired portfolio with our risk profile. We have seen good growth in the last 2 quarters. Net interest margin was 4.11% for the third quarter of '25 compared to 4.07% for the second quarter of '25. We believe that we are pricing loans prudently and managing funding costs well, which is evidenced by the stable margin. Fee income remained a core strength of the organization during the third quarter. Fee income as a percentage of operating revenue was 20.8%.

The second consecutive quarter that this ratio was nearly 21%. Expenses continue to decline. Noninterest expense declined by $1.3 million compared to the prior quarter. Our efficiency ratio decreased from 60.3% to 56.4% quarter-to-quarter. All this translated into our strongest quarter of earnings on record with diluted EPS of $1.13. Our return on assets of 1.60% and a return on equity nearly 16%. We believe that our successful execution of last year's merger with Codorus Valley is evident in our financial performance. At this time, I would like to turn the call over to Adam Metz for a discussion on our balance sheet. Adam?

Thank you, Tom. Good morning, everyone. We have previously discussed the steps that we've taken to proactively protect the bank's risk profile and position the bank to be successful in all economic scenarios. These steps seem particularly relevant given the credit concerns disclosed by other institutions last week. As a reminder, these steps included managing our CRE portfolio to reduce concentration, stress testing the C&I portfolio for the potential impact of tariffs, reviewing our TM platform for clients sending foreign wires and proactively discussing strategies with them.

And reevaluated lending relationships above $2 million, adjusted risk ratings as deemed appropriate and presented some of them with exit plans. Our relationship banking model requires our sales teams to keep in touch close with our clients. We have regular conversations with our clients on a variety of topics recently, including tariffs, the government shutdown, the Pennsylvania budget impasse and general economic conditions, helping them navigate the evolving landscape and plan accordingly. After the first quarter, we indicated these steps had resulted in higher-than-expected reductions in loan balances, but express optimism that steps had taken to protect credit quality and lay a solid foundation for future growth.

We believe that this solid foundation was reflected in our third quarter results. As Tom said, in the third quarter, we achieved 4.9% annualized loan growth. We continue to lean into our relationship banking model where high engagement and local decision-making differentiate us in the market and allow us to meet client needs with speed and care. Importantly, credit quality remains sound. Net charge-offs were again nominal in the quarter. Classified loans decreased by $1.7 million to $64.1 million at quarter end. Although nonaccrual loans increased by $3.8 million to $26.2 million at quarter end. Most of this increase was primarily related to 1 relationship within the commercial construction and development portfolio.

We are mindful of some economic uncertainty and its potential impact on the overall business environment. We remain focused on credit quality and plan to continue to grow prudently. And we, along with an independent third party regularly evaluate our portfolio for new risk considerations. We view our capital position as an organizational strength which provides us with significant strategic flexibility for the future. We are well capitalized by all measures.

Neil Kalani, our CFO, will now discuss our third quarter results in more detail. Neil?

Thank you, Adam. Good morning, everyone. The third quarter was another successful quarter for us. We recorded $21.9 million of net income or $1.13 million in earnings per diluted share. This equates to a return on average assets of 1.6% return on average equity of 15.7% and return on average tangible common equity around 20%. All of these metrics place us near the top of our peer group and were achieved through multiple avenues.

Looking at Slide 4. The margin increased by 4 basis points to 4.11% in the third quarter. Loan pricing on new originations and increased purchase accounting accretion drove loan yields higher, while the acceleration of $300,000 of debt issuance costs associated with the subordinated debt redemption increase the cost of funds a bit.

On September 30, the company redeemed $32.5 million of subordinated net notes, which were at a rate of 7.72% for most of the second quarter. This action will reduce interest expense going forward while the company maintains its flexibility from a capital perspective. The other notable results from this quarter is the increase in loan interest to $66.0 million from $63.2 million in the second quarter.

We placed a significant focus on generating the necessary growth to offset the impact of the reduction in purchase accounting accretion on loans over time and maintaining a margin near its current levels, being asset sensitive as rates come down, I do expect margins to contract competition remains heavy on both loan and deposit pricing, and that will certainly factor into our ability to maintain or increase the margin.

Fee income is discussed on Slide 5. We saw an increase in noninterest income to $13.4 million in the third quarter from $12.9 million for the second quarter. This represents almost 21% of revenues. Swap fees were substantial at $800,000, service charges increased by $400,000 due to higher volumes and credit card incentives earned. Wealth Management continues to perform extremely well, and we're starting to see mortgage volumes increase. I would expect the normalized quarterly run rate to be in the $12.5 million to $13 million range going forward. The team continues to succeed in generating additional avenues in fee income, but it's going to fluctuate from quarter-to-quarter.

On Slide 6, you can see that the noninterest expenses have declined by $1.3 million from the prior quarter. The key highlight here is that we no longer have merger-related expenses, the efficiency ratio decreased again to 56% with the continued goal of getting below 55%. The numbers still include the impact of additional third-party consulting services that are expected to continue but will decline over the next several periods. Considering the decline in expenses while continuing to invest in the bank's future, I would expect a quarterly run rate around $36 million going forward, plus some standard inflationary impact next year.

Our credit quality is discussed on Slide 7. Once again, we recorded a small provision with a small amount of net charge-offs, our allowance coverage ratio was 1.21% at September 30, which we continue to believe adequately addresses the risk of loss in the loan portfolio. As Tom always says, and Adam just reiterated, we lead with risk. Therefore, we are cognizant of general industry concerns about credit and our proactive approach helps us properly assess our portfolio, identify risks and take any steps necessary to mitigate them.

Slide 8 covers the positive trends in our key metrics for the past year. The growth in the earnings metrics noted in those charts speaks for itself. In addition, TCE has grown to 8.8%, and our tangible book value per share has returned to premerger levels with a strong buildup expected from here.

Our loan portfolio is discussed on Slide 9. Both Tom and Adam covered our growth for the quarter, but we're now close to $4 billion in loans with an average yield of 6.58%. We had $224 million of loan production during the third quarter and continue to have a solid pipeline. Payoffs continue to have some impact on the loan growth during the third quarter.

On Slide 10, deposits increased by $17 million. We tapped into some brokered options for the first time in a while as the team works on building long-term core deposits. The cost of deposits declined again by a couple of basis points in the third quarter. We adjusted deposit pricing downward later in the third quarter, and that impact is expected to be reflected in the fourth quarter.

As I've discussed in the past, we held deposit rates higher than previously anticipated. We determined now with the appropriate time to start adjusting them to be more in line with market rates. The 88% loan-to-deposit ratio provides us with sufficient liquidity to fund our loan pipeline without placing a heavy reliance on alternative funding sources.

Slide 11 highlights the performance of the investment portfolio, we continue to take strategic actions with the portfolio to ensure it performs well in the current environment. The yield of 4.67% remains at the top of peer levels. Net unrealized losses decreased by $9 million as market rates declined, and the duration declined slightly from the prior quarter to $4.4 million.

Our regulatory capital ratios are addressed on Slide 12, and the total risk-based capital ratio did decline during the quarter as a result of the redemption of subordinated debt. But despite that, we feel good about our current capital position as well as our ability to grow capital rapidly in the future.

I'd like to now turn the call back over to Adam Metz for his closing remarks. Adam?

Thank you, Neil. The numbers speak for themselves. We are proud of our quarterly results. As Tom said, we believe that our successful execution of last year's merger is evident in our financial performance. We are optimistic about the future, both in the short and long term. We would now like to open the call to questions. Before we get started, the operator will briefly review the instructions with you.

[Operator Instructions] Your first question comes from the line of Tim Switzer with KBW.

I have a follow-up on your -- Neil, your commentary regarding the NIM. I understand the asset sensitivity here and with the Fed rate cuts, probably expect to see some near-term pressure, how should we think about the trajectory of the downward movement, assuming we get maybe 1 or 2 more rate cuts over the next few months? And is there a good rule of thumb that all you guys have for how many basis points of the NIM each 25 basis point cut is?

It's going to vary a little bit, but I put out there kind of the guidance I've given is the 4 to 5 -- 4.0% to 4.15% range. Obviously, the accretion fluctuates, so that's going to impact that. Down a couple of cuts, 225 basis point cuts isn't going to impact us substantially. What will impact is just competitive pricing, but where we -- if we consistently price loans where they're at, and we're able to continue to pull deposit costs down, we should be able to maintain where we're at through the next couple of cuts.

But depending on where the market is and the push to generate new loans, we'll see where that pricing falls out. So that's more so a factor is the competitive side of things and continuing to grow the balance sheet and where the margin is going to end up. And we've taken with the sub debt reduction and some other things and some deposit reductions that we took recently we'll continue to look at. But my hope is that we maintain around here with again, purchase accounting being -- around here to like potentially like 5 basis points lower.

So in that range with the potential that any accretion might have some positive or negative impact depending on the timing.

And your comments regarding the heavy competition on both loan and deposits. Are you able to provide any commentary around where that's coming from? Is it the larger competitors in your market, others closer to your size, are there any geographies or categories where it's a little bit more competitive?

I think it really depends on the market. as we talked about our growth markets, lean towards the Baltimore, Lancaster, Harrisburg markets and those competitors vary in those markets. And so I don't know that we see consistent but on any given relationship or any given opportunity, it does remain competitive.

Tim, to add to what I just -- clarify what I just said. The other like just from a numbers perspective, as rates -- as the rates come down, we will have some negative impact to the margin, but it's the actions that we take going forward that can offset that. So there's a big focus on that from a pricing perspective. So we know the model just on a stand-alone basis with no -- on a static basis, is going to have the margin come down, but we can take steps to offset that.

That makes sense. And on the loan side of competition, do you have a sense for how much of that is being driven by maybe some competitors who had pulled back on CRE or other areas momentarily and now they're kind of reentering or is it just that maybe loan growth demand is a little bit more tepid and so there's just less of the pie?

Yes, I think we see a mix of that, Tim. But I would tell you that we have been able here Q4, to get the price that we sort of set to the markets. In fact, they've done better than that. And I think that's a tribute, as I said in my comments, I think it really is a tribute to our relationship model. We're very high touch, very engaged with our clients and our prospects, and it makes a difference.

Your next question comes from the line of Gregory Zingone with Piper Sandler.

Just to go back to the NIM for a second. Do you have a spot NIM for September?

It's in the low 4s.

Okay. And then pivoting to credit for a minute. Would you be able to provide some color on what those largest credits are in classified today?

Yes. the larger credits are -- there's some CRE. There's an auto dealer and a variety of other C&I credits.

Would you be able to pin down a dollar figure in terms of maybe like your top 1 or 2 credits in there?

The top couple of credits with total -- in classified total about $20 million.

And you said it's roughly probably 2 or 3 credits that make up that balance.

That's right.

Okay. And then since quarter end, are there any new updates with any of those balances that you can share with us today?

Well, I would tell you, the -- we talked about some of the movement into classified and there was an owner-occupied credit that we received, it was $1.3 million, and it had moved into non-- we have moved it to nonaccrual in the third quarter. Subsequently, we've received a pay down of just under $900,000 on that. So that just demonstrates, I think, that we're pretty conservative on our -- in our decisions to move credits into nonaccrual.

And as another point worth noting on our nonaccrual balances is that approximately 50% of them are current for their monthly principal and interest payments.

Okay. Awesome. Last question for me, the early 5% loan guide for next year, do you have a lending focus in mind for how you want the mix to look like?

Yes. I mean like we've talked about, we feel like we have some CRE capacity. We were very proactive in addressing that premerger and immediately post-merger. But we've -- recently in the last quarter here, we've hired some additional talent on the C&I side, particularly in our middle market group. And so we have some opportunity there. We feel like we can deliver a unique experience in the middle market space. And we -- as I've said, talent wins, and I think we have some real talent there.

Your next question comes from the line of David Long with Raymond James.

Neil, you mentioned that you may see some NIM pressure with the rate cut but then you said that you can take some steps to offset such compression. What are -- what -- specifically, what are some of the tools that you have to help you avoid some NIM compression if that looks like we're going to see the rate cuts?

It really comes from a pricing perspective. If we've got -- so we made some adjustments to the deposit costs, and we've been intentionally higher kind of coming out -- as I've talked about in the past, coming out of the system conversion and the merger just from a client perspective, we made a lot of sense to not push down on rates as quickly as others may have. So we have some capacity there to pull down and the new funding opportunities impacts that as well. But the other piece of it, again, it's -- again, the answer is really competitive driven.

On the loan pricing side, we continue to price at the levels that we have been and then we should be able to maintain. But there's that balance of generating the growth and also kind of maintaining the margins. So we need to find that sweet spot. So if it makes sense for us as an organization to generate that growth, we may come down a little more on the margins. But a lot of -- again, it's market-driven, competitive driven.

Sure. Got it. And then with that outlook, the $4 to $4.15 on the NIM, what are your assumptions on the shape of the curve over the next several quarters? And how much does that -- if we do see a flatter curve or an inverted curve, how much pressure could that put on the NIM versus your expectations?

My modeling assumes existing -- our modeling assumes the existing curve, it's probably been -- I would expect it to flatten out a little bit over time. But again, we'll just -- we'll manage against that. That's part of the thought process and seeing some contraction there. But if longer-term rates do work their way back up, that will benefit us. So if we start to see some steepening and slope there, it will benefit us.

That concludes the Q&A portion of the presentation. Mr. Quinn, I turn the call back over to you for concluding remarks.

Thank you, operator, and thank you all for participating today. As always, if we can clarify any of the items discussed on the call this morning or in our earnings release, please feel free to give us a call or contact us and I wish you all a wonderful day. Thank you. Bye now.

This concludes the Orrstown's Financial Services, Inc. third quarter 2025 earnings conference call. You may disconnect your line at this time.