Updated 3/11/2025
Orrstown Financial Services, Inc. (NASDAQ: ORRF) is a regional bank that has been around for decades, steadily building its presence in Pennsylvania and neighboring states. The company focuses on personal and commercial banking, as well as wealth management, serving both individuals and businesses in the community.
For income-focused investors, regional banks like Orrstown can offer steady dividends and a degree of financial stability. These stocks don’t always make headlines, but they can be reliable sources of passive income. The question is, does ORRF fit the bill for a dividend portfolio? Let’s break it down.
Key Dividend Metrics
📈 Forward Yield: 3.43%
💵 Annual Dividend: $1.04 per share
🔄 5-Year Average Yield: 3.34%
📊 Payout Ratio: 58.11%
📆 Recent Dividend Date: February 21, 2025
❌ Ex-Dividend Date: February 14, 2025
Dividend Overview
Orrstown’s dividend yield is sitting at 3.43%, which is slightly above its 5-year average of 3.34%. That suggests investors are getting a reasonable income return at current levels. The payout ratio of 58.11% is in a comfortable range—not too high to raise concerns about sustainability, but not so low that the company isn’t rewarding shareholders.
One notable point is that ORRF’s trailing annual dividend yield of 2.84% is lower than the forward yield. This suggests that the company has raised its dividend recently, a positive sign for investors who prioritize growing income streams.
Dividend Growth and Safety
A good dividend stock isn’t just about the yield—it’s about whether the company can keep paying and ideally increasing that payout over time. Orrstown has a history of modest dividend increases, though it’s not known for aggressive dividend growth.
The company’s payout ratio is reasonable, meaning it’s not overextending itself to pay dividends. That’s a critical factor for income investors because when a bank starts paying out too much of its earnings, it can signal trouble down the road.
One thing to keep in mind is that regional banks are heavily influenced by the broader economy and interest rates. If the Federal Reserve cuts rates significantly, it could squeeze Orrstown’s margins, which might make future dividend increases less likely.
Chart Analysis
Overall Trend
The stock has had a strong run-up in the past year, peaking in late 2024 before beginning a steady decline. The rise in price was accompanied by a solid uptrend in the 50-day moving average, but now that trend has reversed. The 50-day moving average has been sloping downward for a while and recently crossed below the 200-day moving average, forming a death cross pattern. This is often seen as a bearish signal, suggesting further downside pressure.
Recent Price Action
The most recent price action shows that the stock is struggling to hold support levels. It closed at 30.33, after bouncing slightly off the low of 30.12. The candlestick pattern suggests some buying interest at lower levels, but the overall trend remains weak. The price has fallen below the 200-day moving average, which could now act as resistance on any attempted rebound.
Volume Analysis
Trading volume has been relatively muted, except for a few spikes in selling pressure during major pullbacks. A significant increase in volume occurred during the initial breakout last summer, but recent declines have been met with heavier selling volume, signaling distribution rather than accumulation. Without strong buying volume stepping in, the downward trend is likely to continue.
Relative Strength Index (RSI)
The RSI is currently in a weak territory, trending near oversold levels. This suggests that the stock is under selling pressure, but it’s not deeply oversold just yet. If RSI drops further below 30, it could indicate that the stock is due for a short-term bounce. However, a weak RSI can also mean that momentum remains firmly in the hands of the sellers.
Moving Averages Impact
The 50-day moving average is rolling over and pointing downward, confirming the short-term weakness. The 200-day moving average had been rising steadily for much of 2024 but has now flattened out. With the price trading below both key moving averages, it suggests that the longer-term uptrend is in jeopardy. For the trend to improve, the stock would need to reclaim the 200-day moving average and hold above it.
Key Support and Resistance Levels
Support appears to be forming around the 30 level, as this is where buyers have stepped in recently. If this level fails, the next significant support could be around the 27-28 range, where the stock had consolidated before its prior rally. On the upside, resistance is now around 33-34, which aligns with the 200-day moving average and could be a tough level to break in the near term.
Recent Candlestick Patterns
The last five candlesticks show increasing downward pressure, with small-bodied candles suggesting indecision. There are long upper wicks, indicating that attempts to push higher have been met with selling. This kind of price action often signals that sellers remain in control, and without strong bullish confirmation, the trend may stay weak.
Analyst Ratings
📈 Upgrades
One notable upgrade came from Hovde Group, which raised its price target for ORRF from $26 to $31. This upward revision was driven by the company’s improved financial metrics, particularly the increase in the tangible common equity ratio to 8.0% as of December 31, 2023, up from 7.3% in the previous quarter. Such enhancements in capital strength often signal a more robust financial foundation, prompting analysts to adjust their valuations accordingly.
💳 Another reason for the upgrade was the steady growth in deposit balances, which increased quarter-over-quarter, showing that the bank continues to attract and retain customers. This stability in core banking operations led analysts to believe that Orrstown’s financial position is strengthening despite economic headwinds.
📉 Downgrades
On the other side, Boenning & Scattergood downgraded ORRF from outperform to neutral. This adjustment was influenced by a slight decline in net income, which fell to $7.6 million for the quarter ending December 31, 2023, down from $9.0 million in the prior quarter.
⚠️ Additionally, analysts noted an increase in classified loans to $55.0 million at the end of 2023, up from $33.6 million in the previous quarter. A rising level of riskier loans suggests that the bank may face credit issues down the line, leading some analysts to take a more cautious approach to their forecasts.
📊 Consensus Price Target
The stock has received mixed ratings from analysts, reflecting both its strengths and risks. The average 12-month price target from four analysts currently stands at $39.75, with estimates ranging from a low of $32.00 to a high of $43.00.
🔍 The wide range in price targets suggests that analysts have differing opinions on how well Orrstown can navigate current economic conditions. While some believe its strong capital position and deposit growth support a higher valuation, others remain cautious due to potential credit risks and slowing profitability.
These differing views highlight the importance of considering both recent financial improvements and emerging risks when evaluating ORRF’s future outlook.
Earnings Report Summary
Orrstown Financial Services wrapped up the fourth quarter of 2024 with a strong rebound, posting a net income of $13.7 million, or $0.71 per share. This was a major improvement from the previous quarter when the company reported a net loss. The turnaround was fueled by better asset quality and lower noninterest expenses, though there were still some challenges in loan growth and fee income.
Net Interest Income and Margin
The bank’s net interest income came in at $50.6 million, slightly lower than the $51.7 million reported in the previous quarter. The net interest margin also edged down to 4.05% from 4.14%. This drop was largely due to a decrease in loan balances, which fell by $28 million. While interest income on loans was down, the bank remained well-positioned with a solid lending portfolio.
Credit Losses and Loan Performance
Orrstown set aside $1.8 million in provisions for credit losses this quarter, mainly due to a $2.4 million charge-off related to a commercial and industrial loan and another $600,000 in loan charge-offs from a sale. Despite these losses, overall asset quality improved, with non-accrual loans declining by $2.8 million to $24.1 million. That’s a positive sign that the bank is managing credit risk effectively.
Noninterest Income and Expenses
Noninterest income slipped by $1.2 million to $11.2 million, mainly because of waived fees after a system upgrade and the absence of tax credits that boosted earnings in the prior quarter. Wealth management revenues held steady at $4.9 million, just slightly down from $5.0 million.
On the expense side, the bank made meaningful progress. Noninterest expenses dropped by $17.4 million, coming in at $42.9 million for the quarter. A big part of this decline was due to fewer merger-related costs, which had been significantly higher in the third quarter. Salaries and benefits expenses were also lower, thanks to one-time executive retirement costs that had previously inflated the numbers.
Balance Sheet and Capital Strength
Total loans declined by $50.2 million, bringing the loan balance to $3.9 billion. This was part of a deliberate move to manage risk, particularly in commercial real estate lending. Deposits also dipped slightly, reflecting seasonal trends, but the loan-to-deposit ratio remained stable at 85%.
On the capital side, the bank maintained a strong financial position, with total shareholders’ equity holding steady at $516.7 million. The tangible book value per share ticked up slightly to $21.19, showing steady financial health. Capital ratios remained well above regulatory requirements, reinforcing confidence in the bank’s ability to weather economic uncertainties.
Overall, Orrstown closed out 2024 on a strong note, bouncing back from a tough third quarter while continuing to navigate some headwinds in loan growth and noninterest income. The company’s efforts to control expenses and improve credit quality were clear positives, setting the stage for a solid start to 2025.
Financial Health and Stability
For a dividend to be sustainable, the company’s financial health has to be in good shape. Orrstown has a solid foundation, but there are some things to keep an eye on.
- Profit margin sits at 12.52%, which is decent but not spectacular.
- Operating margin is stronger at 41.38%, indicating efficiency in how the business is run.
- Return on assets (ROA) is at 0.52%, which is on the lower side for banks.
- Return on equity (ROE) is 5.64%, which is also modest.
From a balance sheet perspective, Orrstown has a decent cash position with $238.31 million in cash and $209.91 million in debt. That’s a manageable level of debt, but it’s something investors should continue monitoring. The book value per share is $26.65, meaning the stock is trading close to its tangible book value, a key metric for bank investors.
Valuation and Stock Performance
Valuation is important for determining if a stock is a good buy, and ORRF looks fairly priced at the moment.
- The price-to-earnings (P/E) ratio is 20.49 on a trailing basis, which is on the higher side for a bank stock.
- The forward P/E drops to 8.89, suggesting that earnings are expected to improve, making the stock look more attractive.
- The price-to-book (P/B) ratio is 1.14, indicating the stock is not far from its intrinsic value.
Looking at the stock’s performance over the past year, the price has ranged from a low of $24.70 to a high of $41.99. With the current price at $30.63, it’s sitting closer to the lower end of that range, which could present a potential opportunity depending on market conditions.
Risks and Considerations
No stock is without risks, and ORRF is no exception.
📉 Interest Rate Sensitivity – Like all banks, Orrstown is influenced by interest rate changes. Lower rates could put pressure on profitability, while higher rates could help expand margins.
🏦 Regional Economic Exposure – Unlike big national banks, ORRF is tied to local economic conditions. If Pennsylvania’s economy slows down, that could directly impact the bank’s loan portfolio and earnings.
📊 Modest Profitability – The bank is stable, but its return on assets and return on equity numbers aren’t particularly strong. This limits its ability to grow at a rapid pace.
🛑 Limited Growth Drivers – ORRF is a steady, income-generating stock, but it doesn’t have any major catalysts for big price appreciation in the near future.
Final Thoughts
Orrstown Financial Services offers a steady dividend and reasonable financial stability, making it a decent pick for income-focused investors. With a 3.43% yield, a manageable payout ratio, and a stock price that’s not overly expensive, it checks a lot of boxes for a reliable dividend stock.
That being said, it’s not a high-growth play, and its profitability metrics are on the lower end for a bank. Investors who are looking for strong dividend growth might want to explore other options, but for those who prioritize steady income over explosive returns, ORRF fits the bill.
Regional banks require careful monitoring, especially in an uncertain interest rate environment. As long as the company continues to generate consistent earnings and manages risk well, it should remain a dependable dividend payer.
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