Orrstown Financial Services (NASDAQ:ORRF) reported what executives described as another strong quarter, with second-quarter 2026 net income of $21.2 million, or $1.09 per diluted share, as improved funding costs and continued fee income strength supported results.
President and Chief Executive Officer Adam Metz said the company delivered “strong net income, earnings per share, return on average assets, and return on average equity,” adding that credit quality remained solid during the quarter. Orrstown’s board also declared a quarterly dividend of $0.30 per share, payable in August.
Margin improves despite one-time debt redemption charge
Kalani attributed the margin expansion to actions taken on funding costs and reduced reliance on overnight borrowings after deposit inflows in the first quarter. He said deposit costs appear to have “bottomed out” at this stage, while noting that the deposit environment remains competitive.
Orrstown maintained its prior 2026 net interest margin guidance range of 3.90% to 4%, excluding the subordinated debt charge. Kalani said he now expects the company to be at the higher end of that range for the full year on an adjusted basis.
In response to a question from KBW analyst Tim Switzer, Kalani said the company was near the 4% margin level for much of the quarter, particularly in the back half, and expects to remain around that level going forward. He said Orrstown is “still slightly asset sensitive, but more on the neutral side” if interest rates move higher.
Fee income remains a core contributor
Non-interest income totaled $13.8 million in the second quarter, down from $15.6 million in the first quarter. Kalani noted that the first quarter included $2.4 million of life insurance benefits; excluding that item, fee income rose by about $600,000 sequentially.
Orrstown Financial Advisors, the company’s wealth management business, generated $5.9 million of income, up from $5.6 million in the prior quarter. Kalani said that was the unit’s highest quarterly income on record.
Swap fees totaled about $700,000 in the quarter. Kalani said that line item will continue to fluctuate based on timing, but remains a consistent source of fee income for the company. He said he expects non-interest income to remain in a similar range to the second quarter for the rest of the year, with full-year guidance unchanged.
Loan growth arrives late in the quarter
Orrstown reported annualized loan growth of 5% for the quarter, despite higher-than-expected payoffs and paydowns. Metz said a meaningful portion of the growth occurred late in the quarter, limiting its impact on second-quarter interest income.
Kalani said the company had $286 million of commercial loan production during the quarter, while net fundings were affected by unexpected payoff activity. He said the loan pipeline remains strong and management remains confident in its loan growth guidance.
Chief Revenue Officer Zach Khuri said the timing of commercial loan growth was largely client-driven and not related to broader macroeconomic concerns. “We did have some unexpected payoffs earlier in the quarter, the pipeline remains strong,” Khuri said. “Our clients continue to seek funding opportunities.”
In response to a question from D.A. Davidson analyst Catherine Hubinger about owner-occupied commercial real estate growth, Kalani said there was no single concentrated geography and that activity was within Orrstown’s core markets. On home equity lending, Kalani said the category has been a focus for the company’s teams and saw a “nice uptick” in the quarter, continuing from the prior quarter.
Deposit mix improves as costs decline
Total deposits declined by $7.4 million in the second quarter, though Kalani said management felt good about net deposit activity given seasonal factors in the prior quarter. Non-interest-bearing deposits increased by $39 million during the quarter, which executives highlighted as a positive shift in deposit mix.
The company’s loan-to-deposit ratio rose to 89%, which Kalani said remains in a good position to support balance sheet growth. Total deposit costs fell to 1.88% in the second quarter from 1.96% in the first quarter, reflecting earlier pricing actions.
Asked about deposit competition, Khuri said he would not identify any particular market or deposit category where competition had intensified. He said Orrstown believes it remains competitive and credited teams for shifting the deposit mix toward non-interest-bearing operating accounts.
Credit quality remains steady
Orrstown recorded provision expense of $338,000 for the quarter and net charge-offs of about $1.2 million. Kalani said improvements in certain underlying credit metrics led to qualitative factor adjustments in the company’s model, offsetting some of the charge-off impact.
The allowance coverage ratio was 1.13% as of June 30, and Kalani said management believes it remains adequately aligned with the loan portfolio’s risk profile. Classified loans have declined for several quarters, and non-accrual loans fell by $6.2 million from the first quarter.
Metz said the company remains prudent in lending decisions but believes the credit environment remains sound and is not showing significant signs of stress.
Non-interest expense rose by $938,000 in the quarter to $37.7 million, primarily due to salaries and benefits, including annual merit increases and higher healthcare costs. Kalani said he expects expenses to come down slightly in the third quarter because of several one-off items and still expects full-year expenses to fall near the lower end of the company’s previously provided range.
Orrstown also redeemed $31 million of subordinated debt on June 30, which reduced its total risk-based capital ratio from the prior quarter. Kalani said the company expects to recover the capital impact of the redemption within two quarters through future earnings generation.
Metz said the company remains focused on serving clients, investing in people and technology, maintaining risk discipline and allocating capital to create long-term shareholder value.
About Orrstown Financial Services (NASDAQ:ORRF)
Orrstown Financial Services, Inc is the bank holding company for Orrstown Bank, a community banking organization headquartered in Shippensburg, Pennsylvania. The roots of Orrstown Bank date back to 1865, and the holding company structure was established to support its growth and diversification. As a regional financial institution, Orrstown Financial Services focuses on delivering personalized banking solutions to individuals, families and businesses across Central Pennsylvania.
The company’s core offerings include a full suite of deposit products such as checking and savings accounts, money market accounts and certificates of deposit.
