Orrstown Financial Services, Inc.

Second-quarter net income was $21.2 million, or $1.09 per diluted share. Return on average assets was 1.53% and return on average equity was 13.96%. Reported net interest margin was 3.87%, but excluding the $1.6 million one-time charge tied to subordinated debt redemption, adjusted NIM was 4.0%, up 10 basis points quarter over quarter. Fee income was $13.8 million, down from $15.6 million in the prior quarter, though first-quarter fee income included $2.4 million of life insurance benefits; excluding that item, fee income was about $600,000 higher sequentially. Noninterest expense was $37.7 million, up $938,000 quarter over quarter, and provision expense was $338,000 with about $1.2 million of net charge-offs. Loans grew 5% annualized in the quarter, deposits declined by $7.4 million, noninterest-bearing deposits increased by $39 million, and the cost of total deposits fell to 1.88% from 1.96%. Guidance remained unchanged: management still expects 2026 adjusted NIM in the 3.90% to 4.0% range and now expects the full-year result to land toward the higher end of that range. Noninterest income is expected to stay in a similar range as the second quarter, and expenses are expected to come in toward the lower end of the previously provided full-year range.

Adam Metz framed the quarter as another strong one and emphasized that Orrstown is focused on long-term value creation rather than short-term noise. He highlighted earnings strength, margin expansion, fee income, loan growth, and improving credit quality, while noting that the subordinated debt redemption should enhance future results. His tone was confident and steady, with repeated references to prudent lending, strong execution, and confidence in the strategy, team, and opportunities ahead.

Neelesh Kalani emphasized financial execution, especially the margin recovery to 4.0% on an adjusted basis after the $1.6 million debt-redemption charge. He pointed to lower deposit costs, reduced reliance on overnight borrowings, and a favorable mix shift toward noninterest-bearing deposits, while saying deposit costs have likely bottomed and the bank is positioned toward the higher end of the 3.90% to 4.0% 2026 NIM range. He also noted $13.8 million of fee income, a record $5.9 million quarter for wealth management, $37.7 million of expenses, $338,000 of provision expense, $1.2 million of net charge-offs, a 1.13% allowance coverage ratio, $18.9 million of unrealized losses in the investment portfolio, and a total risk-based capital decline tied to the $31 million subordinated debt redemption, which he expects to recover within two quarters.

Analysts focused on the timing of loan growth, deposit competition, and margin direction. Management said the commercial loan slowdown earlier in the quarter was mainly a timing issue caused by unexpected payoffs, not macro weakness, and said the pipeline remains strong. On deposits and margin, management said competition is active but not concentrated in any one market, that they feel good about their deposit mix shift, and that the bank is now slightly asset sensitive but closer to neutral; they also said they expect to remain around a 4.0% adjusted NIM level, with some potential upside if deposit mix keeps improving.