Orrstown Financial Services Q1 2026 Earnings Report

Orrstown Financial Services EPS Results

• Actual EPS: $1.12
• Consensus EPS: $1.04
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

Orrstown Financial Services Revenue Results

• Actual Revenue: $64.58 million
• Expected Revenue: $63.20 million
• Beat/Miss: Beat by +$1.38 million
• YoY Revenue Growth: N/A

Orrstown Financial Services Announcement Details

• Quarter: Q1 2026
• Date: 4/22/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, April 22, 2026
• Conference Call Time: 9:00AM ET

Orrstown Financial Services (NASDAQ:ORRF) Corporation (NASDAQ: ORRF) is a bank holding company headquartered in Shippensburg, Pennsylvania. Through its principal subsidiary, Orrstown Bank, the company provides banking and financial services to individuals, families, businesses, agricultural customers and nonprofit organizations.

Orrstown Bank offers deposit accounts, consumer and commercial loans, residential mortgage lending, agricultural financing, treasury management and other business banking services. Its offerings also include wealth management, trust and investment services designed to support personal and institutional financial planning needs.

Founded in 1919, Orrstown has historically focused on communities in south-central Pennsylvania and nearby areas of Maryland. The company has expanded its market presence through organic growth and strategic combinations, including its merger with Codorus Valley Bancorp, the parent company of PeoplesBank, which broadened its banking operations in Pennsylvania and Maryland.

Orrstown Financial Services Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Orrstown reported strong quarterly profitability with net income of $21.8 million ($1.12 EPS)
• Positive Sentiment: The net interest margin was 3.90%, down from 4.00% due to the December Fed cut and timing of funding, but management expects the margin to stabilize and trend higher with declining funding costs and reaffirmed 2026 guidance of 3.90%–4.00%.
• Positive Sentiment: Deposit balances grew by $98.7 million (9% annualized), enabling a reduction in borrowings, a decline in cost of deposits to 1.96%, and an increase in lower‑cost demand balances—expected to lower funding costs further.
• Neutral Sentiment: Loan production was strong with $211 million originated and loans up ~4% annualized, though overall growth was tempered by unexpected prepayments; management cites a robust pipeline.
• Neutral Sentiment: Credit metrics were mixed: provision expense was modest at $728k, net charge‑offs ~ $900k, allowance coverage 1.17%, nonaccruals rose ~$2M (two relationships) while classified loans declined.

[Operator]

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during the Q&A session, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. 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.

[Tom Quinn, President and CEO at Orrstown Financial Services]

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.

[Tom Quinn, President and CEO at Orrstown Financial Services]

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 Curry, Chief Risk Officer, Bob Crotty, and Chief Credit Officer, Dave Czajkowski, 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. Non-interest 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.

[Tom Quinn, President and CEO at Orrstown Financial Services]

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

[Adam Metz, Senior EVP and COO at Orrstown Financial Services]

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, non-interest demand deposits, time deposits, and money market deposits.

[Adam Metz, Senior EVP and COO at Orrstown Financial Services]

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?

[Neil Kalani, CFO at Orrstown Financial Services]

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 four of the earnings deck, the net interest margin was 3.90% in the first quarter, down from 4.00% in the fourth quarter of 2025. 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.

[Neil Kalani, CFO at Orrstown Financial Services]

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 2026. The previous guidance for net interest margin in the range of 3.90%-4.00% for 2026 remains, with an expectation of the margin increasing from here. Overall, in an extremely competitive environment, we feel good about the first quarter deposit growth, reduced reliance on borrowings, and where our funding costs are settling in. On slide five, 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.

[Neil Kalani, CFO at Orrstown Financial Services]

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 non-interest income to be in line with previously reported guidance. Now I'll cover non-interest expenses on slide six. Expenses declined by $700,000 this quarter to $36.7 million. Salaries and benefits declined with lower healthcare costs and some year-end incentive adjustments. Professional services came down substantially as we continued to reduce our reliance on third-party support. 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 seven 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.

[Neil Kalani, CFO at Orrstown Financial Services]

Our allowance coverage ratio was 1.17% at March 31, 2026, 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 two relationships. While we experienced some movement into the non-performing category, we also continued 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 eight. All metrics remain strong. TCE has increased to 9.2%, despite an increase since December 31, 2025 of $6.8 million in unrealized losses on investment securities due to changes in market rates. Slide nine addresses our loan portfolio. Loans again grew by 4% in the quarter.

[Neil Kalani, CFO at Orrstown Financial Services]

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 non-interest-bearing deposits of $14 million or 7% annualized.

[Neil Kalani, CFO at Orrstown Financial Services]

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 was a little bit of purchases 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 will 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.

[Neil Kalani, CFO at Orrstown Financial Services]

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. 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?

[Adam Metz, Senior EVP and COO at Orrstown Financial Services]

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]

Thank you. At this time, I would like to remind everyone in order to ask a question, please press star and then the number one on your telephone keypad. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of Tim Switzer with KBW. Your line is open.

[Tim Switzer, VP of Equity Research at KBW]

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

[Adam Metz, Senior EVP and COO at Orrstown Financial Services]

Morning, Tim.

[Neil Kalani, CFO at Orrstown Financial Services]

Morning, sir.

[Tim Switzer, VP of Equity Research at 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 the loan or security yield side as well? Or was it just primarily the deposits?

[Neil Kalani, CFO at Orrstown Financial Services]

No, there's nothing surprising. It is primarily deposits. 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. It truly is driven by the deposit, the timing of the deposits. 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.

[Tim Switzer, VP of Equity Research at KBW]

Okay, got it. Are you able to help? You said an upward trajectory from here. Can you help us quantify that at all? 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? Any idea on maybe where we would end the year, say, if we get just a zero rate cut?

[Neil Kalani, CFO at Orrstown Financial Services]

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.

[Tim Switzer, VP of Equity Research at KBW]

Okay, great. That's very helpful. 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?

[Adam Metz, Senior EVP and COO at Orrstown Financial Services]

Yeah, 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. We were very pleased with the results, and we think that we have a lot of momentum going forward.

[Tim Switzer, VP of Equity Research at KBW]

Great. Very helpful. Thanks for taking my questions.

[Operator]

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

[Tom Quinn, President and CEO at Orrstown Financial Services]

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.

[Operator]

This concludes the Orrstown Financial Services Inc. first quarter 2026 earnings conference call. You may disconnect your lines at this time.

Participants

Executives

• Adam Metz, Senior EVP and COO
• Neil Kalani, CFO
• Tom Quinn, President and CEO

Analysts

• Tim Switzer, VP of Equity Research at KBW