Q2 2026 Orrstown Financial Services Inc Earnings Call
Speaker #1: 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., Q2, 2026 earnings conference call.
Operator: 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. Q2 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'd like to ask a question during the Q&A session, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one a second time. 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.
Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during the Q&A session, simply press star followed by the number 1 on your telephone keypad.
Speaker #1: If you'd like to withdraw your question, press star 1 a second time. 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.
Speaker #1: Mr. Metz, please go ahead.
Speaker #2: Thank you, Regina, and good morning. I would like to thank everyone for participating in Orrstown's Q2 2026 earnings conference call, both by telephone and through the webcast.
Adam Metz: Thank you, Regina. Good morning. I would like to thank everyone for participating in Orrstown's Q2 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, 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 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.
Adam Metz: Thank you, Regina. Good morning. I would like to thank everyone for participating in Orrstown's Q2 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, 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 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.
Speaker #2: 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.
Speaker #2: Once there, you can click 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.
Speaker #2: Cautionary statements about this information are included in the earnings release, the investor presentation, and our SEC filings. The earnings release investor presentation also includes non-GAAP financial measures.
Speaker #2: The appropriate reconciliations to GAAP are included in those documents. Joining me today on the call is Neil Kalani, Orrstown Chief Financial Officer. Also participating in the discussion are Zach Corey, Chief Revenue Officer, Bob Carotti, Chief Risk Officer, and Dave Chikowski, Chief Credit Officer.
Adam Metz: Also participating in the discussion are Zach Khuri, Chief Revenue Officer, Bob Karaty, 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 one-time 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, is expected to enhance go-forward results.
Adam Metz: Also participating in the discussion are Zach Khuri, Chief Revenue Officer, Bob Karaty, 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 one-time 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, is expected to enhance go-forward results.
Speaker #2: 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.
Speaker #2: Return on average equity and return on average assets continued to exceed pure multiples. Excluding the impact of a one-time charge to interest expense, the net interest margin improved 10 basis points to 4% during the quarter.
Speaker #2: 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 subordinate notes, which resulted in a charge of $1.6 million but is expected to enhance go forward results.
Speaker #2: 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 Q2 interest income.
Adam Metz: 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 Q2 interest income. Credit quality remains strong. Classified loans and non-accrual loans both decreased quarter-to-quarter. We remain prudent in our lending decisions. 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. Neelesh Kalani, our CFO, will now discuss our quarterly results in more detail. Neelesh?
Adam Metz: 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 Q2 interest income. Credit quality remains strong. Classified loans and non-accrual loans both decreased quarter-to-quarter. We remain prudent in our lending decisions. 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. Neelesh Kalani, our CFO, will now discuss our quarterly results in more detail. Neelesh?
Speaker #2: Credit quality remained strong. Classified loans and non-accrual loans both decreased quarter to quarter. We remained prudent in our lending decisions, but we believe that the credit environment remained sound and without significant signs of stress.
Speaker #2: 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.
Speaker #2: Neelesh Kalani, our CFO, will now discuss our quarterly results in more detail. Neelesh?
Speaker #3: Thank you, Adam. Good morning, everyone. We had an excellent Q2 with net income of $21.2 million, or $1.09 in earnings per diluted share. Return on average assets for the quarter was $153, and return on average equity was $13.96%.
Neelesh Kalani: Thank you, Adam, and good morning, everyone. We had an excellent Q2 with net income of $21.2 million, or $1.09 in earnings per diluted share. Return on average assets for the Q2 was 153, and return on average equity was 13.96%. Most notable for the Q2 was our net interest margin expansion. On slide 4 of the earnings deck, you see that our reported net interest margin was 387 in the Q2. If you exclude the impact of a one-time $1.6 million charge due to the subordinated debt redemption, our margin got back to 4% even, which is where it was in the Q4 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 the full benefit of mid-quarter. Back up. Apologize.
Neelesh Kalani: Thank you, Adam, and good morning, everyone. We had an excellent Q2 with net income of $21.2 million, or $1.09 in earnings per diluted share. Return on average assets for the Q2 was 153, and return on average equity was 13.96%. Most notable for the Q2 was our net interest margin expansion. On slide four of the earnings deck, you see that our reported net interest margin was 387 in the Q2. If you exclude the impact of a one-time $1.6 million charge due to the subordinated debt redemption, our margin got back to 4% even, which is where it was in the Q4 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 the full benefit of mid-quarter. Back up. Apologize.
Speaker #3: 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 Q2.
Speaker #3: But if you exclude the impact of a one-time $1.6 million charge due to the subordinated debt redemption, our margin got back to 4% even.
Speaker #3: Which is where it was in Q4 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 the full benefit mid-quarter—I apologize, early in the first quarter—and recognized the full benefit mid-quarter.
Speaker #3: 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.
Neelesh Kalani: 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 Q1 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 390 to 4% for 2026 remains, and that's excluding the $1.6 million charge. With the deliberate steps we took in the H1 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. There's always risk with future pricing pressures and deposit generation.
Neelesh Kalani: 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 Q1 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 390 to 4% for 2026 remains, and that's excluding the $1.6 million charge. With the deliberate steps we took in the H1 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. There's always risk with future pricing pressures and deposit generation.
Speaker #3: I believe our deposit costs had bottomed out at this stage. The previous guidance for net interest margin in the range of $390 to 4% for 2026 the $1.6 million charge.
Speaker #3: 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 at the higher end of that range.
Speaker #3: 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.
Speaker #3: 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.
Neelesh Kalani: On the loan side, many of our fundings were pushed into late June. The impact of that activity is not fully reflected in net interest income. Overall, I'm pleased with where we're positioned with margin and its components. On slide 5, fee income declined to $13.8 million in the Q2 from $15.6 million in the Q1 of 2026. In the Q1, $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 Q2, Orrstown Financial Advisors, our wealth management team, recorded income of $5.9 million. Up from $5.6 million the prior quarter. This was their highest quarterly income on record. We're very excited about both what that team has accomplished and the opportunities that lie ahead. Swap fees were around $700,000 in the Q.
Neelesh Kalani: On the loan side, many of our fundings were pushed into late June. The impact of that activity is not fully reflected in net interest income. Overall, I'm pleased with where we're positioned with margin and its components. On slide 5, fee income declined to $13.8 million in the Q2 from $15.6 million in the Q1 of 2026. In the Q1, $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 Q2, Orrstown Financial Advisors, our wealth management team, recorded income of $5.9 million. Up from $5.6 million the prior quarter. This was their highest quarterly income on record. We're very excited about both what that team has accomplished and the opportunities that lie ahead. Swap fees were around $700,000 in the Q.
Speaker #3: 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 Q2.
Speaker #3: 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.
Speaker #3: Higher than the previous quarter. In the second quarter, Orrstown Financial Advisors are wealth management team recorded income of $5.9 million, up from $5.6 million in the prior quarter.
Speaker #3: This was their highest quarterly income on record. We're very excited about both what the team has accomplished and the opportunities that lie ahead.
Speaker #3: Swap fees were around $700,000 in the quarter. The balance will continue to fluctuate based on timing and what remains a consistent source of solid fee income for us.
Neelesh Kalani: The balance will continue to fluctuate based on timing and it remains a consistent source of solid fee income for us. I expect non-interest income to be in a similar range for the Q2 for the remainder of the year, with full year guidance unchanged. Slide 6 is non-interest expenses. Expenses increased by $938,000 this Q to $37.7 million. Salaries and benefits drove that increase due to the impact of annual merit increases and higher healthcare costs. Due to a few one-off items, I would expect this number to come down a little bit in the Q3. I still expect our expenses will fall into the lower end of the range previously provided for the full year.
Neelesh Kalani: The balance will continue to fluctuate based on timing and it remains a consistent source of solid fee income for us. I expect non-interest income to be in a similar range for the Q2 for the remainder of the year, with full year guidance unchanged. Slide 6 is non-interest expenses. Expenses increased by $938,000 this Q to $37.7 million. Salaries and benefits drove that increase due to the impact of annual merit increases and higher healthcare costs. Due to a few one-off items, I would expect this number to come down a little bit in the Q3. I still expect our expenses will fall into the lower end of the range previously provided for the full year.
Speaker #3: I expect non-interest income to be in a similar range for the second quarter and for the remainder of the year, with full-year guidance unchanged. Slide 6 is non-interest expenses.
Speaker #3: The 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 healthcare costs.
Speaker #3: 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.
Speaker #3: 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.
Neelesh Kalani: 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 seven covers credit quality. Provision expense was $338,000 for the quarter. We had approximately $1.2 million in 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 intent. Our allowance coverage ratio was 1.13% at 30 June, 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. Non-accruals declined by $6.2 million from Q1 as our credit team continues to do an excellent job of managing our portfolio.
Neelesh Kalani: 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 seven covers credit quality. Provision expense was $338,000 for the quarter. We had approximately $1.2 million in 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 intent. Our allowance coverage ratio was 1.13% at 30 June, 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. Non-accruals declined by $6.2 million from Q1 as our credit team continues to do an excellent job of managing our portfolio.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: Last slide. Loans have steadily declined for several quarters, which is a very positive trend. Non-accruals declined by $6.2 million from the first quarter, as our credit team continues to do an excellent job of managing our portfolio.
Speaker #3: The earnings and performance metrics on slide 8—all metrics remained strong. TCE has increased to 9.5%, and tangible book value per share continues to grow at a nice rate.
Neelesh Kalani: The earnings and performance metrics on slide eight. All metrics remain strong. TCE has increased to 9.5% and tangible book value per share continues to grow at a nice rate. Slide nine 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 Q2. 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 Q2. There was some seasonality in prior quarter deposit growth, we feel good about our net deposit activity for the quarter. A specific highlight is the continued change in mix, as non-interest-bearing deposits increased by $39 million during the quarter.
Neelesh Kalani: The earnings and performance metrics on slide eight. All metrics remain strong. TCE has increased to 9.5% and tangible book value per share continues to grow at a nice rate. Slide nine 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 Q2. 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 Q2. There was some seasonality in prior quarter deposit growth, we feel good about our net deposit activity for the quarter. A specific highlight is the continued change in mix, as non-interest-bearing deposits increased by $39 million during the quarter.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: We saw some seasonality in the prior quarter's deposit growth, so we feel good about our net deposit activity for the quarter. A specific highlight is the continued change in mix, as non-interest-bearing deposits increased by $39 million during the quarter.
Speaker #3: Our team is actively seeking new low-cost deposit sources. The loan-to-deposit ratio increased slightly to 89%, but we're still in a good position to support balance sheet growth.
Neelesh Kalani: 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 Q2 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 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 was a result of the redemption of $31 million of subordinated debt at 30 June 2026, 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.
Neelesh Kalani: 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 Q2 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 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 was a result of the redemption of $31 million of subordinated debt at 30 June 2026, 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: This is a result of the reduction of $31 million of subordinated debt at June 30th, 2026. And we expect to recover the capital impact of this redemption within two quarters.
Speaker #3: The anticipated strength of future earnings is expected to drive further capital generation. We continue to believe we are positioned to take advantage of various capital allocation options.
Neelesh Kalani: We continue to believe we're positioned to take advantage of various capital allocation options. To summarize the quarter, we had 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 one-time charge to interest expense associated with the redemption, the impact is 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. Thank you for your time this morning, and I'll now turn it back to Adam Metz for his closing remarks. Adam?
Neelesh Kalani: We continue to believe we're positioned to take advantage of various capital allocation options. To summarize the quarter, we had 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 one-time charge to interest expense associated with the redemption, the impact is 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. Thank you for your time this morning, and I'll now turn it back to Adam Metz for his closing remarks. Adam?
Speaker #3: So, to summarize the quarter, we have 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.
Speaker #3: We took a one-time charge to interest expense associated with the redemption, but the impact is offset with the benefit of a tax credit. Fee income remains in core strength, which also presents many future opportunities for growth.
Speaker #3: Expenses will continue to be managed closely. All combined, these factors 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.
Speaker #3: Adam?
Speaker #1: Thank you, Neel. As Neel 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.
Adam Metz: 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.
Adam Metz: Thank you, Neel. As Neel 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: Before we get started, Regina will briefly review the instructions with you.
Speaker #2: At this time, I'd like to remind everyone that in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Operator: At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Tim Switzer with KBW. Please go ahead.
Operator: At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Tim Switzer with KBW. Please go ahead.
Speaker #2: Our first question will come from the line of Tim Switzer with KPW. Please go ahead.
Speaker #3: Hey, good morning, guys. Thank you for taking my questions.
Tim Switzer: Hey, good morning, guys. Thank you for taking my questions.
Tim Switzer: Hey, good morning, guys. Thank you for taking my questions.
Speaker #4: Hi, Tim. Good morning.
Adam Metz: All right, Tim. Good morning.
Adam Metz: All right, Tim. Good morning.
Tim Switzer: 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? The acceleration at the end, what drove that? It kind of sounds like it's maybe following through into Q3 as well.
Tim Switzer: 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? The acceleration at the end, what drove that? It kind of sounds like it's maybe following through into Q3 as well.
Speaker #3: The 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, you know, 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?
Speaker #3: And then, you know, the acceleration at the end, what drove that? And, you know, is it kind of sounds like it's maybe falling through into Q3 as well.
Speaker #4: I think, you know, 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.
Adam Metz: I think the loan growth, particularly the commercial, really was just a timing thing, Tim. We did have some unexpected payoffs earlier in the quarter, but the pipeline remains strong. Our clients continue to seek funding opportunities, we're very optimistic about our growth going forward. We feel strong about it, and the teams are excited.
Adam Metz: I think the loan growth, particularly the commercial, really was just a timing thing, Tim. We did have some unexpected payoffs earlier in the quarter, but the pipeline remains strong. Our clients continue to seek funding opportunities, we're very optimistic about our growth going forward. We feel strong about it, and the teams are excited.
Speaker #4: And, you know, our clients continue to seek funding opportunities and so we're very optimistic about our growth going forward. We feel strong about it.
Speaker #4: And the teams are excited.
Speaker #3: A bit of health and cancer at the other part of your question was not about the macro level, but that drove that. It's really just client-driven timing.
Neelesh Kalani: There's nothing to answer the other part of your question. There's nothing at a macro level, but the truth of that, it's really just client-driven timing.
Neelesh Kalani: There's nothing to answer the other part of your question. There's nothing at a macro level, but the truth of that, it's really just client-driven timing.
Speaker #4: Yeah.
Adam Metz: Yeah.
Adam Metz: Yeah.
Speaker #3: Okay. Okay, that's helpful. And then, I mean, this sounds like it's kind of similar to last quarter with the 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, you know, what are your expectations for the trajectory going forward, assuming obviously no more rate cuts, but if we don't have any rate hikes, it sounds like we can continue to grind a little bit higher, probably, with deposit trends?
Tim Switzer: Okay. That's helpful. It sounds like it's kind of similar to last quarter. It's a deposit trend, 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 this trajectory going forward, assuming obviously no more rate cuts, but if we don't have any rate hikes, it sounds like we can continue to grind a little bit higher, probably with deposit trends.
Tim Switzer: Okay. That's helpful. It sounds like it's kind of similar to last quarter. It's a deposit trend, 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 this trajectory going forward, assuming obviously no more rate cuts, but if we don't have any rate hikes, it sounds like we can continue to grind a little bit higher, probably with deposit trends.
Speaker #4: Potentially. Once we get the falling tide to the sub-bed, we were the kind of we were around that 4% level for most of the most of the quarter, particularly back half.
Neelesh Kalani: Potentially. Once we get the full impact of the sub-debt, we were around that 4% level, for most of the quarter, particularly the 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 this is likely where we're going to sit. Like I said, I expect this to be excluding sub-debt impact at the higher end of the broader range. The team are constantly focused on what things we can do to help drive that margin higher. I did point to the change that it's been several quarters now we've seen a good shift in the mix. You see the time deposits coming down, non-interest-bearing and interest checking at a good spot, which I think non-interest-bearing with the growth there.
Neelesh Kalani: Potentially. Once we get the full impact of the sub-debt, we were around that 4% level, for most of the quarter, particularly the 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 this is likely where we're going to sit. Like I said, I expect this to be excluding sub-debt impact at the higher end of the broader range. The team are constantly focused on what things we can do to help drive that margin higher. I did point to the change that it's been several quarters now we've seen a good shift in the mix. You see the time deposits coming down, non-interest-bearing and interest checking at a good spot, which I think non-interest-bearing with the growth there.
Speaker #4: I expect to be around that level going forward. There is some opportunity potentially to move that a little bit, but I think we're this is this is likely we're going to sit and, like I said, I expect this to be excluding the sub-bed impact at the higher end of the broader range.
Speaker #4: 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.
Speaker #4: We've seen a good shift in the mix. You see the time deposits coming down, non-interest bearing, and interest checking at a good spot, which has been non-interest bearing, with the growth there.
Speaker #4: So it's something we continue to focus on, where we can kind of focus to keep maintaining and drive that margin higher.
Neelesh Kalani: It's something that we continue to focus on where we can kind of focus to keep maintaining and drive that margin higher.
Neelesh Kalani: It's something that we continue to focus on where we can kind of focus to keep maintaining and drive that margin higher.
Speaker #3: Okay. Okay. That's helpful. And then another one is on deposit competition right now in your market. So are there any markets or deposit categories that have seen intensifying competition over the last few months?
Tim Switzer: Okay. That's helpful. 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?
Tim Switzer: Okay. That's helpful. 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?
Speaker #4: Yeah, I would say, you know, not really. I mean, I wouldn't pick one particular area. I think we feel like we're very competitive. And like Neel said, I think we've teams have done a great job of sort of shifting our mix, more towards non-interest bearing.
Adam Metz: Yeah, I would say, not really. I wouldn't pick one particular area. I think, we feel like we're very competitive and like Neil said, I think teams have done a great job of sort of shifting our mix more towards non-interest-bearing, and those are operating accounts and whatnot. We feel good about where we are.
Adam Metz: Yeah, I would say, not really. I wouldn't pick one particular area. I think, we feel like we're very competitive and like Neel said, I think teams have done a great job of sort of shifting our mix more towards non-interest-bearing, and those are operating accounts and whatnot. We feel good about where we are.
Speaker #4: And those are operating accounts and whatnot. So we feel good about where we are.
Speaker #3: Okay. And can you guys remind us, you know, what is your positioning if we do get some Fed rate hikes? What's the impact on the overall margin?
Tim Switzer: Okay. 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?
Tim Switzer: Okay. 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?
Speaker #4: We're now we're now positioned where we'll be we're still slightly actually sensitive, but we're on the neutral side. So it's just continue to focus on pricing going forward.
Neelesh Kalani: We're now positioned where we're still slightly asset sensitive, but more on the neutral side. It's just continued focus on pricing going forward.
Neelesh Kalani: We're now positioned where we're still slightly asset sensitive, but more on the neutral side. It's just continued focus on pricing going forward.
Speaker #3: Okay. Nice. That's all for me. I'll get back in the queue. And congratulations to Adam on your first conference call as CEO.
Tim Switzer: Okay, nice. That's all for me. I'll get back in the queue. Congratulations to Adam on your first conference call as CEO.
Tim Switzer: Okay, nice. That's all for me. I'll get back in the queue. Congratulations to Adam on your first conference call as CEO.
Speaker #4: Thank you.
Adam Metz: Thank you.
Adam Metz: Thank you.
Speaker #2: Our next question will come from the line of Ken Kohut with Raymond James. Please go ahead. Ken, you might be on mute. Ken, you might have muted your line.
Operator: Our next question will come from the line of Ken Kohut with Raymond James. Please go ahead. Ken, you might be on mute. Ken, you might have muted your line. We'll take our next question from the line of Jake Civiello with D.A. Davidson. Please go ahead.
Operator: Our next question will come from the line of Ken Kohut with Raymond James. Please go ahead. Ken, you might be on mute. Ken, you might have muted your line. We'll take our next question from the line of Jake Civiello with D.A. Davidson. Please go ahead.
Speaker #2: We'll take our next question from the line of Jake Savella with DA Davidson. Please go ahead.
Speaker #5: Hi there. This is Catherine Hubbinger of DA Davidson for Jake Savella. And we just had two questions for you. We were curious for the geographies for your owner-occupied CRE loan growth in this quarter.
Katherine Hubinger: Hi there. This is Katherine Hubinger of D.A. Davidson for Jake Civiello. We just had two questions for you. We were curious for the geographies for your owner-occupied CRE loan growth in this quarter, where do you believe that'll be coming from? Then we were also curious if you believe that the uptick in home equity loans is the start of a new trend. Thank you so much.
Catherine Hubinger: Hi there. This is Catherine Hubinger of D.A. Davidson for Jake Civiello. We just had two questions for you. We were curious for the geographies for your owner-occupied CRE loan growth in this quarter, where do you believe that'll be coming from? Then we were also curious if you believe that the uptick in home equity loans is the start of a new trend. Thank you so much.
Speaker #5: Would 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.
Speaker #5: Thank you so much.
Speaker #4: Do you mind repeating the first part of your question? We missed that.
Adam Metz: Do you mind repeating the first part of your question? I missed some of that.
Adam Metz: Do you mind repeating the first part of your question? I missed some of that.
Speaker #5: Absolutely. Absolutely, yes. We were just curious: what geographies are you focusing on for the owner-occupied CRE loan growth in this quarter?
Katherine Hubinger: Absolutely. Yes. We were just curious, what geographies are you focusing on for the owner-occupied CRE loan growth in this quarter?
Catherine Hubinger: Absolutely. Yes. We were just curious, what geographies are you focusing on for the owner-occupied CRE loan growth in this quarter?
Neelesh Kalani: There really wasn't any one particular geography 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.
Neelesh Kalani: There really wasn't any one particular geography 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.
Speaker #4: There really wasn't any one particular geography that that was concentrated in. It was 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.
Katherine Hubinger: No, thank you so much.
Catherine Hubinger: No, thank you so much.
Neelesh Kalani: That's.
Neelesh Kalani: Thank you.
Speaker #4: Thank you.
Speaker #3: Dear home equity question. It is it is a focus of the teams to try to drive that volume. You did see a nice uptick this quarter and it started previous quarter as well.
Adam Metz: 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 it started previous quarter as well. It's a nice boost to see this quarter, and it's something we're going to continue to focus on and diversifying our opportunities across the board, particularly on the loan growth.
Adam Metz: 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 it started previous quarter as well. It's a nice boost to see this quarter, and it's something we're going to continue to focus on and diversifying our opportunities across the board, particularly on the loan growth.
Speaker #3: This quarter, and it's something we're going to continue to focus on—diversifying our opportunities across the board, particularly with loan growth.
Speaker #5: Fantastic. Thank you.
Katherine Hubinger: Fantastic. Thank you.
Catherine Hubinger: Fantastic. Thank you.
Neelesh Kalani: You got it. Thanks.
Adam Metz: You got it. Thanks.
Speaker #2: And this concludes the Orrstown Financial Services, Inc. second quarter 2026 earnings conference call. You may disconnect your line at this
Operator: This concludes the Orrstown Financial Services Inc. Q2 2026 earnings conference call. You may disconnect your line at this time.
Operator: This concludes the Orrstown Financial Services Inc. Q2 2026 earnings conference call. You may disconnect your line at this time.
