Orrstown Loan Growth Accelerates as Sub Notes Are Redeemed

The Tip Desk · July 23, 2026 · 4 min read

Loans rose $51.7 million, or about 5% annualized, to $4.1 billion as the bank redeemed $31.0 million of subordinated notes and reported a 4.00% core net interest margin.

Orrstown Financial Services (ORRF), the parent of Orrstown Bank, accelerated loan growth in the second quarter of 2026 and redeemed a block of subordinated notes that had been assumed in a 2024 merger. Loans held for investment increased $51.7 million, or about 5% annualized, to $4.1 billion, after a $40.6 million, or about 4% annualized, increase in the first quarter.

Residential mortgages led the expansion, rising $32.8 million, or about 16% annualized, including $17.1 million of home equity. Commercial loans increased $18.9 million, or about 2% annualized. Higher quarter-end borrowings primarily funded that loan growth.

On June 30, 2026, Orrstown redeemed $31.0 million of 4.50% fixed-to-floating subordinated notes assumed from Codorus Valley Bancorp on July 1, 2024. At redemption, the notes carried a 7.72% rate. The remaining $1.6 million fair-value mark was amortized into interest expense in the quarter. President and Chief Executive Officer Adam L. Metz said the redemption is expected to enhance future performance.

Tax-equivalent net interest margin compressed 3 basis points to 3.87% from 3.90% in the first quarter, after a 10-basis-point drop from 4.00% in the fourth quarter of 2025. Excluding the accelerated amortization of the redeemed notes’ mark, net interest margin was 4.00%. Net interest income was $48.8 million. Interest expense rose $0.5 million to $25.9 million, with borrowing costs up $0.8 million on the mark amortization.

The cost of interest-bearing deposits fell 8 basis points to 2.33% from 2.41%, continuing a four-quarter decline from 2.51% a year earlier. Average interest-bearing deposits rose $38.3 million. Metz said the core margin expanded as the company continued to manage funding costs.

Period-end deposits decreased $7.4 million to $4.6 billion after a $98.7 million increase in the first quarter. Noninterest demand deposits rose $38.2 million and money market deposits rose $9.3 million, offsetting declines in time, interest-bearing demand and savings deposits. The loan-to-deposit ratio rose to 89% from 88%. Quarter-end FHLB advances and other borrowings were $274.8 million, up from $206.7 million, while average borrowings fell $84.8 million.

Credit quality improved. Nonaccrual loans fell $6.2 million to $23.8 million, or 0.58% of loans, from 0.74%, including $4.2 million of commercial and land-development loans. Classified loans declined $8.4 million to $49.2 million. Provision expense on loans was $0.4 million. Net charge-offs were $1.2 million. The allowance for credit losses decreased to $46.6 million, or 1.13% of loans, as qualitative factors were adjusted.

Noninterest income was $13.8 million, down from $15.6 million, after $2.4 million of life-insurance policy death-benefit income in the first quarter. Wealth management income rose $0.3 million to $5.9 million, a record quarterly result. Swap fee income fell $0.6 million to $0.7 million. Noninterest expenses increased $1.0 million to $37.7 million, with salaries and benefits up $1.0 million to $22.2 million on May merit raises, healthcare claims and an extra day. Advertising rose $0.4 million on $0.7 million of tax-credit contributions.

The purchase of federal income tax credits produced a $1.6 million tax benefit and an effective tax rate of 14.2%. Net income was $21.2 million, or $1.09 a share, compared with $21.8 million, or $1.12 a share, in the first quarter. Tangible common equity rose to 9.5% of tangible assets from 9.2%. Tangible book value per common share increased to $26.71 from $25.76. Tier 1 common equity, Tier 1 and total risk-based capital were 12.0%, 12.2% and 13.2%; total risk-based capital declined from 13.5% on the subordinated-debt redemption. Tier 1 leverage rose to 10.1% from 9.7%. The board declared a cash dividend of $0.30 a share, payable August 11, 2026. Metz said the company expects to continue to build capital ratios at a healthy pace through earnings generation.