Orrstown's Loan Growth Reaccelerates as Margin Widens

The Tip Desk · November 8, 2026 · 4 min read

Net interest income rose to $53.3 million in the third quarter as the tax-equivalent margin reached 4.12% and loans grew 9% annualized.

Orrstown Financial Services (ORRF), the parent of Orrstown Bank, reported net interest income of $53.3 million for the three months ended September 30, 2026, up from $48.8 million in the second quarter, as the tax-equivalent net interest margin widened to 4.12% from 3.87%.

The second-quarter margin included $1.6 million of accelerated amortization of the fair-value mark on redeemed subordinated notes. Excluding that charge, the second-quarter margin was 4.00%, so the like-for-like expansion was 12 basis points. The yield on interest-earning assets rose 8 basis points and the cost of deposits fell 5 basis points.

Net income was $22.8 million, or $1.17 a share, compared with $21.2 million, or $1.09 a share, in the second quarter. Return on average assets was 1.60% and return on average equity was 14.62%.

Loans held for investment increased $95.3 million, or 9% annualized, to $4.2 billion at September 30, 2026, after a $51.7 million, or about 5% annualized, increase from March 31 to June 30. Commercial loans rose $45.4 million, or about 6% annualized, with particularly strong growth in commercial and industrial lending. Home equity lines of credit increased $31.6 million, or about 36% annualized, including $15.5 million of purchases. First-lien residential mortgages rose $17.0 million, or about 13% annualized.

Deposits moved the other way. Total deposits decreased $38.1 million, or 3% annualized, to $4.6 billion, after a $98.7 million increase from December 31, 2025 to March 31, 2026. Time, interest-bearing demand, non-interest-bearing and savings deposits fell $28.1 million, $25.1 million, $24.8 million and $8.7 million, respectively. The company said the decreases were primarily due to normal seasonal activity and time-deposit maturities. Money market deposits rose $48.6 million, including $25.1 million of brokered deposits. The loan-to-deposit ratio rose to 92% from 89%.

FHLB advances and other borrowings increased to $417.3 million from $274.8 million. The company said higher borrowing utilization was primarily to fund loan growth. Average FHLB advances and other borrowings rose $130.6 million versus the second quarter, which the company attributed to loan growth and maintaining liquidity amid seasonal deposit activity.

Interest income on loans, on a tax-equivalent basis, increased $3.2 million to $66.7 million. Average loans rose $92.6 million. Accretion on purchase-accounting marks was $3.9 million, down from $4.3 million in the second quarter. Interest expense, on a tax-equivalent basis, decreased $1.5 million to $24.4 million.

Provision expense on loans increased to $1.1 million from $0.4 million. The company attributed the increase to strong loan growth, net charge-offs and qualitative-factor updates, partially offset by a favorable GDP forecast. Net charge-offs were $1.0 million. Classified loans fell 8% to $45.2 million. Nonaccrual loans to total loans declined to 0.54% from 0.58%. The allowance for credit losses was $46.8 million, or 1.11% of loans.

Noninterest income decreased $0.4 million to $13.4 million. Swap fee income fell $0.3 million to $0.4 million. Mortgage banking income fell $0.2 million to $0.2 million on lower loan-sale activity and fair-value adjustments as rates rose. Wealth management income was $6.0 million.

The efficiency ratio improved to 56.0% from 60.1%. Noninterest expenses fell $0.4 million to $37.3 million. Salaries and benefits rose $0.2 million to $22.4 million on a full quarter of May 2026 merit increases and one extra day. Advertising and bank promotions fell $0.7 million to $0.4 million after $0.7 million of second-quarter tax-credit contributions.

Tangible book value per common share declined to $25.96 from $26.71, and the tangible common equity ratio fell to 9.1% from 9.5%, as $34.5 million of other comprehensive losses from widening spreads and higher rates more than offset net income and $5.9 million of dividends. Tier 1 common equity, Tier 1 and total risk-based capital ratios were 12.1%, 12.3% and 13.3%, respectively. The board declared a $0.30 cash dividend, payable November 10, 2026.