10-K 1 orrstown10k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 Commission file number: 33-18888 ORRSTOWN FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 23-2530374 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 77 East King Street, P. O. Box 250, Shippensburg, Pennsylvania 17257 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (717) 532-6114 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value Title of each class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No As of December 31, 2004, 5,126,205 shares of the registrant's common stock were outstanding. The aggregate market value of such shares held by non-affiliates on that date was $ 222,766,785. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual shareholders report for the year ended December 31, 2004 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the 2005 Annual Meeting of Security Holders are incorporated by reference in Part III of this Form 10-K. ORRSTOWN FINANCIAL SERVICES, INC. FORM 10-K INDEX Page Part I Item 1. Business 3 Item 2. Properties 6 Item 3. LegalProceedings 6 Item 3a. Executive Officers of the Registrant 7 Item 4. Submission of Matters to a Vote of Security Holders 7 Part II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters 8 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 Item 9a. Controls and Procedures 16 Item 9b. Other Information 16 Part III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 17 Item 12. Security Ownership of Certain Beneficial Owners and Management 17 Item 13. Certain Relationships and Related Transactions 17 Item 14. Principal Accountant Fees and Services 17 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 Signatures 20 Part I Item 1. Business.History and Business Orrstown Financial Services, Inc. (the Corporation) is a financial holding company registered under the Gramm-Leach- Bliley Act. Orrstown Financial Services, Inc. was organized on November 17, 1987, under the laws of the Commonwealth of Pennsylvania for the purpose of acquiring Orrstown Bank (the Bank), Shippensburg, Pennsylvania, and such other banks and bank related activities as are permitted by law and desirable. On March 8, 1988, Orrstown Financial Services, Inc. acquired 100% ownership of Orrstown Bank, issuing 131,455 shares of Orrstown Financial Services, Inc.'s common stock to the former Bank shareholders. The Corporation files periodic reports with the Securities and Exchange Commission (SEC) in the form of 10-Q's - quarterly reports; 10-K - annual report; annual proxy statements and Form 8-K for any significant events that may arise during the year. Copies of the Corporation's filings may be obtained through the SEC's internet site at www.sec.gov or by accessing the Corporation's website at www.orrstown.com. Orrstown Financial Services, Inc.'s primary activity consists of owning and supervising its two subsidiaries, Orrstown Bank and Pennbanks Insurance Company Cell P1. Orrstown Bank is engaged in providing banking and bank related services in South Central Pennsylvania, principally Franklin and Cumberland Counties, where its fourteen branches are located in Shippensburg (2), Carlisle (4), Spring Run, Orrstown, Chambersburg (4), Greencastle and Mechanicsburg, Pennsylvania. The day-to-day management of Orrstown Bank is conducted by the subsidiary's officers. Pennbanks Insurance Company Cell P1 is a reinsurer of credit life, and disability insurance which services customers of Orrstown Bank. Orrstown Financial Services, Inc. derives a majority of its current income from Orrstown Bank. Orrstown Financial Services, Inc. has no employees other than its five officers who are also employees of the Bank, its subsidiary. On December 31, 2004, the Bank had 140 full-time and 30 part-time employees. Orrstown Bank was organized as a state-chartered bank in 1987 as part of an agreement and plan of merger between Orrstown Financial Services, Inc. and Orrstown Bank, the predecessor of Orrstown Bank, under which Orrstown Bank became a wholly-owned subsidiary of Orrstown Financial Services, Inc. As indicated, the Bank is the successor to Orrstown Bank which was originally organized in 1919. The Bank is engaged in commercial banking and trust business as authorized by the Pennsylvania Banking Code of 1965. This involves accepting demand, time and savings deposits, and granting loans. The Bank grants agribusiness, commercial and residential loans to customers in South Central Pennsylvania, principally Franklin and Cumberland Counties. The concentrations of credit by type of loan are set forth on the face of the balance sheet (page 4 of the annual report to shareholders). The Bank maintains a diversified loan portfolio and evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon the extension of credit, is based on management's credit evaluation of the customer and collateral standards established in the Bank's lending policies and procedures. All secured loans are supported with appraisals of collateral. Business equipment and machinery, inventories, accounts receivable, and farm equipment are considered appropriate security, provided they meet acceptable standards for liquidity and marketability. Loans secured by equipment and/or other non real estate collateral normally do not exceed 70% of appraised value or cost, whichever is lower. Loans secured by real estate generally do not exceed 80% of the appraised value of the property. Loan to collateral values are monitored as part of the loan review, and appraisals are updated as deemed appropriate in the circumstances. Administration and supervision over the lending process is provided by the Bank's Credit Administration Department. The loan review process is continuous, commencing with the approval of a loan. Each new loan is reviewed by the Loan Department for compliance with banking regulations and lending policy requirements for documentation, collateral standards, and approvals. The Bank employees a Loan Review Officer, who is independent from the Loan function and reports directly to the Chief Operating Officer and the Directors' Credit Administration Committee. The Loan Review Officer continually monitors and evaluates loan customers utilizing risk-rating criteria established in the lending policy in order to spot deteriorating trends and detect conditions which might indicate potential problem loans. The Loan Review Officer reports the results of the loan reviews quarterly to the Directors' Credit Administration Committee for approval and provides the basis for evaluating the adequacy of the allowance for loan losses. Through its trust department, the Bank renders services as trustee, executor, administrator, guardian, managing agent, custodian, investment advisor, and other fiduciary activities authorized by law. As of December 31, 2004, the Corporation had total assets of approximately $ 515 million, total shareholders' equity of approximately $ 49 million and total deposits of approximately $ 405 million. Regulation and Supervision Orrstown Financial Services, Inc. is a financial holding company, and is registered as such with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a registered bank holding company and financial holding company, the Corporation is subject to regulation under the Bank Holding Company Act of 1956 and to inspection, examination, and supervision by the Federal Reserve Board. The operations of the Bank are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, and to banks whose deposits are insured by the Federal Deposit Insurance Corporation. Bank operations are also subject to regulations of the Pennsylvania Department of Banking, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC). Several of the more significant regulatory provisions applicable to banks and financial holding companies to which the Corporation and its subsidiaries are subject are discussed below, along with certain regulatory matters concerning the Corporation and its subsidiaries. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Corporation and its subsidiaries. Financial and Bank Holding Company Activities "Financial in Nature" Requirement. As a financial holding company, the Corporation may engage in, and acquire companies engaged in, activities that are considered "financial in nature", as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking. If any banking subsidiary of the Corporation ceases to be "well capitalized" or "well managed" under applicable regulatory standards, the Federal Reserve Board may, among other things, place limitations on the Corporation's ability to conduct the broader financial activities permissible for financial holding companies or, if the deficiencies persist, require the Corporation to divest the banking subsidiary. In addition, if any banking subsidiary of the Corporation receives a Community Reinvestment Act rating of less than satisfactory, the Corporation would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. The Corporation may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, as long as it gives the Federal Reserve Board after-the-fact notice of the new activities. Interstate Banking and Branching. As a bank holding company, the Corporation is required to obtain prior Federal Reserve Board approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank, or savings association. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (Riegle-Neal), subject to certain concentration limits and other requirements, bank holding companies such as the Corporation may acquire banks and bank holding companies located in any state. Riegle-Neal also permits banks to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states. The ability of banks to acquire branch offices is contingent, however, on the host state having adopted legislation "opting in" to those provisions of Riegle-Neal. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation "opting out" of that provision of Riegle-Neal. Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Corporation, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an aquiror that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a "controlling influence" over that bank holding company. Liability for Banking Subsidiaries Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to their support. This support may be required at times when the bank holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the "default" of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution "in danger of default". Capital Requirements Information concerning the Corporation and its subsidiaries with respect to capital requirements is incorporated by reference from Note 15, "Regulatory Matters", of the "Notes to Consolidated Financial Statements" included under Item 8 of this report, and from the "Capital Adequacy and Regulatory Matters" section of the "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations", included under Item 7 of this report. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions - well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized - and requires federal bank regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank's compliance with the plan up to the lesser of 5% of the bank's assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2004, the Bank was considered well capitalized based on the guidelines implemented by the bank regulatory agencies. Dividend Restrictions The Corporation's funds for cash distributions to its shareholders are derived from a variety of sources, including cash and temporary investments. One of the principal sources of those funds is dividends received from its subsidiary Orrstown Bank. Various federal laws limit the amount of dividends the Bank can pay to the Corporation without regulatory approval. In addition, federal bank regulatory agencies have authority to prohibit the Bank from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute an unsafe or unsound practice. The ability of the Bank to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. Additional information concerning the Corporation and its banking subsidiary with respect to dividends is incorporated by reference from Note 15, "Regulatory Matters", of the "Notes to Consolidated Financial Statements" included under Item 8 of this report, and the "Capital Adequacy and Regulatory Matters" sections of "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations", included under Item 7 of this report. Depositor Preference Statute In the "liquidation or other resolution" of an institution by any receiver, U.S. federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over the general unsecured claims against that institution, including federal funds and letters of credit. Other Federal Laws and Regulations Our operations are subject to additional federal laws and regulations applicable to financial institutions, including, without limitation: - Privacy provisions of the Gramm-Leach-Bliley Act and related regulations, which require us to maintain privacy policies intended to safeguard customer financial information, to disclose the policies to our customers and to allow customers to "opt out" of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions; - Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; - Consumer protection rules for the sale of insurance products by depository institutions, adopted pursuant to the requirements of the Gramm-Leach-Bliley Act; and - USA Patriot Act, which requires financial institutions to take certain actions to help prevent, detect and prosecute international money laundering and the financing of terrorism. Sarbanes-Oxley Act of 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions become effective over a period of time and are subject to rulemaking by the SEC. Because the Corporation's common stock is registered with the SEC, it is currently subject to this Act. As an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934, the Corporation was subject to section 404 of the Sarbanes-Oxley Act for the year ended December 31, 2004. Future Legislation Changes to the laws and regulations in the state where the Corporation and the Bank do business can affect the operating environment of bank holding companies and their subsidiaries in substantial and unpredictable ways. The Corporation cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of the Corporation. Forward Looking Statements Additional information concerning the Corporation and its banking subsidiary with respect to forward looking statements is incorporated by reference from the "Important Factors Relating to Forward Looking Statements" section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in this Report under Item 7. Competition The Bank's principal market area consists of Franklin County and Cumberland County, Pennsylvania. It services a substantial number of depositors in this market area, with the greatest concentration within a radius of Chambersburg, Shippensburg, and Carlisle, Pennsylvania. The Bank, like other depository institutions, has been subjected to competition from less heavily regulated entities such as credit unions, brokerage firms, money market funds, consumer finance and credit card companies, and other commercial banks, many of which are larger than the Bank. The principal methods of competing effectively in the financial services industry include improving customer service through the quality and range of services provided, improving efficiencies and pricing services competitively. Orrstown Bank is competitive with all competing financial institutions in its service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. One outgrowth of the competitive environment discussed above has been significant consolidation within the financial services industry on a global, national, and regional level. We continue to implement strategic initiatives focused on expanding our core businesses and to explore, on an ongoing basis, acquisition, divestiture, and joint venture opportunities. We analyze each of our products and businesses in the context of customer demands, competitive advantages, industry dynamics, and growth potential. Item 2. Properties. Orrstown Bank owns buildings in Orrstown, Shippensburg (2), Carlisle (2), Spring Run, Chambersburg (3), and Mechanicsburg, Pennsylvania. Offices of the Bank are located in each of these buildings. It also leases space for offices located in Greencastle, Chambersburg, and Carlisle (2), Pennsylvania. Item 3. Legal Proceedings. Orrstown Financial Services, Inc. is an occasional party to legal actions arising in the ordinary course of its business. In the opinion of management, the Corporation has adequate legal defenses and/or insurance coverage respecting any and each of these actions and does not believe that they will materially affect the Corporation's operations or financial position. Item 3a. Executive Officers of Registrant The following table sets forth selected information about the principal officers of the holding company, each of whom is elected by the Board of Directors and each of whom holds office at the discretion of the Board. Name/Office Held Held Employee Age as of Since Since 3/10/05 Joel R. Zullinger, Chairman of the Board 1991 (1) 56 Jeffrey W. Coy, Vice Chairman of the Board 1988 (1) 53 Kenneth R. Shoemaker, President, CEO 1987 1986 57 Bradley S. Everly, Senior Vice President, Treasurer 1997 1997 53 Stephen C. Oldt, Executive Vice President, 1987 1987 62 Assistant Secretary Philip E. Fague, Executive Vice President, 2002 1988 45 Assistant Treasurer Denver L. Tuckey, Secretary 1999 (1) 71 Jeffrey W. Embly, Vice President 1999 1997 34
(1) These officers are not employees of the Corporation Senior Operating Officers of the Bank Name/Office Held Held Bank Age as of Since Employee 3/10/05 Since Kenneth R. Shoemaker, President, 1987 1986 57 Chief Executive Officer Stephen C. Oldt, Executive Vice 1987 1987 62 President, Chief Operations Officer Philip E. Fague, Executive Vice President, 1999/ 1988 45 Chief Sales and Service Officer 2000 Bradley S. Everly, Senior Vice 1997 1997 53 President, Chief Financial Officer Benjamin S. Stoops, Vice President, 1998 1998 53 Chief Technology Officer Jeffrey W. Embly, Vice President, 1999 1997 34 Senior Loan Officer Barbara E. Brobst, Vice President, 2002 1997 46 Senior Trust Officer Nathan A. Eifert, Vice President, 2003 2000 36 Director of Marketing Stephen C. Caldwell, Vice President, 2003 2002 56 Director of Human Resources
Item 4. Submission of Matters to Vote of Security Holders. None Part II Item 5. Market for Registrant's Common Stock and Related Security Holder Matters. Orrstown Financial Services, Inc.'s common stock is not traded on a national securities exchange, but is traded through the local and over the counter local markets under the symbol ORRF. At December 31, 2004, the approximate number of shareholders of record was approximately 2,555. The price ranges for Orrstown Financial Services, Inc. common stock set forth below are the approximate bid prices obtained from brokers who make a market in the stock. 2004 2003 Market Price Quarterly Market Price Quarterly Dividend (1) High Low Dividend High Low Dividend First quarter $50.00 $32.50 $0.120 $24.29 $22.38 $0.0955 Second quarter $44.00 $40.00 $0.120 $29.00 $23.10 $0.1050 Third quarter $47.00 $40.30 $0.130 $33.75 $30.00 $0.1050 Fourth quarter $45.25 $42.00 $0.130 $34.00 $31.88 $0.1150
(1)Note: All per share data has been restated after giving retroactive recognition to a 5% stock dividend effective May 30, 2004 and a 2-for-1 stock split effective February 10, 2004. See Note 15 to the financial statements contained in the annual shareholders' report for the year ended December 31, 2004 for restrictions on the payment of dividends. Item 6. Selected Financial Data. The selected five-year financial data on page 34 of the annual shareholders' report for the year ended December 31, 2004 is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Contractual obligation payments due by period of the Corporation as of December 31, 2004 are as follows: Less than 1 - 3 3 - 5 More than Total 1 year years years 5 years (Dollars in Thousands) Contractual obligations Long-term debt obligations $ 2,020 $ 6,392 $ 13,282 $ 13,875 $ 35,569 Operating lease obligations 127 213 177 0 517 ----------- ---------- --------- --------- --------- Total $ 2,147 $ 6,605 $ 13,459 $ 13,875 $ 36,086 =========== ========== ========= ========= =========
All other information required by Item 7 is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations", on pages 24 through 33 of the annual shareholders' report which are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The financial statements and supplementary data, some of which is required under Guide 3 (statistical disclosures by bank holding companies) are shown on pages 4 through 34 of the annual shareholders' report for the year ended December 31, 2004 and are incorporated herein by reference. Certain statistical information required in addition to those included in the annual shareholders' report are submitted herewith as follows. Description of Statistical Information Page Changes in net interest income tax equivalent yields 9 Investment portfolio 10 Loan portfolio 11 Summary of loan loss experience 12 Nonaccrual, delinquent and impaired loans 12 Allocation of allowances for loan losses 13 Deposits 14 Return on equity and assets 14 Consolidated summary of operations 15 ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS 2004 Versus 2003 2003 Versus 2002 Increase (Decrease) Increase (Decrease) Due to Change in Due to Change in (Dollars in Thousands) Average Average Total Average Average Total Volume Rate Increase Volume Rate Increase (Decrease) (Decrease) Interest Income Loans (net of unearned $ 3,493 ($ 850) $ 2,643 $ 3,507 ($ 2,529) $ 978 discounts) Taxable investment (115) 11 (104) 494 (1,004) (510) securities Nontaxable investment (122) (72) (194) (29) (25) (54) securities Other short-term (21) 41 20 (36) (83) (119) investments ----------- ---------- ---------- ---------- -------- ---------- Total interest income 3,235 (870) 2,365 3,936 (3,641) 295 ----------- ---------- ---------- ---------- -------- ---------- Interest Expense Interest bearing 153 (246) (93) 553 (720) (167) demand Savings deposits 17 (22) (5) 26 (87) (61) Time deposits 485 (201) 284 136 (962) (826) Short-term borrowings 10 51 61 (13) (142) (155) Long-term borrowings 83 (101) (18) 180 (199) (19) ----------- ---------- ---------- ---------- -------- ---------- Total interest expense 748 (519) 229 882 (2,110) (1,228) ----------- ---------- ---------- ---------- -------- ---------- Net interest income $ 2,136 $ 1,523 ---------- ----------
Changes which are attributed in part to volume and in part to rate are allocated in proportion to their relationships to the amounts of changes. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES INVESTMENT PORTFOLIO The following table shows the maturities of investment securities at book value as of December 31, 2004, and weighted average yields of such securities. Yields are shown on a tax equivalent basis, assuming a 34% federal income tax rate. (Dollars in Thousands) Within 1 After 1 After 5 After 10 Total year year but years but years within 5 within 10 years years Bonds: U. S. Treasury Book value $ 28 $ 1,378 $ 0 $ 0 $ 1,406 Yield 5.75% 4.51% 0% 0% 4.53% U. S. Government agencies Book value 0 10,964 0 0 10,964 Yield 0% 3.23% 0% 0% 3.23% State and municipal Book value 1,364 0 2,018 20,503 23,885 Yield 8.70% 0% 7.36% 7.83% 7.84% Trust preferred Book value 0 0 0 1,000 1,000 Yield 0% 0% 0% 9.25% 9.25% ---------- ---------- ---------- --------- ---------- Total book value $ 1,392 $ 12,342 $ 2,018 $ 21,503 $ 37,255 Yield 8.64% 3.37% 7.36% 7.90% 6.40% ---------- ---------- ---------- --------- ---------- Mortgage-backed securities: Total book value $ 39,663 Yield 4.02% Equity Securities: Total book value $ 1,660 Yield 4.53% ---------- ---------- ---------- --------- ---------- Total Investment Securities $ 78,578 Yield 5.16% ---------- ---------- ---------- --------- ----------
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES LOAN PORTFOLIO The following table presents the loan portfolio at the end of each of the last five years: (Dollars in Thousands) 2004 2003 2002 2001 2000 Commercial, financial and agricultural $ 38,659 $38,186 $33,806 $28,534 $23,938 Real estate - 18,744 21,016 22,048 20,480 17,425 Construction Real estate - Mortgage 324,703 277,985 217,791 192,192 157,722 Consumer (net of unearned 7,162 7,867 7,746 8,610 10,096 discount) --------- -------- -------- -------- -------- Total loans $389,268 $345,054 $281,391 $249,816 $209,181 --------- -------- -------- -------- ---------
Presented below are the approximate maturities of the loan portfolio (excluding real estate mortgages, installments, and credit cards) at December31, 2004: Under One to Over One Five Five (Dollars in Thousands) Year Years Years Total Commercial, financial and agricultural $ 1,568 $ 10,612 $ 26,479 $ 38,659 Real estate - Construction 3,835 2,349 12,560 18,744 ----------- ----------- --------- --------- Total loans $ 5,403 $ 12,961 $ 39,039 $ 57,403 ----------- ----------- --------- ---------
The following table presents the approximate amount of fixed rate loans and variable rate loans due as of December 31, 2004: Fixed Variable Rate (Dollars in Thousands) Loans Rate Loans Due within one year $ 1,332 $ 26,871 Due after one but within five years 19,475 16,298 Due after five years 76,418 248,874 ---------- ---------- Total loans $ 97,225 $ 292,043 ---------- ----------
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES SUMMARY OF LOAN LOSS EXPERIENCE Years Ended December 31 (Dollars in Thousands) 2004 2003 2002 2001 2000 Average total loans outstanding $369,409 $313,833 $264,296 $233,103 $192,902 (net of unearned income) Allowance for loan losses, beginning of period 4,161 3,734 3,104 2,691 2,455 Additions to provision for loan losses 210 491 720 504 360 charged to operations Loans charged off during the year Mortgages 9 12 0 0 0 Commercial 21 4 48 67 99 Installment 39 33 36 2 19 Personal credit lines and credit cards 16 32 17 29 11 ---------- ---------- --------- --------- --------- Total charge-off's 85 81 101 98 129 ---------- ---------- --------- --------- --------- Recoveries of loans previously charged off: Mortgages 3 3 0 0 0 Commercial 0 0 3 6 1 Installment 25 8 8 1 2 Personal credit lines and credit cards 4 6 0 0 2 ---------- ---------- --------- --------- --------- Total recoveries 32 17 11 7 5 ---------- ---------- --------- --------- --------- Net loans charged off (recovered) 53 64 90 91 124 ---------- ---------- --------- --------- --------- Allowance for loan losses, end of period $ 4,318 $ 4,161 $ 3,734 $ 3,104 $ 2,691 Ratio of net loans charged off to 0.01% 0.02% 0.03% 0.04% 0.06% average loans outstanding
The provision is based on an evaluation of the adequacy of the allowance for possible loan losses. The evaluation includes, but is not limited to, review of net loan losses for the year, the present and prospective financial condition of the borrowers, and evaluation of current and projected economic conditions. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES NONACCRUAL, DELINQUENT AND IMPAIRED LOANS The following table sets forth the outstanding balances of those loans on a nonaccrual status and those on accrual status which are contractually past due as to principal or interest payments for 30 days or more at December 31. (Dollars in Thousands) 2004 2003 2002 2001 2000 Nonaccrual loans $ 314 $ 130 $ 85 $ 56 $ 12 Accrual loans Restructured 0 1,410 1,428 0 0 30 through 89 days past due 1,643 1,440 1,419 2,244 865 90 days or more past due 2,550 2,743 1446 644 814 ---------- ---------- ---------- ---------- --------- Total accrual loans $ 4,193 $ 5,593 $ 4,293 $ 2,888 $ 1,679 ---------- ---------- ---------- ---------- ---------
See Note 6 of the notes to consolidated financial statements for details of income recognized and foregone revenue on nonaccrual loans for the past three years, and discussion concerning impaired loans at December 31, 2004. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES ALLOCATION OF ALLOWANCE FOR LOAN LOSSES In retrospect the specific allocation in any particular category may prove excessive or inadequate and consequently may be reallocated in the future to reflect the then current conditions. Accordingly, the entire allowance is available to absorb losses in any category. The following is an allocation by loan categories of the allowance for loan losses for the last five years at December 31, 2004 2003 Percentage Percentage Allowance of Loans to Allowance of Loans to (Dollars in Thousands) Amount Total Amount Total Loans Loans Commercial, financial and $ 1,381 10% $ 928 11% agricultural Real estate - Commercial 617 39% 828 44% Real estate - Construction 0 5% 0 6% Real estate - Mortgage 330 44% 326 36% Consumer 105 2% 9 3% Unallocated 1,885 0% 2,070 0% ------------ -------- ----------- -------- Total $ 4,318 100% $ 4,161 100% ------------ -------- ----------- -------- 2002 2001 Percentage Percentage Allowance of Loans to Allowance of Loans to (Dollars in Thousands) Amount Total Amount Total Loans Loans Commercial, financial and $ 806 12% $ 466 11% agricultural 466 Real estate - Commercial 545 41% 563 46% Real estate - Construction 0 8% 0 8% Real estate - Mortgage 255 36% 350 31% Consumer 28 3% 33 4% Unallocated 2,100 0% 1,692 0% ------------ -------- ----------- -------- Total $ 3,734 100% $ 3,104 100% ------------ -------- ----------- -------- 2000 Percentage Allowance of Loans to (Dollars in Thousands) Amount Total Loans Commercial, financial and $ 43 12% agricultural 43 Real estate - Commercial 786 21% Real estate - Construction 0 8% Real estate - Mortgage 56 54% Consumer 34 5% Unallocated 1,772 0% ------------- -------- Total $ 2,691 100% ------------- --------
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES DEPOSITS The average amounts of deposits are summarized below: Years Ended December 31, (Dollars in Thousands) 2004 2003 2002 Demand deposits $ 57,762 $ 47,416 $ 39,688 Interest bearing demand deposits 183,649 170,832 136,500 Savings deposits 29,752 26,602 23,558 Time deposits 114,181 97,539 94,043 -------------- ------------- ------------- Total deposits $ 385,344 $ 342,389 $ 293,789 -------------- ------------- -------------
The following is a breakdown of maturities of time deposits of $ 100,000 or more as of December 31, 2004: (Dollars in Thousands) Three months or less $ 16,962 Over three months through twelve 4,930 months over one year through three years 8,767 Over three years 3,027 -------------- Total $ 33,686 --------------
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES RETURN ON EQUITY AND ASSETS The following table presents a summary of significant earnings and capital ratios applying daily average balances for the years ended December 31, (Dollars in Thousands) 2004 2003 2002 Average assets $ 495,919 $ 443,737 $ 385,765 Net income 7,770 6,980 5,915 Average equity 46,309 40,491 34,408 Cash dividends paid 2,556 2,126 1,722 Return on assets 1.57% 1.57% 1.53% Return on equity 16.78% 17.24% 17.19% Dividend payout ratio 32.89% 30.45% 29.12% Equity to asset ratio 9.34% 9.12% 8.92%
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED SUMMARY OF OPERATIONS Years Ended December 31, (Dollars in Thousands) 2004 2003 2002 2001 2000 Interest income $ 25,892 $ 23,484 $ 23,173 $ 23,978 $ 21,758 Interest expense 6,986 6,757 7,985 10,677 10,318 ----------- ----------- ---------- ---------- ----------- Net interest income 18,906 16,727 15,188 13,301 11,440 Provision for loan losses 210 491 720 504 360 ----------- ----------- ---------- ---------- ----------- Net interest income after provision for loan losses 18,696 16,236 14,468 12,797 11,080 ----------- ----------- ---------- ---------- ----------- Other income: Trust and brokerage services 2,471 1,948 1,780 1,480 1,466 Service charges on deposits, other service charges, collection and exchange charges, commissions and fees 4,082 3,866 3,171 2,634 1,818 Other operating income 416 618 409 366 458 ----------- ----------- ---------- ---------- ----------- Total other income 6,969 6,432 5,360 4,480 3,742 ----------- ----------- ---------- ---------- ----------- Income before operating expense 25,665 22,668 19,828 17,277 14,822 Operating expenses: Salaries and employees benefits 7,909 6,787 5,993 5,151 4,755 Occupancy and equipment expense 2,398 2,109 1,800 1,676 1,558 Other operating expenses 4,411 4,114 3,895 3,420 2,800 ----------- ----------- ---------- ---------- ----------- Total operating expenses 14,718 13,010 11,688 10,247 9,113 ----------- ----------- ---------- ---------- ----------- Income before income taxes 10,947 9,658 8,140 7,030 5,709 Income tax 3,177 2,678 2,225 1,938 1,537 ----------- ----------- ---------- ---------- ----------- Net income applicable to common stock $ 7,770 $ 6,980 $ 5,915 $ 5,092 $ 4,172 ----------- ----------- ---------- ---------- ----------- Per share data: (1) Basic earnings $ 1.52 $ 1.38 $ 1.18 $ 1.02 $ 0.85 Diluted earnings $ 1.47 $ 1.34 $ 1.15 $ 1.01 $ 0.84 Cash dividends $ 0.50 $ 0.42 $ 0.34 $ 0.28 $ 0.26 Weighted average shares: Basic 5,106,683 5,054,370 5,020,288 4,970,084 4,915,753 Diluted 5,294,165 5,215,538 5,133,363 5,036,082 4,939,464
(1) Per share amounts have been restated to reflect:: The 2-for-1 stock split paid February 10, 2004 The 5% stock dividend paid May 30, 2003 The 5% stock dividend paid September 15, 2001 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. Item 9a. Controls and Procedures The Corporation's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Corporation's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2004. Based on such evaluation, such officers have concluded that the Corporation's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic filings under the Exchange Act. Management's report on internal control over financial reporting as of December 31, 2004 is shown on Page 3 of the annual shareholders' report for the year ended December 31, 2004 and is incorporated herein by reference. The attestation report of the registered public accounting firm on management's assessment of internal control over financial reporting is show non Pages 1 and 2 of the annual shareholders' report for the year ended December 31, 2004 and is incorporated herein by reference. There have not been any significant changes in the Corporation's internal control over financial reporting or in other factors that could significantly affect such control during the fourth quarter of 2004. Item 9b. Other Information The Corporation had no other events that should have been disclosed on form 8K that were not already disclosed on such form. PART III Item 10. Directors and Executive Officers of the Registrant The Corporation has adopted a code of ethics that applies to all senior financial officers (including its chief executive officer, chief financial officer, chief accounting officer, controller, and any person performing similar functions). The Corporation's Code of Ethics for Senior Financial Officers is available on Orrstown Bank's website at http://www.orrstown.com. All other information required by Item 10 is incorporated by reference from Orrstown Financial Services, Inc.'s definitive proxy statement for the 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A. Item 11. Executive Compensation The information required by Item 11 is incorporated by reference from Orrstown Financial Services, Inc.'s definitive proxy statement for the 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management Equity Compensation Plan Information Plan Category Number of securities to Weighted-average Number of be issued upon exercise exercise price of securities of outstanding options outstanding options remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation 178,260 $ 26.42 234,854 plan approved by security holders Equity compensation 23,516 $ 21.65 42,094 plan not approved by security holders (1) --------- ------- --------- Total 201,776 $ 25.87 276,948 --------- ------- ---------
(3) Non-Employee Director Stock Option Plan of 2000. On January 27, 2000, the Board of Directors of the Corporation approved the Orrstown Financial Services, Inc. Non-Employee Director Stock Option Plan of 2000. The Directors' Option Plan is a formula plan under which options to purchase shares of the Corporation's Common Stock are granted each year to directors in office on April 1. The number of options granted each year is based on the Corporation's return on average equity for the most recent fiscal year. All options have a term of 10 years from the regular grant date, are fully exercisable from the regular grant date, and have an exercise price equal to the fair market value of the Corporation's Common Stock as of the date of the grant of the option based upon criteria as outlined in the plan. If a director "retires", whether as a result of reaching mandatory retirement age, or under any other circumstances, the Board of Directors, in its discretion, may determine to constitute retirement, the options previously granted to the director will expire at their scheduled expiration date. If a director's service as a director terminates for any other reason, the options previously granted to the director will expire six months after the date of termination of service unless scheduled to expire sooner. All other information required by Item 12 is incorporated by reference from Orrstown Financial Services, Inc.'s definitive proxy statement for the 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated by reference from Orrstown Financial Services, Inc.'s definitive proxy statement for the 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A. Item 14. Principal Accountant Fees and Services The information required by Item 14 is incorporated by reference from Orrstown Financial Services, Inc.'s definitive proxy statement for the 2005 Annual Meeting of Shareholders filed pursuant to Regulation 14A. PART IV Item 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K. (a) The following documents are filed as part of this report: (1) - Financial Statements - The following consolidated financial statements of Orrstown Financial Services, Inc. and its subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 2004, are incorporated by reference in Item 8: Consolidated balance sheets - December 31, 2004 and 2003 Consolidated statements of income - Years ended December 31, 2004, 2003, and 2002 Consolidated statements of shareholders' equity - Years ended December 31, 2004, 2003, and 2002 Consolidated statements of cash flows - Years ended December 31, 2004, 2003, and 2002 Notes to consolidated financial statements - December 31, 2004 (2) - Financial Statement Schedules - All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) - Exhibits (3) (i) Articles of incorporation. Incorporated by reference to Exhibit 3(i) of the registrant's Form 10-K for the year ended December 31, 1998. (3)(ii) By-laws. Incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-4, Registration No. 33-18888. (4) Instruments defining the rights of security holders including indentures. The rights of the holders of Registrant's common stock are contained in: (i) Articles of Incorporation of Orrstown Financial Services, Inc., incorporated by reference to Exhibit 3(i) of the registrant's Form 10-K for the year ended December 31, 1998. (ii) By-laws of Orrstown Financial Services, Inc., incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-18888). (10.1) Change in control agreement between Orrstown Financial Services, Inc. and its chief executive officer. Incorporated by reference to Exhibit 99 of the registrant's Form 10-K for the year ended December 31, 1996. (10.2) Salary continuation plan for selected officers - incorporated by reference to the registrant's Form 10-K for the year ended December 31, 1999 (10.3) Officer group term replacement plan for selected officers - incorporated by reference to the registrant's Form 10- K for the year ended December 31, 1999 (10.4) Director retirement plan - incorporated by reference to the registrant's Form 10-K for the year ended December 31, 1999 (10.5) Revenue neutral retirement plan - incorporated by reference to the registrant's Form 10-K for the year ended December 31, 1999 (10.6) Non-employee director stock option plan of 2000 - incorporated by reference to the registrant's registration statement on Form S-8 dated April 11, 2000 (10.7) Employee stock option plan of 2000 - incorporated by reference to the registrant's registration statement on Form S-8 dated March 31, 2000 (13) Annual report to security holders - filed herewith (14) Code of Ethics Policy for Senior Financial Officers - Incorporated by reference under Item 10 of this annual report (21) Subsidiaries of the registrant - filed herewith (23.1) Consent of independent auditors - filed herewith (31.1) Rule 13a - 14(a)/15d-14(a) Certification (Chief Executive Officer) - Filed herewith. (31.2) Rule 13a - 14(a)/15d-14(a) Certifications (Chief Financial Officer) - Filed herewith. (32.1) Section 1350 Certifications (Chief Executive Officer) - Filed herewith. (32.1) Section 1350 Certifications (Chief Financial Officer) - Filed herewith. All other exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (b) The registrant filed the following reports on Form 8-K during the calendar year ended December 31, 2004: Report filed January 2, 2004 Registrant announced a 2-for-1 Stock Split payable February 10, 2004. Report filed July 15, 2004 Registrant announced purchase of an investment management business. Report filed July 22, 2004 Registrant announced its earnings for the period ended June 30, 2004 Report filed October 25, 2004 Registrant announced its earnings for the period ended September 30, 2004 (c) Exhibits - The exhibits required to be filed as part of this report are submitted as a separate section of this report. (d) Financial statement schedules - None required. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORRSTOWN FINANCIAL SERVICES, INC. (Registrant) By /s/ Kenneth R. Shoemaker Kenneth R. Shoemaker,President Dated: March 10, 2005 (Duly authorized officer) By /s/ Bradley S. Everly Bradley S. Everly, Chief Financial Officer (Principal Accounting Officer) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Kenneth R. Shoemaker President, CEO and March 10, 2005 Kenneth R. Shoemaker Director /s/ Anthony F. Ceddia Director March 10, 2005 Dr. Anthony F. Ceddia /s/ Glenn W. Snoke Director March 10, 2005 Glenn W. Snoke /s/ Gregory A. Rosenberry Director March 10, 2005 Gregory A. Rosenberry /s/ Joel R. Zullinger Chairman of the March 10, 2005 Joel R. Zullinger Board and Director /s/ Jeffrey W. Coy Vice Chairman March 10, 2005 Jeffrey W. Coy of the Board and Director /s/ John S. Ward Director March 10, 2005 John S. Ward /s/ Denver L. Tuckey Secretary and March 10, 2005 Denver L. Tuckey Director /s/ Andrea Pugh Director March 10, 2005 Andrea Pugh Exhibit 21 SUBSIDIARIES OF THE REGISTRANT 1. Orrstown Bank, Orrstown, Pennsylvania; a state-chartered bank organized under Pennsylvania Banking Code of 1965. 2. Pennbanks Insurance Company Cell P1 is a reinsurer of credit, life and disability insurance, which services customers of Orrstown Bank. Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Orrstown Financial Services, Inc. We consent to the incorporation by reference in to previously filed Registration Statements (Form S-4 No. 33-18888, Form S-3 No. 333-53405, Form S-8 No. 333-33714, Form S-8 No. 333-34504, and Form S-8 No. 333-33712) of Orrstown Financial Services, Inc. of our report dated February 11, 2005, appearing in the 2004 annual report to shareholders incorporated by reference in this Form 10-K of Orrstown Financial Services, Inc. for the year ended December 31, 2004. /S/ SMITH ELLIOTT KEARNS & COMPANY, LLC -------------------------------------------------- SMITH ELLIOTT KEARNS & COMPANY, LLC Chambersburg, Pennsylvania March 10, 2005 Exhibit 31.1 CERTIFICATION I, Kenneth R. Shoemaker, President and CEO, certify, that: 1. I have reviewed this annual report on Form 10-K of Orrstown Financial Services, Inc. 2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and (d) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Kenneth R. Shoemaker Kenneth R. Shoemaker President and CEO (Principal Executive Officer) March 10, 2005 Exhibit 31.2 CERTIFICATION I, Bradley S. Everly, Sr. Vice President and CFO, certify, that: 1. I have reviewed this annual report on Form 10-K of Orrstown Financial Services, Inc. 2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and (d) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Bradley S. Everly Bradley S. Everly Sr. Vice President and CFO (Principal Financial Officer) March 10, 2005 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Orrstown Financial Services, Inc. (the Corporation) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), I, Kenneth R. Shoemaker, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the report. /s/ Kenneth R. Shoemaker Kenneth R. Shoemaker President and Chief Executive Officer Dated: March 10, 2005 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Orrstown Financial Services, Inc. (the Corporation) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), I, Bradley S. Everly, Senior Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation as of and for the period covered by the report. /s/ Bradley S. Everly Bradley S. Everly Senor Vice President and Chief Financial Officer Dated: March 10, 2005