UNITED STATES

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


xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedended: December 31, 2004 2006

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 33-18888


ORRSTOWN FINANCIAL SERVICES, INC. (Exact

(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


Pennsylvania23-2530374

(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer

Identification No.)

77 East King Street, P. O. Box 250, Shippensburg, Pennsylvania17257
(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    Nox

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  Xx    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405(§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant'sregistrant’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 x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer  ¨Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Act.)    Yes  X¨    No  Asx

Aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the common equity was last sold on December 31, 2006 was $217,225,714.

Number of shares outstanding of the registrant’s common stock 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. 2006: 6,134,332.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annualAnnual Financial Report to shareholders report for the year ended December 31, 20042006 are incorporated by reference into Parts I and II.

Portions of the Proxy Statement for the 20052007 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

Page

Part I

Item 1.

Business3

Item 1A

Risk Factors7

Item 1B

Unresolved Staff Comments8

Item 2.

Properties8

Item 3.

Legal Proceedings8

Item 4.

Submission of Matters to a Vote of Security Holders8

Part II

Item 5.

Market for Registrant’s Common Equity and Related Security Holder Matters and Issuer Purchases of Equity Securities9

Item 6.

Selected Financial Data9

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation10

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk10

Item 8.

Financial Statements and Supplementary Data10

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure18

Item 9A.

Controls and Procedures18

Item 9B.

Other Information18

Part III

Item 10.

Directors and Executive Officers of the Registrant19

Item 11.

Executive Compensation19

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters19

Item 13.

Certain Relationships and Related Transactions19

Item 14.

Principal Accountant Fees and Services19

Part IV

Item 15.

Exhibits and Financial Statement Schedules20

Signatures

22

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 Business.

Orrstown Financial Services, Inc. (the Corporation) is a financial holding company registered under the Gramm-Leach- BlileyGramm-Leach-Bliley Act. The executive offices of Orrstown Financial Services, Inc are located at 77 East King Street, Shippensburg, Pennsylvania, 17257. 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's10-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'sCorporation’s filings may be obtained free of charge through the SEC'sSEC’s internet site at www.sec.gov or by accessing the Corporation'sCorporation’s website at www.orrstown.com.www.orrstown.com. Copies of the Corporation’s filings also are available to be read and copied at the SEC’s Public Reference Room at 100 F Street N.W., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

History and Acquisitions

On March 8, 1988, 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 acquired 100% ownership of Orrstown Bank, is conducted by the subsidiary's officers. Pennbanks Insurance Company Cell P1 is a reinsurerissuing 131,455 shares of credit life, and disability insurance which services customers of Orrstown Bank. Orrstown Financial Services, Inc. derives a majority of its current income from’s common stock to the former 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.shareholders. 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, theOrrstown Bank is the successor to Orrstown Bank which was originally organized in 1919. TheOrrstown Bank is engaged in providing banking and bank related services in South Central Pennsylvania, principally Franklin and Cumberland Counties in Pennsylvania and in Washington County Maryland. The sixteen offices of Orrstown Bank are located in Shippensburg (2), Carlisle (4), Spring Run, Orrstown, Chambersburg (3), Greencastle, Mechanicsburg (2) and Camp Hill, Pennsylvania and Hagerstown, Maryland.

From its inception in January 2000 to December 31, 2005, Pennbanks Insurance Company Cell P1 (Pennbanks) was a wholly-owned subsidiary of the Corporation. As of January 1, 2006, the Corporation has divested the Pennbanks Insurance Company Cell P1 insurance book of business. The liabilities associated with the insurance business were assumed by American General under a contractual arrangement. Pennbanks is a reinsurer of credit, life, and disability insurance.

On May 1, 2006, Orrstown Financial Services, Inc. acquired 100% ownership of The First National Bank of Newport (First National) a national banking institution with $120 million in assets at the time of the merger. The Corporation issued 699,949 shares of Orrstown Financial Services, Inc.’s common stock to the former First National shareholders. Each share of First National common stock outstanding at the time of the transaction was exchanged for 1.75 shares of Orrstown Financial Services, Inc. common stock and $22.20 in cash. The purchase price for shares exchanged for common stock was $35.49 with 400,000 shares of First National common stock outstanding. Fractional shares were paid out in cash at the time of the transaction. First National is engaged in providing banking and bank related services in Perry County, Pennsylvania and was originally organized on May 23, 1893. First National has four branches located in Newport (2), Duncannon, and New Bloomfield, Pennsylvania. Further discussion related to the acquisition is included in the Annual Financial Report under Note 2 Acquisition, in the Notes to Consolidated Financial Statements.

Business

Orrstown Financial Services, Inc.’s primary activity consists of owning and supervising its two subsidiaries, Orrstown Bank and The First National Bank of Newport (the Banks). The day-to-day management of the Banks is conducted by the subsidiaries’ officers. Orrstown Financial Services, Inc. derives a majority of its current income from Orrstown Bank.

Orrstown Financial Services, Inc. has no employees other than its six officers who are also employees of its subsidiary banks. On December 31, 2006, Orrstown Bank had 184 full-time and 41 part-time employees, while First National had 36 full-time and 13 part time employees.

The Banks are 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 grantsBanks grant agribusiness, commercial and residential loans to customers in South Central Pennsylvania, principallytheir market area of Franklin, Perry and Cumberland Counties.Counties of Pennsylvania and Washington County, Maryland. 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 maintainsBanks maintain a diversified loan portfolio and evaluatesevaluate each customer's creditworthinesscustomer’s credit- worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the BankBanks upon the extension of credit, is based on management'smanagement’s credit evaluation of the customer and collateral standards established in the Bank'sBanks’ 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'sBanks’ Credit Administration Department.Committee which is comprised of outside directors. Executive officers and loan department personal regularly meet with and report to the Credit Administration Committee. 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. TheOrrstown Bank employeesemploys a Loan Review Officer, who is independent from the Loanloan 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 policyLoan Review 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 at least 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, theOrrstown Bank renders services as trustee, executor, administrator, guardian, managing agent, custodian, investment advisor, and other fiduciary activities authorized by law.

As of December 31, 2004,2006, the Corporation had total assets of approximately $ 515$809 million, total shareholders'shareholders’ equity of approximately $ 49$89 million and total deposits of approximately $ 405$639 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 operationsoperation of the BankBanks 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. BankThe Banks’ operations are also subject to regulations of the Pennsylvania Department of Banking, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

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

“Financial in Nature"Nature” Requirement. As a financial holding company, the Corporation may engage in, and acquire companies engaged in, activities that are considered "financial“financial in nature"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"“well capitalized” or "well managed"“well managed” under applicable regulatory standards, the Federal Reserve Board may, among other things, place limitations on the Corporation'sCorporation’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. 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"“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"“opting out” of that provision of Riegle-Neal. The Corporation has expanded its market south into Hagerstown, Maryland with its first branch opening in March 2006. Orrstown Bank entered into an agreement to lease an existing banking office at 201 South Cleveland Avenue in Hagerstown.

Control Acquisitions. Acquisitions

The Change in Bank Control Act prohibits a person or group of persons from acquiring "control"“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"“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"“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“in danger of default"default”.

Capital Requirements

Information concerning the Corporation and its subsidiaries with respect to capital requirements is incorporated by reference from Note 15, "Regulatory Matters"16, “Regulatory Matters”, of the "Notes“Notes to Consolidated Financial Statements"Statements” included under Item 8 of this report, and from the "Capital“Capital Adequacy and Regulatory Matters"Matters” section of the "Management's“Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations"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“prompt corrective action"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'sbank’s compliance with the plan up to the lesser of 5% of the bank'sbank’s assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2004, the Bank was2006, both Banks were considered well capitalized based on the guidelines implemented by the bankbanks’ regulatory agencies.

Dividend Restrictions

The Corporation's fundsCorporation’s funding for cash distributions to its shareholders areis derived from a variety of sources, including cash and temporary investments. One of the principal sources of those funds is dividends received from its subsidiarysubsidiaries Orrstown Bank.Bank and First National. Various federal laws limit the amount of dividends the BankBanks can pay to the Corporation without regulatory approval. In addition, federal bank regulatory agencies have authority to prohibit the BankBanks 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 BankBanks 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 subsidiarysubsidiaries with respect to dividends is incorporated by reference from Note 15, "Regulatory Matters"16, “Regulatory Matters”, of the "Notes“Notes to Consolidated Financial Statements"Statements” included under Item 8 of this report, and the "Capital“Capital Adequacy and Regulatory Matters"Matters” sections of "Management's“Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations"Operations”, included under Item 7 of this report.

Depositor Preference Statute

In the "liquidation“liquidation or other resolution"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

The Corporation’s 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"“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'sCorporation’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.

FDIC Insurance and Assessments

Deposit accounts in the Company’s subsidiary banks are insured by the Federal Deposit Insurance Corporation generally up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The Banks’ deposits, therefore, are subject to FDIC deposit insurance assessments.

On February 15, 2006, federal legislation to reform federal deposit insurance was enacted. This new legislation required, among other things, that the FDIC adopt regulations for considering an increase in the insurance limits on all deposit accounts (including retirement accounts) every five years starting in 2011 based, in part, on inflation, and modifying the deposit fund’s reserve ratio for a range between 1.15% and 1.50% of estimated insured deposits.

On November 2, 2006, the FDIC adopted final regulations establishing a risk-based assessment system that will enable the Federal Deposit Insurance Corporation to more closely tie each financial institution’s premiums to the risk it poses to the deposit insurance fund. Under the new risk-based assessment system, which becomes effective in the beginning of 2007, the FDIC will evaluate the risk of each financial institution based on three primary sources of information: (1) its supervisory rating, (2) its financial ratios, and (3) its long-term debt issuer rating, if the institution has one. The new rates for nearly all of the financial institution industry will vary between five and seven cents for every $100 of domestic deposits. At the same time, the FDIC also adopted final regulations designating the reserve ratio for the deposit insurance fund during 2007 at 1.25% of estimated insured deposits.

Effective March 31, 2006, the FDIC merged the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into a single insurance fund called the Deposit Insurance Fund. As a result of the merger, the BIF and SAIF were abolished. The merger of the BIF and SAIF into the Deposit Insurance Fund does not affect the authority of the Financing Corporation (“FICO”) to impose and collect, with approval of the FDIC, assessments for anticipated payments, insurance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended June 30, 2006, the FICO assessment was equal to 1.28 basis points for each $100 in domestic deposits maintained at an institution.

In 2006, the FDIC assessment for Orrstown Bank was $59,000, and for First National $13,000.

Future Legislation

Changes to the laws and regulations in the state where the Corporation and the BankBanks 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 subsidiarysubsidiaries with respect to forward looking statements is incorporated by reference from the "Important“Important Factors Relating to Forward Looking Statements"Statements” section of the "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations," included in this Report under Item 7.

Competition

The Bank'sBanks’ principal market area consists of Franklin County, Perry County and Cumberland County, Pennsylvania.Pennsylvania, with a presence in Washington County, Maryland. 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,Banks, like other depository institutions, hashave 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.Banks. 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 isand First National are competitive with all competingthe financial institutions in itstheir service areaareas 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 1A Risk Factors

There are a number of significant risks and uncertainties, including those specified below, that may adversely affect the Corporation’s business, financial results or stock price. Additional risks that the Corporation currently does not know about or currently views as immaterial may also impair the Corporation’s business or adversely impact its financial results or stock price.

Factors that might cause such differences include, but are not limited to the following: (1) competitive pressures among financial institutions increasing significantly in the markets where the Corporation operates; (2) general business and economic conditions, either nationally or locally being less favorable than expected; (3) changes in the domestic interest rate environment could reduce the Corporation’s net interest income; (4) legislation or regulatory changes which adversely affect the ability of the Corporation to conduct its current or

future operations; (5) acts or threats of terrorism and political or military actions taken by the United States or other governments and natural disasters globally or nationally could adversely affect general economic or industry conditions; (6) operational losses related to or resulting from: the risk of fraud by employees or persons outside of the Corporation, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system, business continuation and disaster recovery, as well as security risks associated with “hacking” and “identity theft”; (7) negative publicity could damage the Corporation’s reputation and adversely impact its business and/or stock trades and prices; (8) acquisitions may not produce revenue enhancements or cost savings at levels or within timeframes originally anticipated and may result in unforeseen integration difficulties; (9) the Corporation relies on other companies to provide key components of business infrastructure in the form of third party vendors. Third party vendors could adversely affect the ability of the Corporation to perform its normal course of business or deliver products and services to its customers; (10) and other risk factors that may occur in current or future operations.

Item 1B Unresolved Staff Comments

None

Item 2. Properties.

Orrstown Bank owns buildings in Orrstown, Shippensburg (2), Carlisle (2), Spring Run, Chambersburg (3), and Mechanicsburg (2), Pennsylvania. Offices of theOrrstown Bank are located in each of these buildings. It also leases space for offices located in Greencastle, Chambersburg,Carlisle (2) and CarlisleCamp Hill, Pennsylvania and in Hagerstown, Maryland. First National owns buildings in Newport (2), Duncannon, and New Bloomfield, Pennsylvania. Offices of First National are located in each of these buildings

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'sCorporation’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'sRegistrant’s Common StockEquity and Related Security Holder Matters. Matters and Issuer Purchases of Equity Securities.

Market Information

Orrstown Financial Services, Inc.'s’s common stock is not traded on a national securities exchange, but is tradedexchange. Quotations for shares of the Corporation’s common stock are reported through the localOTC Bulletin Board service under the symbol ORRF, and are traded over the counter local markets underwith brokers who make a market in the symbol ORRF.stock. At December 31, 2004,2006, the approximate number of shareholders of record was approximately 2,555.3,022. 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 recognitionstock and does not reflect prices in actual transactions or include retail markups and markdowns or any commission to a 5% stock dividend effective May 30, 2004 and a 2-for-1 stock split effective February 10, 2004. the broker/dealer.

   2006  2005
   Market Price  Quarterly  Market Price  Quarterly

Dividend (1)

  High  Low  Dividend  High  Low  Dividend

First quarter

  $35.70  $31.80  $0.18  $47.62  $39.05  $0.133

Second quarter

  $39.00  $32.00  $0.20  $43.75  $37.14  $0.140

Third quarter

  $38.25  $36.50  $0.20  $42.20  $37.55  $0.150

Fourth quarter

  $39.00  $36.55  $0.20  $37.95  $34.45  $0.160

(1)Note: All per share data has been restated after giving retroactive recognition to a 5% stock dividend paid June 29, 2005.

See Note 15 to the financial statements contained16 in the annual shareholders' report“Notes to Consolidated Financial Statements” for the year ended December 31, 20042006 for restrictions on the payment of dividends.

Issuer Purchases of Equity Securities

On April 27, 2006, Orrstown Financial Services, Inc. announced a Stock Repurchase Plan approving the purchase of up to 150,000 shares as conditions allow. The plan may be suspended at any time without prior notice and has no prescribed time limit in which to fill the authorized repurchase amount. As of December 31, 2006, 14,749 shares have been purchased under the program. Orrstown did not sell any unregistered securities. The Company has not repurchased any common equity securities during the fourth quarter ended December 31, 2006. The maximum number of shares that may yet be purchased under the plan is 135,251 shares at December 31, 2006.

Item 6. Selected Financial Data.

The selected five-year financial data on page 3441 of the annual shareholders' reportAnnual Financial Report to shareholders for the year ended December 31, 20042006 is incorporated herein by reference.

Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations. Operation.

Contractual obligation payments due by period of the Corporation as of December 31, 20042006 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 =========== ========== ========= ========= =========

(Dollars in thousands)

  

Less than

1 year

  2 - 3 years  4 - 5 years  More than
5 years
  Total

Long-term debt obligations

  $922  $19,747  $643  $11,128  $32,440

Operating lease obligations

   279   442   365   959   2,045
                    

Total

  $1,201  $20,189  $1,008  $12,087  $34,485
                    

All other information required by Item 7 is included in "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” (MD&A), on pages 2428 through 3338 of the annual shareholders' reportAnnual Financial Report to shareholders which areis incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is defined as the exposure to interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. For domestic banks, the majority of market risk is related to interest rate risk.

Interest rate sensitivity management requires the maintenance of an appropriate balance between interest sensitive assets and liabilities. Interest bearing assets and liabilities that are maturing or repricing should be adequately balanced to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. The Corporation has consistently followed a strategy of pricing assets and liabilities according to prevailing market rates while largely matching maturities, within the guidelines of sound marketing and competitive practices. Interest-earning assets are substantially made up of loans and securities. Loans are priced by management with current market rates as guidelines while achieving a positive interest rate spread and limiting credit risk. A significant part of the loan portfolio is made up of variable rate loans and loans that will become variable after a fixed term and will reprice as market rates move. Securities are purchased using liquidity and maturity terms as guidelines to obtain a more matched position. The deposit base is a mix of transaction accounts and time deposits. Many of the interest bearing transaction accounts have discretionary pricing so great flexibility exists for deposit side price adjustments. Time deposits have set maturities as do short term and long term borrowings. Although deposit product cycles and growth are driven by the preferences of our customers, borrowings are structured with specific terms that, when aggregated with the terms for deposits and matched with interest-earning assets, mitigate our exposure to interest rate sensitivity. Rate sensitivity is measured by monthly gap analysis, quarterly rate shocks, and periodic simulation. At December 31, 2006, the twelve month cumulative gap was a negative $41,976,000 and the RSA/ RSL cumulative ratio was 0.88% which has decreased from 1.14% since December 31, 2005. Further discussion related to the quantitative and qualitative disclosures about market risk is included under the heading of Liquidity, Rate Sensitivity and Interest Rate Risk Analysis in the MD&A of the Annual Financial Report to shareholders which is 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 3442 of the annual shareholders'shareholders’ report for the year ended December 31, 20042006 and are incorporated herein by reference. Certain statistical information required in addition to those included in the annual shareholders'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

Description of Statistical Information

Page

Changes in taxable equivalent net interest income

11

Investment portfolio

12

Loan portfolio

13

Summary of loan loss experience

14

Nonaccrual, delinquent and impaired loans

14

Allocation of allowances for loan losses

15

Deposits

16

Return on equity and assets

16

Consolidated summary of operations

17

ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES

CHANGES IN TAXABLE EQUIVALENT 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 ---------- ----------

   

2006 Versus 2005

Increase (Decrease)

Due to Change in

  

2005 Versus 2004

Increase (Decrease)

Due to Change in

 

(Dollars in thousands)

  Average
Volume
  Average
Rate
  

Total

Increase
(Decrease)

  Average
Volume
  Average
Rate
  

Total

Increase
(Decrease)

 

Interest Income

       

Loans (net of unearned discounts)

  $8,943  $2,899  $11,842  $3,156  $3,129  $6,285 

Taxable investment securities

   68   202   270   (84)  17   (67)

Nontaxable investment securities

   363   (141)  222   (97)  (5)  (102)

Other short-term investments

   99   318   417   46   315   361 
                         

Total interest income

   9,473   3,278   12,751   3,021   3,456   6,477 
                         

Interest Expense

       

Interest bearing demand

   (39)  277   238   (220)  (73)  (293)

Savings deposits

   457   378   835   152   893   1,045 

Time deposits

   3,299   2,526   5,825   713   625   1,338 

Short-term borrowings

   421   660   1,081   26   466   492 

Long-term borrowings

   (248)  103   (145)  (55)  24   (31)
                         

Total interest expense

   3,890   3,944   7,834   616   1,935   2,551 
                         

Net interest income

    $4,917    $3,926 
                         

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, 2004,2006, and weighted average yields of such securities. Yields are shown on a tax equivalent basis, assuming a 34%35% 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% ---------- ---------- ---------- --------- ----------

(Dollars in thousands)

  Within 1 year  

After 1 year

but within 5
years

  

After 5 years

but within 10
years

  After 10 years  Total 

Bonds:

      

U. S. Treasury

      

Book value

  $1,274  $505  $0  $0  $1,779 

Yield

   3.04%  4.88%  0%  0%  3.56%

U. S. Government agencies

      

Book value

   10,502   10,563   2,500   0   23,565 

Yield

   3.43%  4.25%  5.60%  0%  4.03%

State and municipal

      

Book value

   992   3,704   8,024   15,376   28,096 

Yield

   4.72%  5.10%  6.17%  7.28%  6.59%

Corporate bonds

      

Book value

   402   700   200   0   1,302 

Yield

   3.04%  5.02%  5.84%  0%  4.53%
                     

Total book value

  $13,170  $15,472  $10,724  $15,376  $54,742 

Yield

   3.48%  4.51%  6.03%  7.28%  5.34%
                     

Mortgage-backed securities

      

Total book value

      $29,963 

Yield

       4.20%

Equity Securities

      

Total book value

      $2,448 

Yield

       5.06%
                     

Total Investment Securities

      $87,153 

Yield

       4.94%
                     

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 --------- -------- -------- -------- ---------

(Dollars in thousands)

  2006  2005  2004  2003  2002

Commercial, financial and agricultural

  $59,593  $50,104  $38,659  $38,186  $33,806

Real estate—Commercial

   221,460   181,587   151,259   123,531   88,130

Real estate—Construction

   46,947   30,532   18,744   21,016   22,048

Real estate—Mortgage

   281,902   191,823   173,444   154,454   129,661

Consumer (net of unearned discount)

   8,925   6,340   7,162   7,867   7,746
                    

Total loans

  $618,827  $460,386  $389,268  $345,054  $281,391
                    

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 ----------- ----------- --------- ---------
December 31, 2006:

(Dollars in thousands)

  Under One
Year
  One to Five
Years
  

Over Five

Years

  Total

Commercial, financial and agricultural

  $8,296  $14,430  $36,867  $59,593

Real estate—Construction

   8,460   9,406   29,081   46,947
                

Total loans

  $16,756  $23,836  $65,948  $106,540
                

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 ---------- ----------
2006:

(Dollars in thousands)

  Fixed Rate
Loans
  

Variable

Rate Loans

Due within one year

  $11,012  $57,702

Due after one but within five years

   42,171   27,485

Due after five years

   128,361   352,096
        

Total loans

  $181,544  $437,283
        

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

   Years Ended December 31 

(Dollars in thousands)

  2006  2005  2004  2003  2002 

Average total loans outstanding (net of unearned income)

  $553,591  $421,728  $369,409  $313,833  $264,296 

Allowance for loan losses, beginning of period

   4,428   4,318   4,161   3,734   3,104 

Additions to provision for loan losses charged to operations

   390   144   210   491   720 

Additions established for acquired credit risk

   720   0   0   0   0 

Loans charged off during the year

      

Mortgages

   0   30   9   12   0 

Commercial

   12   0   21   4   48 

Installment

   49   31   39   33   36 

Personal credit lines and credit cards

   36   21   16   32   17 
                     

Total charge-off’s

   97   82   85   81   101 
                     

Recoveries of loans previously charged off:

      

Mortgages

   7   22   3   3   0 

Commercial

   50   0   0   0   3 

Installment

   13   19   25   8   8 

Personal credit lines and credit cards

   9   7   4   6   0 
                     

Total recoveries

   79   48   32   17   11 
                     

Net loans charged off (recovered)

   18   34   53   64   90 
                     

Allowance for loan losses, end of period

  $5,520  $4,428  $4,318  $4,161  $3,734 
                     

Ratio of net loans charged off to average loans outstanding

   0.00%  0.01%  0.01%  0.02%  0.03%

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 ---------- ---------- ---------- ---------- ---------

(Dollars in thousands)

  2006  2005  2004  2003  2002

Nonaccrual loans

  $120  $52  $314  $130  $85

Accrual loans

          

Restructured

   0   0   0   1,410   1,428

30 through 89 days past due

   7,607   4,249   1,643   1,440   1,419

90 days or more past due

   1,084   411   2,550   2,743   1,446
                    

Total accrual loans

  $8,691  $4,660  $4,193  $5,593  $4,293
                    

See Note 67 of the notes“Notes to consolidated financial statementsConsolidated 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. 2006.

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% ------------- --------

   2006  2005 

(Dollars in thousands)

  Allowance
Amount
  

Percentage

of Loans to

Total Loans

  Allowance
Amount
  

Percentage

of Loans to

Total Loans

 

Commercial, financial and agricultural

  $1,206  10% $558  11%

Real estate—Commercial

   1,584  36%  573  39%

Real estate—Construction

   42  8%  6  7%

Real estate—Mortgage

   1,553  45%  865  42%

Consumer

   13  1%  44  1%

Unallocated

   1,122  0%  2,382  0%
               

Total

  $5,520  100% $4,428  100%
               

   2004  2003 

(Dollars in thousands)

  Allowance
Amount
  

Percentage

of Loans to

Total Loans

  

Allowance

Amount

  

Percentage

of Loans to

Total Loans

 

Commercial, financial and agricultural

  $1,381  10% $928  11%

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 

(Dollars in thousands)

  Allowance
Amount
  

Percentage

of Loans to

Total Loans

 

Commercial, financial and agricultural

  $806  12%

Real estate—Commercial

   545  41%

Real estate—Construction

   0  8%

Real estate—Mortgage

   255  36%

Consumer

   28  3%

Unallocated

   2,100  0%
        

Total

  $3,734  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 -------------- ------------- -------------

   Years Ended December 31,

(Dollars in thousands)

  2006  2005  2004

Demand deposits

  $79,733  $66,829  $57,762

Interest bearing demand deposits

   159,035   162,888   183,649

Savings deposits

   87,665   63,174   29,752

Time deposits

   243,929   140,245   114,181
            

Total deposits

  $570,362  $433,136  $385,344
            

The following is a breakdown of maturities of time deposits of $ 100,000$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 --------------
2006:

(Dollars in thousands)

   

Three months or less

  $72,569

Over three months through six months

   14,570

Over six months through one year

   14,483

Over one year

   14,046
    

Total

  $115,668
    

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%

(Dollars in thousands)

  2006  2005  2004 

Average assets

  $722,581  $552,592  $495,919 

Net income

  $11,632  $9,987  $7,770 

Average equity

  $77,028  $53,423  $46,309 

Cash dividends paid

  $4,662  $3,157  $2,556 

Return on assets

   1.61%  1.81%  1.57%

Return on equity

   15.10%  18.69%  16.78%

Dividend payout ratio

   40.07%  31.62%  32.89%

Equity to asset ratio

   10.66%  9.67%  9.34%

ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED SUMMARY OF OPERATIONS

   Years Ended December 31,

(Dollars in thousands)

  2006  2005  2004  2003  2002

Interest income

  $44,788  $32,415  $25,892  $23,484  $23,173

Interest expense

   17,371   9,537   6,986   6,757   7,985
                    

Net interest income

   27,417   22,878   18,906   16,727   15,188

Provision for loan losses

   390   144   210   491   720
                    

Net interest income after provision for loan losses

   27,027   22,734   18,696   16,236   14,468
                    

Other income:

          

Trust and brokerage services

   3,707   3,164   2,471   1,948   1,780

Service charges on deposits, other service charges, collection and exchange charges, commissions and fees

   6,592   5,575   4,082   3,866   3,171

Other operating income

   784   320   416   618   409
                    

Total other income

   11,083   9,059   6,969   6,432   5,360
                    

Income before operating expense

   38,110   31,793   25,665   22,668   19,828

Operating expenses:

          

Salaries and employees benefits

   13,015   9,257   7,909   6,787   5,993

Occupancy and equipment expense

   3,357   2,673   2,398   2,109   1,800

Other operating expenses

   5,256   5,467   4,411   4,114   3,895
                    

Total operating expenses

   21,628   17,397   14,718   13,010   11,688
                    

Income before income taxes

   16,482   14,396   10,947   9,658   8,140

Income tax

   4,850   4,409   3,177   2,678   2,225
                    

Net income applicable to common stock

  $11,632  $9,987  $7,770  $6,980  $5,915
                    

Per share data: (1)

          

Basic earnings

  $1.97  $1.85  $1.45  $1.32  $1.12

Diluted earnings

  $1.89  $1.77  $1.40  $1.27  $1.10

Cash dividends

  $0.780  $0.583  $0.476  $0.401  $0.327

Weighted average shares:

          

Basic

   5,906,646   5,407,550   5,362,017   5,307,089   5,271,303

Diluted

   6,167,422   5,636,191   5,558,851   5,476,292   5,390,015

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 ----------- ----------- ---------- ---------- -----------
(1)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 amounts have been restated to reflect:
(1) Per share amounts have been restated to reflect::

The 5% stock dividend paid June 29, 2005

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 Withwith Accountants on Accounting and Financial Disclosure Not applicable. Disclosure.

None.

Item 9a.9A. Controls and Procedures Procedures.

The Corporation'sCorporation’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Corporation'sCorporation’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"“Exchange Act”)) as of December 31, 2004.2006. Based on such evaluation, such officers have concluded that the Corporation'sCorporation’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'sCorporation’s periodic filings under the Exchange Act. Management's reportManagement’s Report on internal control over financial reporting as offor December 31, 20042006 is shown on Pagepage 3 of the annual shareholders'shareholders’ report for the year ended December 31, 20042006 and is incorporated herein by reference. The attestation report of the registered public accounting firm on management'smanagement’s assessment of internal control over financial reporting is show non Pagesshown on pages 1 and 2 of the annual shareholders'shareholders’ report for the year ended December 31, 20042006 and is incorporated herein by reference. There have not been any significant changes in the Corporation'sCorporation’s internal control over financial reporting or in other factors that could significantly affect such control during the fourth quarter of 2004. 2006.

Item 9b.9B. Other Information 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 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'sCorporation’s Code of Ethics for Senior Financial Officers is available on Orrstown Bank'sBank’s website at http://www.orrstown.com. www.orrstown.com.

All other information required by Item 10 is incorporated by reference from Orrstown Financial Services, Inc.'s’s definitive proxy statement for the 20052007 Annual Meeting of Shareholders filed pursuant to Regulation 14A.

Item 11. Executive Compensation Compensation.

The information required by Item 11 is incorporated by reference from Orrstown Financial Services, Inc.'s’s definitive proxy statement for the 20052007 Annual Meeting of Shareholders filed pursuant to Regulation 14A.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

Plan Category

  

Number of securities

to be issued upon

exercise of

outstanding options

  

Weighted-average

exercise price of

outstanding

options

  

Number of securities remaining

available for future issuance

under equity compensation plans

(excluding securities reflected in

column (a))

   (a)  (b)  (c)

Equity compensation plan approved by security holders

  245,121  $30.24  169,612

Equity compensation plan not approved by security holders (1)

  29,491  $23.96  37,881
          

Total

  274,612  $29.57  207,493
          

(1)Non-Employee Director Stock Option Plan Category Number of securities2000. 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 Weighted-average Numberpurchase shares of be issued upon exercisethe 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 securitiesthe Corporation’s Common Stock as of outstandingthe 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 outstandingpreviously 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 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 --------- ------- --------- previously granted to the director will expire six months after the date of termination of service unless scheduled to expire sooner.
(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’s definitive proxy statement for the 20052007 Annual Meeting of Shareholders filed pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions Transactions.

The information required by Item 13 is incorporated by reference from Orrstown Financial Services, Inc.'s’s definitive proxy statement for the 20052007 Annual Meeting of Shareholders filed pursuant to Regulation 14A.

Item 14. Principal Accountant Fees and Services Services.

The information required by Item 14 is incorporated by reference from Orrstown Financial Services, Inc.'s’s definitive proxy statement for the 20052007 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: Schedules.

(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, 2004,2006, are incorporated by reference in Item 8:

Consolidated balance sheets - December 31, 20042006 and 2003 2005

Consolidated statements of income - Years ended December 31, 2004, 2003,2006, 2005, and 2002 2004

Consolidated statements of shareholders'shareholders’ equity - Years ended December 31, 2004, 2003,2006, 2005, and 2002 2004

Consolidated statements of cash flows - Years ended December 31, 2004, 2003,2006, 2005, and 2002 2004

Notes to consolidated financial statements - December 31, 2004 2006

(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.

2Plan of acquisition, reorganization, arrangement, liquidation or succession. Agreement and Plan of Reorganization dated November 21, 2005, by and between Orrstown Financial Services, Inc. and The First National Bank of Newport, incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 22, 2005.
3.1Articles of incorporation. Incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-4, Registration No.333-131176.
3.2By-laws. Incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4, Registration No. 33-18888.
4Instruments 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 3.1 of the Registrant’s Registration Statement on Form S-4, Registration No.333-131176.
(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.
10.1Change 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.
10.2Salary continuation plan for selected officers – incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 1999

10.3Officer group term replacement plan for selected officers – incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 1999
10.4Director retirement plan – incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 1999
10.5Revenue neutral retirement plan – incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 1999
10.6Non-employee director stock option plan of 2000 – incorporated by reference to the Registrant’s registration statement on Form S-8 dated April 11, 2000
10.7Employee stock option plan of 2000 – incorporated by reference to the Registrant’s registration statement on Form S-8 dated March 31, 2000
10.8Description of Executive Incentive Plan incorporated by reference to the Registrant’s definitive schedule 14A proxy statement filed March 18, 2005
13Annual report to security holders – filed herewith
14Code of Ethics Policy for Senior Financial Officers – incorporated by reference under Item 10 of this Form 10-K
21Subsidiaries of the registrant - filed herewith
23.1Consent of independent auditors - filed herewith
31.1Rule 13a - 14(a)/15d-14(a) Certification (Chief Executive Officer) – filed herewith
31.2Rule 13a - 14(a)/15d-14(a) Certifications (Chief Financial Officer) – filed herewith
32.1Section 1350 Certifications (Chief Executive Officer) – filed herewith
32.2Section 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.

(b)Exhibits – The exhibits required to be filed as part of this report are submitted as a separate section of this report.

(c)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)

ORRSTOWN FINANCIAL SERVICES, INC.

(Registrant)

By

/s/ Kenneth R. Shoemaker

Kenneth R. Shoemaker, President
Dated: March 12, 2007(Duly authorized officer)
By

/s/ Bradley S. Everly

Bradley S. Everly, Chief Financial Officer
Dated: March 12, 2007(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

Signature

Title

Date

/s/ Kenneth R. Shoemaker

Kenneth R. Shoemaker

President and CEO of Orrstown Bank and DirectorMarch 12, 2007

/s/ Peter C. Zimmerman

Peter C. Zimmerman

President and CEO of The First National Bank of Newport and DirectorMarch 12, 2007

/s/ Joel R. Zullinger

Joel R. Zullinger

Chairman of the Board and DirectorMarch 12, 2007

/s/ Jeffrey W. Coy

Jeffrey W. Coy

Vice Chairman of the Board and DirectorMarch 12, 2007

/s/ Denver L. Tuckey

Denver L. Tuckey

Secretary and DirectorMarch 12, 2007

/s/ Anthony F. Ceddia

Dr. Anthony F. Ceddia

DirectorMarch 12, 2007

/s/ Andrea Pugh

Andrea Pugh

DirectorMarch 12, 2007

/s/ Gregory A. Rosenberry

Gregory A. Rosenberry

DirectorMarch 12, 2007

/s/ Glenn W. Snoke

Glenn W. Snoke

DirectorMarch 12, 2007

/s/ John S. Ward

John S. Ward

DirectorMarch 12, 2007

22