SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number: 33-18888
ORRSTOWN FINANCIAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2530374
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 East King Street, P. O. Box 250, Shippensburg, Pennsylvania 17257
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 532-6114
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
Title of each class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes X No
--- ---
As of December 31, 2002, 2,398,405 shares of the registrant's common stock were
outstanding. The aggregate market value of such shares held by nonaffiliates on
that date was $ 112,725,035.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31, 2002
are incorporated by reference into Parts I and II. Portions of the Proxy
Statement for 2003 Annual Meeting of Security Holders are incorporated by
reference in Part III of this Form 10-K.
ORRSTOWN FINANCIAL SERVICES, INC.
FORM 10-K
INDEX
Page
Part I
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 19
Part III
Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 20
Item 14. Controls and Procedures 20
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
Signatures 24
Certification of Chief Executive Officer required by Form 10-K 25
Certification of Chief Financial Officer required by Form 10-K 26
Part I
Item 1. Business.
History and Business
Orrstown Financial Services, Inc. (the Corporation) is a financial
holding company registered under the Gramm-Leach-Bliley Act. Orrstown Financial
Services, Inc. was organized on November 17, 1987, under the laws of the
Commonwealth of Pennsylvania for the purpose of acquiring Orrstown Bank (the
Bank), Shippensburg, Pennsylvania, and such other banks and bank related
activities as are permitted by law and desirable. On March 8, 1988, Orrstown
Financial Services, Inc. acquired 100% ownership of Orrstown Bank, issuing
131,455 shares of Orrstown Financial Services, Inc.'s common stock to the former
Bank shareholders.
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 eleven branches are located in Shippensburg (2), Carlisle
(3), Spring Run, Orrstown, Chambersburg (2), Greencastle and Mechanicsburg,
Pennsylvania. The day-to-day management of Orrstown Bank is conducted by the
subsidiary's officers. Pennbanks Insurance Company Cell P1 is a reinsurer of
credit life, and disability insurance which services customers of Orrstown Bank.
Orrstown Financial Services, Inc. derives a majority of its current income from
Orrstown Bank.
Orrstown Financial Services, Inc. has no employees other than its six
officers who are also employees of the Bank, its subsidiary. On December 31,
2002, the Bank had 113 full-time and 36 part-time employees.
Orrstown Bank was organized as a state-chartered bank in 1987 as part
of an agreement and plan of merger between Orrstown Financial Services, Inc. and
Orrstown Bank, the predecessor of Orrstown Bank, under which Orrstown Bank
became a wholly-owned subsidiary of Orrstown Financial Services, Inc. As
indicated, the Bank is the successor to Orrstown Bank which was originally
organized in 1919.
The Bank is engaged in commercial banking and trust business as
authorized by the Pennsylvania Banking Code of 1965. This involves accepting
demand, time and savings deposits, and granting loans. The Bank grants
agribusiness, commercial and residential loans to customers in South Central
Pennsylvania, principally Franklin and Cumberland Counties. The concentrations
of credit by type of loan are set forth on the face of the balance sheet (page 2
of the annual report to shareholders). The Bank maintains a diversified loan
portfolio and evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank upon
the extension of credit, is based on management's credit evaluation of the
customer and collateral standards established in the Bank's lending policies and
procedures.
All secured loans are supported with appraisals of collateral. Business
equipment and machinery, inventories, accounts receivable, and farm equipment
are considered appropriate security, provided they meet acceptable standards for
liquidity and marketability.
-2-
Loans secured by equipment and/or other non real estate collateral
normally do not exceed 70% of appraised value or cost, whichever is lower. Loans
secured by real estate generally do not exceed 80% of the appraised value of the
property. Loan to collateral values are monitored as part of the loan review,
and appraisals are updated as deemed appropriate in the circumstances.
Administration and supervision over the lending process is provided by
the Bank's Credit Administration Department via loan reviews. The loan review
process is continuous, commencing with the approval of a loan. Each new loan is
reviewed by the Credit Administration Department for compliance with banking
regulations and lending policy requirements for documentation, collateral
standards, and approvals.
The Credit Administration Department continues to monitor and evaluate
loan customers utilizing risk-rating criteria established in the lending policy
in order to spot deteriorating trends and detect conditions which might indicate
potential problem loans.
Reports of the results of the loan reviews are submitted quarterly to
the Directors' Credit Administration Committee for approval and provide the
basis for evaluating the adequacy of the allowance for loan losses.
Through its trust department, the Bank renders services as trustee,
executor, administrator, guardian, managing agent, custodian, investment
advisor, and other fiduciary activities authorized by law.
As of December 31, 2002, the Corporation had total assets of
approximately $ 410 million, total shareholders' equity of approximately $ 38
million and total deposits of approximately $ 319 million. Regulation and
Supervision
Orrstown Financial Services, Inc. is a financial holding company, and
is registered as such with the Board of Governors of the Federal Reserve System
(The Federal Reserve Board). As a registered bank holding company and financial
holding company, the Corporation is subject to regulation under the Bank Holding
Company Act of 1956 and to inspection, examination, and supervision by the
Federal Reserve Board.
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, and
to banks whose deposits are insured by the Federal Deposit Insurance
Corporation. Bank operations are also subject to regulations of the Pennsylvania
Department of Banking, the Federal Reserve Board, and the Federal Deposit
Insurance Corporation.
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.
-3-
Financial and Bank Holding Company Activities
"Financial in Nature" Requirement. As a financial holding company, the
Corporation may engage in, and acquire companies engaged in, activities that are
considered "financial in nature", as defined by the Gramm-Leach-Bliley Act and
Federal Reserve Board interpretations. These activities include, among other
things, securities underwriting, dealing and market-making, sponsoring mutual
funds and investment companies, insurance underwriting and agency activities,
and merchant banking. If any banking subsidiary of the Corporation ceases to be
"well capitalized" or "well managed" under applicable regulatory standards, the
Federal Reserve Board may, among other things, place limitations on the
Corporation's ability to conduct the broader financial activities permissible
for financial holding companies or, if the deficiencies persist, require the
Corporation to divest the banking subsidiary. In addition, if any banking
subsidiary of the Corporation receives a Community Reinvestment Act rating of
less than satisfactory, the Corporation would be prohibited from engaging in any
additional activities other than those permissible for bank holding companies
that are not financial holding companies. The Corporation may engage directly or
indirectly in activities considered financial in nature, either de novo or by
acquisition, as long as it gives the Federal Reserve board after-the-fact notice
of the new activities.
Interstate Banking and Branching. As the bank holding company, the
Corporation is required to obtain prior Federal Reserve Board approval before
acquiring more than 5% of the voting shares, or substantially all of the assets,
of a bank holding company, bank, or savings association. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act (Riegle-Neal), subject to
certain concentration limits and other requirements, bank holding companies such
as the Corporation may acquire banks and bank holding companies located in any
state. Riegle-Neal also permits banks to acquire branch offices outside their
home states by merging with out-of-state banks, purchasing branches in other
states, and establishing de novo branch offices in other states. The ability of
banks to acquire branch offices is contingent, however, on the host state having
adopted legislation "opting in" to those provisions of Riegle-Neal. In addition,
the ability of a bank to merge with a bank located in another state is
contingent on the host state not having adopted legislation "opting out" of that
provision of Riegle-Neal.
Control Acquisitions. The Change in Bank Control Act prohibits a person
or group of persons from acquiring "control" of a bank holding company, unless
the Federal Reserve Board has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act, such as the Corporation, would, under the circumstances set forth
in the presumption, constitute acquisition of control of the bank holding
company. In addition, a company is required to obtain the approval of the
Federal Reserve Board under the Bank Holding Company Act before acquiring 25%
(5% in the case of an aquiror that is a bank holding company) or more of any
class of outstanding voting stock of a bank holding company, or otherwise
obtaining control or a "controlling influence" over that bank holding company.
-4-
Liability for Banking Subsidiaries
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial and managerial strength to each of its
subsidiary banks and to commit resources to their support. This support may be
required at times when the bank holding company may not have the resources to
provide it. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution
liable for any loss suffered or anticipated by the FDIC in connection with (1)
the "default" of a commonly controlled FDIC-insured depository institution; or
(2) any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution "in danger of default".
Capital Requirements
Information concerning the Corporation and its subsidiaries with
respect to capital requirements is incorporated by reference from Note 15,
"Regulatory Matters", of the "Notes to Consolidated Financial Statements"
included under Item 8 of this report, and from the "Capital Adequacy and
Regulatory Matters" section of the "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations", included under Item
7 of this report.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), and the regulations promulgated under FDICIA, among other things,
established five capital categories for insured depository institutions - well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized - and requires federal bank
regulatory agencies to implement systems for "prompt corrective action" for
insured depository institutions that do not meet minimum capital requirements
based on these categories. Unless a bank is well capitalized, it is subject to
restrictions on its ability to offer brokered deposits and on certain other
aspects of its operations. An undercapitalized bank must develop a capital
restoration plan and its parent bank holding company must guarantee the bank's
compliance with the plan up to the lesser of 5% of the bank's assets at the time
it became undercapitalized and the amount needed to comply with the plan. As of
December 31, 2002, the Bank was considered well capitalized based on the
guidelines implemented by the bank regulatory agencies.
Dividend Restrictions
The Corporation's funds for cash distributions to its stockholders are
derived from a variety of sources, including cash and temporary investments. One
of the principal sources of those funds is dividends received from its
subsidiary Orrstown Bank. Various federal laws limit the amount of dividends the
Bank can pay to the Corporation without regulatory approval. In addition,
federal bank regulatory agencies have authority to prohibit the Bank from
engaging in an unsafe or unsound practice in conducting their business. The
payment of dividends, depending upon the financial condition of the bank in
question, could be deemed to constitute an unsafe or unsound practice. The
ability of the Bank to pay dividends in the future is currently, and could be
further, influenced by bank regulatory policies and capital guidelines.
Additional information concerning the Corporation and its banking subsidiary
with respect to dividends is incorporated by reference from Note 15, "Regulatory
Matters", of the "Notes to Consolidated Financial
-5-
Statements" included under Item 8 of this report, and the "Liquidity, Risk
Sensitivity, and Interest Rate Risk Analysis" sections of "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations", included under Item 7 of this report.
Depositor Preference Statute
In the "liquidation or other resolution" of an institution by any
receiver, U.S. federal legislation provides that deposits and certain claims for
administrative expenses and employee compensation against the insured depository
institution would be afforded a priority over the general unsecured claims
against that institution, including federal funds and letters of credit.
Other Federal Laws and Regulations
Our operations are subject to additional federal laws and regulations
applicable to financial institutions, including, without limitation:
o Privacy provisions of the Gramm-Leach-Bliley Act and related
regulations, which require us to maintain privacy policies intended
to safeguard customer financial information, to disclose the
policies to our customers and to allow customers to "opt out" of
having their financial service providers disclose their confidential
financial information to non-affiliated third parties, subject to
certain exceptions;
o 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;
o Consumer protection rules for the sale of insurance products by
depository institutions, adopted pursuant to the requirements of the
Gramm-Leach-Bliley Act; and
o USA Patriot Act, which requires financial institutions to take
certain actions to help prevent, detect and prosecute international
money laundering and the financing of terrorism.
Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws
affecting corporate governance, accounting obligations and corporate reporting.
The Sarbanes-Oxley Act is applicable to all companies with equity securities
registered or that file reports under the Securities Exchange Act of 1934. In
particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit
committees, including independence, expertise, and responsibilities; (ii)
additional responsibilities regarding financial statements for the Chief
Executive Officer and Chief Financial Officer of the reporting company; (iii)
new standards for auditors and regulation of audits; (iv) increased disclosure
and reporting obligations for the reporting company and its directors and
executive officers; and (v) new and increased civil and criminal penalties for
violations of the securities laws. Many of the provisions were effective
immediately while other provisions become effective over a period of time and
are subject to rulemaking by the SEC. Because the Corporation's common stock is
registered with the SEC, it is currently subject to this Act.
-6-
Future Legislation
Changes to the laws and regulations in the state where the Corporation
and the Bank do business can affect the operating environment of bank holding
companies and their subsidiaries in substantial and unpredictable ways. The
Corporation cannot accurately predict whether those changes in laws and
regulations will occur, and, if those changes occur, the ultimate effect they
would have upon the financial condition or results of operations of the
Corporation.
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in such statements. In
connection with certain statements made in this report and those that may be
made in the future by or on behalf of the Corporation which are identified as
forward-looking statements, the Corporation notes that the following important
factors, among others, could cause actual results to differ materially from
those set forth in any such forward-looking statements. Further, such
forward-looking statements speak only as of the date on which such statement or
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
The business and profitability of a financial services organization
such as the Corporation is influenced by prevailing economic conditions and
governmental policies. The actions and policy directives of the Federal Reserve
Board determine to a significant degree the cost and the availability of funds
obtained from money market sources for lending and investing. Federal Reserve
Board policies and regulations also influence, directly and indirectly, the
rates of interest paid by commercial banks on their interest-bearing deposits
and may also impact the value of financial instruments held by the Corporation.
The nature and impact on the Corporation of future changes in economic and
market conditions and monetary and fiscal policies are not predictable and are
beyond the Corporation's control. In addition, these conditions and policies can
impact the Corporation's customers and counterparties which may increase the
risk of default on their obligations to the Corporation and its affiliates. They
can also affect the competitive conditions in the markets and products within
which the Corporation operates, which can have an adverse impact on the
Corporation's ability to maintain its revenue streams.
As part of its ongoing business, the Corporation assumes
financial exposures to interest rates, currencies, equities and other financial
products. In doing so, the Corporation is subject to unforeseen events which may
not have been anticipated or which may have effects which exceed those assumed
within its risk management processes. This risk can be accentuated by volatility
and reduction in liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions concerned. In addition,
the Corporation is dependent on its ability to access the financial markets for
its funding needs.
-7-
As noted in "Regulation and Supervision", the Corporation is regulated
by and subject to various regulators. The actions of these regulators can have
an impact on the profitability and governance of the Corporation. Increases by
regulatory authorities of minimum capital, reserve, deposit insurance and other
financial viability requirements can also affect the Corporation's
profitability.
The Corporation is subject to operational and control risk which is the
potential for loss caused by a breakdown in communication, information,
processing and settlement systems or processes or a lack of compliance with the
procedures on which they rely either within the Corporation or within the
broader financial systems infrastructure.
As with any financial institution, the Corporation is also subject to
the risk of litigation and to an unexpected or adverse outcome in such
litigation. Competitive pressures in the marketplace and unfavorable or adverse
publicity and news coverage can have the effect of lessening customer demand for
the Corporation's services. Ultimately, the Corporation's businesses and their
success are dependent on the Corporation's ability to attract and retain high
quality employees.
Competition
The Bank's principal market area consists of Franklin County and
Cumberland County, Pennsylvania. It services a substantial number of depositors
in this market area, with the greatest concentration within a radius of
Chambersburg, Shippensburg, and Carlisle, Pennsylvania.
The Bank, like other depository institutions, has been subjected to
competition from less heavily regulated entities such as credit unions,
brokerage firms, money market funds, consumer finance and credit card companies,
and other commercial banks, many of which are larger than the Bank. Orrstown
Bank is competitive with all competing financial institutions in its service
area with respect to interest rates paid on time and savings deposits, service
charges on deposit accounts and interest rates charged on loans.
Item 2. Properties.
Orrstown Bank owns buildings in Orrstown, Shippensburg (2), Carlisle
(2), Spring Run, Chambersburg, and Mechanicsburg, Pennsylvania. Offices of the
Bank are located in each of these buildings. It also leases space for offices
located in Greencastle, Chambersburg, and Carlisle, Pennsylvania.
Item 3. Legal Proceedings.
Orrstown Financial Services, Inc. is an occasional party to legal
actions arising in the ordinary course of its business. In the opinion of
management, the Corporation has adequate legal defenses and/or insurance
coverage respecting any and each of these actions and does not believe that they
will materially affect the Corporation's operations or financial position.
Item 4. Submission of Matters to Vote of Security Holders.
None
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.
-8-
Held Employee Age as of
Name/Office Held Since Since 3/15/03
---------------- ----- -------- ---------
Joel R. Zullinger, Chairman
of the Board 1991 (1) 54
Jeffrey W. Coy, Vice Chairman of
the Board 1988 (1) 51
Kenneth R. Shoemaker, President, CEO 1987 1986 55
Bradley S. Everly, Senior Vice President,
Treasurer 1997 1997 51
Stephen C. Oldt, Executive
Vice President, Assistant Secretary 1987 1987 60
Philip E. Fague, Executive Vice President,
Assistant Treasurer 2001 1988 43
Denver L. Tuckey, Secretary 1999 (1) 69
Jeffrey W. Embly, Vice President 1999 1997 32
(1) These officers are not employees of the Corporation Senior Operating
Officers of the Bank
Held Bank Employee Age as of
Name/Office Held Since Since 3/15/03
---------------- ----- ------------- ---------
Kenneth R. Shoemaker, President,
Chief Executive Officer 1987 1986 55
Stephen C. Oldt, Executive Vice
President, Chief Operations Officer 1987 1987 60
Philip E. Fague, Executive Vice President, 1999/
Chief Sales and Service Officer 2000 1988 43
Bradley S. Everly, Senior Vice
President, Chief Financial Officer 1997 1997 51
Benjamin Stoops, Vice President,
Chief Technology Officer 1998 1998 51
Jeffrey W. Embly, Vice President,
Senior Loan Officer 1999 1997 32
Barbara E. Brobst, Vice President,
Senior Trust Officer 2001 1997 44
Nathan A. Eifert, Vice President,
Director of Marketing 2002 2000 34
Stephen C. Caldwell, Vice President,
Director of Human Resources 2002 2001 54
-9-
Part II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.
Orrstown Financial Services, Inc.'s common stock is not traded
on a national securities exchange, but is traded through the local and over the
counter local markets under the symbol ORRF. At December 31, 2002, the
approximate number of shareholders of record was approximately 2,218. 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.
Market Cash Market Cash
Price Dividend Price Dividend
Dividend (1) 2002 2001
High Low High Low
First Quarter $ 41.00 $ 38.55 $ 0.17 $ 38.10 $ 36.19 $ 0.143
Second Quarter 50.00 39.25 0.17 39.29 35.71 0.143
Third Quarter 50.00 44.00 0.18 44.76 35.00 0.150
Fourth Quarter 47.00 46.00 0.20 40.00 37.00 0.160
(1) Note: All per share data has been restated after giving retroactive
recognition to a 5% stock dividend paid September 15, 2001.
See Note 15 to the financial statements contained in the annual
shareholders' report for the year ended December 31, 2002 for restrictions on
the payment of dividends.
Item 6. Selected Financial Data.
The selected five-year financial data on page 25 of the annual
shareholders' report for the year ended December 31, 2002 is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's discussion and analysis of financial condition and results
of operations, on pages 17 through 23 of the annual shareholders' report are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data, some of which is
required under Guide 3 (statistical disclosures by bank holding companies) are
shown on pages 2 through 26 of the annual shareholders report for the year ended
December 31, 2002 and are incorporated herein by reference. Certain statistical
information required in addition to those included in the annual shareholders
report are submitted herewith as follows.
Description of Statistical Information Page
Changes in net interest income tax equivalent yields 11
Investment portfolio 12
Loan portfolio 13
Summary of loan loss experience 14
Nonaccrual, delinquent and impaired loans 15
Allocation of allowances for loan losses 16
Deposits and return on equity and assets 17
Consolidated summary of operations 18
-10-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS
2002 Versus 2001 2001 Versus 2000
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned
discounts) $ 2,598 ($ 3,287) ($ 689) $ 3,570 ($ 1,300) $ 2,270
Taxable investment securities 230 (609) (379) 121 (326) (205)
Nontaxable investment securities 769 (56) 713 (56) 29) (85)
Other short-term investments 17 (240) (223) 763 (557) 206
------- ------- ------- ------- ------- -------
Total interest income 3,614 (4,192) (578) 4,398 (2,212) 2,186
------- ------- ------- ------- ------- -------
Interest Expense
Interest bearing demand 927 (1,180) (253) 699 (630) 69
Savings deposits 40 (140) (100) 4 (169) (165)
Time deposits (479) (1,446) (1,925) 640 62) 578
Short-term borrowings (8) (503) (511) 134 (488) (354)
Long-term borrowings 106 (9) 97 371 (140) 231
------- ------- ------- ------- ------- -------
Total interest expense 586 (3,278) (2,692) 1,848 (1,489) 359
------- ------- ------- ------- ------- -------
Net interest income $ 2,114 $ 1,827
======= =======
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.
-11-
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, 2002, and weighted average yields of
such securities. Yields are shown on a tax equivalent basis, assuming a 34%
federal income tax rate.
After 5
After 1 year years but
Within 1 but within 5 within 10 After 10
(000 omitted) year years years years Total
Bonds:
U. S. Treasury
Book value $ 0 $ 1,018 $ 0 $ 0 $ 1,018
Yield 0% 6.06% 0% 0% 6.06%
U. S. Government agencies
Book value 0 4,000 0 0 4,000
Yield 0% 3.63% 0% 0% 3.63%
State and municipal
Book value 0 0 1,183 24,508 25,691
Yield 0% 0% 9.17% 8.10% 8.13%
Corporate
Book value 0 1,000 0 943 1,943
Yield 0% 3.08% 0% 2.09% 2.60%
Trust preferred
Book value 0 0 0 1,000 1,000
Yield 0% 0% 0% 9.25% 9.25%
Total book value $ 0 $ 6,018 $ 1,183 $26,451 $ 33,652
==== ======= ======= ======== ========
Yield 0% 3.95% 9.17% 7.93% 7.25%
==== ======= ======= ======== ========
Mortgage-backed securities:
Total book value $ 52,238
========
Yield 5.13%
========
Equity Securities:
Total book value $ 1,112
========
Yield 4.05%
========
Total Investment Securities $ 87,002
========
Yield 5.94%
========
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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:
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(000 omitted)
Commercial, financial and agricultural $ 33,806 $ 28,534 $ 23,938 $ 21,503 $ 18,732
Real estate - Construction 22,048 20,480 17,425 15,580 11,182
Real estate - Mortgage 217,719 192,192 157,722 134,046 116,030
Installment and other personal loans
(net of unearned discount) 7,746 8,610 10,096 9,562 12,688
--------- --------- --------- --------- ---------
Total loans $ 281,391 $ 249,816 $ 209,181 $ 180,691 $ 158,632
========= ========= ========= ========= =========
Presented below are the approximate maturities of the loan portfolio
(excluding real estate mortgages, installments, and credit cards) at December
31, 2002:
One to Five
Under One Year years Over Five Years Total
-------------- -------- --------------- -------
(000 omitted)
Commercial, financial and agricultural $ 5,340 $ 6,406 $ 22,060 $ 33,806
Real estate - Construction 3,047 3,648 15,353 22,048
------- -------- -------- --------
Total $ 8,387 $ 10,054 $ 37,413 $ 55,854
======= ======== ======== ========
The following table presents the approximate amount of fixed rate loans
and variable rate loans due as of December 31, 2002:
Fixed Rate Variable
Loans Rate Loans
--------- ----------
(000 omitted)
Due within one year $ 1,690 $ 10,989
Due after one but within five years 18,289 10,654
Due after five years 76,316 163,453
-------- ---------
Total $ 96,295 $ 185,096
======== =========
-13-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
2002 2001 2000 1999 1998
---- ----- ---- ---- ----
(000 omitted)
Average total loans outstanding
(net of unearned income) $ 264,296 $ 233,103 $ 192,902 $ 169,458 $ 144,013
========= ========= ========= ========= =========
Allowance for loan losses,
beginning of period $ 3,104 $ 2,691 $ 2,455 $ 1,971 $ 1,767
Additions to provision for loan
losses charged to operations 720 504 360 547 270
Loans charged off during the year
Commercial 48 67 99 97 15
Personal credit lines 17 29 11 7 23
Installment 36 2 19 24 46
--------- --------- --------- --------- ---------
Total charge-off's 101 98 129 128 84
--------- --------- --------- --------- ---------
Recoveries of loans previously
charged off:
Commercial 3 6 1 59 3
Installment 8 1 2 1 10
Personal credit lines 0 0 2 5 5
--------- --------- --------- --------- ---------
Total recoveries 11 7 5 65 18
--------- --------- --------- --------- ---------
Net loans charged off (recovered) 90 91 124 63 66
--------- --------- --------- --------- ---------
Allowance for loan losses, end of
period $ 3,734 $ 3,104 $ 2,691 $ 2,455 $ 1,971
========= ========= ========= ========= =========
Ratio of net loans charged off to
average loans outstanding .03% .04% .06% .04% .05%
========= ========= ========= ========= =========
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.
-14-
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.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(000 omitted)
Nonaccrual loans $ 85 $ 56 $ 12 $ 64 $ 486
======= ======= ======= ======= =======
Accrual loans:
Restructured $ 1,428 $ 0 $ 0 $ 0 $ 0
30 through 89 days past due 1,419 2,244 865 3,420 823
90 days or more past due 1,446 644 814 97 284
------- ------- ------- ------- -------
Total accrual loans $ 4,293 $ 2,888 $ 1,679 $ 3,517 $ 1,107
======= ======= ======= ======= =======
See Note 6 of the notes to consolidated financial statements
for details of income recognized and foregone revenue on nonaccrual loans for
the past three years, and discussion concerning impaired loans at December 31,
2002.
-15-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following is an allocation by loan categories of the allowance for
loan losses at December 31 for the last five years. 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:
Years Ended December 31
2002 2001
Percentage of Percentage of
Allowance Loans to Total Allowance Loans to Total
Amount Loans Amount Loans
(000 omitted)
Commercial, financial and agricultural $ 806 12.01% $ 466 11.42%
Commercial, real estate secured 545 41.37 563 46.42
Real estate - Construction 0 7.84 0 8.20
Real estate - Mortgage 255 36.03 350 30.51
Installment 28 2.75 33 3.45
Unallocated 2,100 0.0 1,692 0.00
------- ------ ------- ------
Total $ 3,734 100.00% $ 3,104 100.00%
======= ====== ======= ======
Years Ended December 31
2000 1999
Percentage of Percentage of
Allowance Loans to Total Allowance Loans to Total
Amount Loans Amount Loans
(000 omitted)
Commercial, financial and agricultural $ 43 11.74% $ 45 11.90%
Commercial, real estate secured 786 21.29 609 18.03
Real estate - Construction 0 8.30 0 8.62
Real estate - Mortgage 56 53.86 93 56.16
Installment 34 4.81 27 5.29
Unallocated 1,772 0.00 1,681 0.00
------- ------ ------- ------
Total $ 2,691 100.00% $ 2,455 100.00%
======= ====== ======= ======
Years Ended December 31
1998
Percentage of
Allowance Loans to Total
Amount Loans
(000 omitted)
Commercial, financial and agricultural $ 255 9.93%
Commercial, real estate secured 416 19.43
Real estate - Construction 0 7.05
Real estate - Mortgage 111 53.77
Installment 34 9.82
1,155 0.00
Unallocated ------- ------
Total $ 1,971 100.00%
======= ======
-16-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December 31
2002 2001 2000
(000 omitted)
Demand deposits $ 39,688 $ 32,628 $ 27,650
Interest bearing demand deposits 136,500 99,103 76,631
Savings deposits 23,558 20,787 20,628
Time deposits 94,043 102,856 91,214
-------- -------- --------
Total deposits $293,789 $255,374 $216,123
======== ======== ========
The following is a breakdown of maturities of time deposits of
$100,000 or more as of December 31, 2002:
(000 omitted)
Three months or less $ 8,876
Over three months through twelve months 3,288
Over one year through three years 4,220
Over three years 1,462
--------
$ 17,846
========
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant earnings and
capital ratios: (000 omitted)
2002 2001 2000
Average assets $ 385,765 $ 340,428 $ 285,903
Net income $ 5,915 $ 5,092 $ 4,172
Average equity $ 34,408 $ 29,612 $ 23,954
Cash dividends paid $ 1,722 $ 1,411 $ 1,270
Return on assets 1.53% 1.50% 1.46%
Return on equity 17.19% 17.20% 17.42%
Dividend payout ratio 29.12% 27.71% 30.48%
Equity to asset ratio 8.92% 8.70% 8.38%
-17-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
2002 2001 2000 1999 1998
(000 omitted)
Interest income $ 23,173 $ 23,978 $ 21,758 $ 18,324 $ 16,109
Interest expense 7,985 10,677 10,318 8,074 7,348
-------- -------- -------- -------- --------
Net interest income 15,188 13,301 11,440 10,250 8,761
Provision for loan losses 720 504 360 547 270
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 14,468 12,797 11,080 9,703 8,491
Other income:
Trust and brokerage services 1,780 1,480 1,466 1,230 818
Service charges - Deposits, other
service charges, collection and
exchange charges, commission and
fees 3,171 2,634 1,818 1,623 1,313
Other operating income 409 366 458 728 122
-------- -------- -------- -------- --------
Total other income 5,360 4,480 3,742 3,581 2,253
-------- -------- -------- -------- --------
Income before operating expense 19,828 17,277 14,822 13,284 10,744
Operating expenses:
Salaries and employees benefits 5,993 5,151 4,755 4,297 3,491
Occupancy and equipment expense 1,800 1,676 1,558 1,099 859
Other operating expenses 3,895 3,420 2,800 2,822 2,095
-------- -------- -------- -------- --------
Total operating expenses 11,688 10,247 9,113 8,218 6,445
-------- -------- -------- -------- --------
Income before income taxes 8,140 7,030 5,709 5,066 4,299
Income tax 2,225 1,938 1,537 1,311 1,180
-------- -------- -------- -------- --------
Net income applicable to common stock $ 5,915 $ 5,092 $ 4,172 $ 3,755 $ 3,119
======== ======== ======== ======== ========
Per share data:
Basic earnings $ 2.47 $ 2.15 $ 1.78 $ 1.61 $ 1.35
Diluted earnings $ 2.42 $ 2.12 $ 1.77 $ 1.61 $ 1.35
Cash dividends $ .72 $ .60 $ .54 $ .49 $ .42
Weighted average shares:
Basic 2,390,614 2,366,707 2,340,834 2,325,699 2,316,004
Diluted 2,444,484 2,398,149 2,352,130 2,325,699 2,316,004
-18-
Item 9. Disagreements on Accounting and Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference from
Orrstown Financial Services, Inc.'s definitive proxy statement for the 2003
Annual Meeting of Shareholders filed pursuant to Regulation 14A.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from
Orrstown Financial Services, Inc.'s definitive proxy statement for the 2003
Annual Meeting of Shareholders filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plan Information
Plan Category Number of securities remaining
available for future issuance
Number of securities to be Weighted-average exercise under equity compensation plans
issued upon exercise of price of outstanding (excluding securities reflected in
outstanding options options column (a))
(a) (b) (c)
Equity compensation plan
approved by security holders 56,280 $ 39.62 153,720
Equity compensation plan
not approved by security
holders (1) 7,903 $ 38.20 23,340
------ ------- -------
Total 64,183 $ 39.44 177,060
====== ======= =======
(1) 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. As long as shares of the Corporation's Common Stock
are traded over-the-counter and quotations for the shares appear on the
National Association of Securities Dealers, Inc.'s OTC Bulletin Board
service, "fair market value" will mean the average of the average of the
daily high bid and low offer quotation for shares of the Corporation's
Common Stock reported through the OTC Bulletin Board Service for the 10
trading days immediately preceding the date of the grant of the option. If
no bid or no offer quotations are available during the 10 day pricing
period, then "fair market value" will mean the price of the last trade
reported for the shares through the OTC Bulletin Board service. If a
director "retires", whether as a result of reaching mandatory retirement
age, or under any other circumstances, the Board of Directors, in its
discretion, may determine to constitute retirement, the options previously
granted to the director will expire at their scheduled expiration date. If a
director's service as a director terminates for any other reason, the
options previously granted to the director will expire six months after the
date of termination of service unless scheduled to expire sooner.
All other information required by Item 12 is incorporated by reference from
Orrstown Financial Services, Inc.'s definitive proxy statement for the 2003
Annual Meeting of Shareholders filed pursuant to Regulation 14A.
-19-
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from
Orrstown Financial Services, Inc.'s definitive proxy statement for the 2003
Annual Meeting of Shareholders filed pursuant to Regulation 14A.
Item 14. Controls and Procedures
The Corporation's Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Corporation's disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this annual report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Corporation's disclosure controls and procedures are
effective in alerting them on a timely basis to material information relating to
the Corporation (including its consolidated subsidiaries) required to be
included in the Corporation's periodic filings under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
Since the Evaluation Date, there have not been any significant changes
in the Corporation's internal controls or in other factors that could
significantly affect such controls.
-20-
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K.
(a) (1) - List of 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,
2002, are incorporated by reference in Item 8:
Consolidated balance sheets - December 31, 2002 and 2001
Consolidated statements of income - Years ended December 31,
2002, 2001, and 2000 Consolidated statements of shareholders'
equity - Years ended December 31, 2002, 2001, and 2000
Consolidated statements of cash flows - Years ended December
31, 2002, 2001, and 2000 Notes to consolidated financial
statements - December 31, 2002
(2) List of 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) Listing of Exhibits
Exhibit (3) (i) Articles of incorporation
Exhibit (3) (ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (10) Material contracts
Exhibit (13) Annual report to security holders
Exhibit (21) Subsidiaries of the registrant
Exhibit (23) Consent of independent auditors
Exhibit (99.1) Certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit (99.2) Certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 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) Reports on Form 8-K filed
None.
-21-
(c) 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.
(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
(21) Subsidiaries of the registrant - filed herewith
(23.1) Consent of independent auditors - filed herewith
(99.1) Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 - filed
herewith.
(99.2) Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 - filed
herewith.
(d) Financial statement schedules None
-22-
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 25, 2003 (Duly authorized officer)
By /s/ Bradley S. Everly
------------------------------------------
Bradley S. Everly, Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kenneth R. Shoemaker President, CEO and March 25, 2003
- ----------------------------- Director
Kenneth R. Shoemaker
/s/ Anthony F. Ceddia Director March 25, 2003
- -----------------------------
Dr. Anthony F. Ceddia
/s/ Glenn W. Snoke Director March 25, 2003
- -----------------------------
Glenn W. Snoke
/s/ Gregory A. Rosenberry Director March 25, 2003
- -----------------------------
Gregory A. Rosenberry
/s/ Joel R. Zullinger Chairman of the March 25, 2003
- ----------------------------- Board and Director
Joel R. Zullinger
/s/ Jeffrey W. Coy Vice Chairman March 25, 2003
- ----------------------------- of the Board
Jeffrey W. Coy and Director
/s/ John S. Ward Director March 25, 2003
- -----------------------------
John S. Ward
/s/ Denver L. Tuckey Secretary and March 25, 2003
- ----------------------------- Director
Denver L. Tuckey
/s/ Andrea Pugh Director March 25, 2003
- -----------------------------
Andrea Pugh
-23-
CERTIFICATION
I, Kenneth R. Shoemaker, 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-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 25, 2003 By: /s/ Kenneth R. Shoemaker
----------------------------
Kenneth R. Shoemaker
President and Chief Executive Officer,
Director
-24-
CERTIFICATION
I, Bradley S. Everly, 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-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 25, 2003 By: /s/ Bradley S. Everly
--------------------------
Bradley S. Everly
Senior Vice President and
Chief Financial Officer
-25-