FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
33-18888
(Commission file number)
ORRSTOWN FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Commonwealth of Pennsylvania 23-2530374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 East King Street 17257
P.O. Box 250, Shippensburg, Pennsylvania (Zip Code)
(Address of principal executive offices)
(717) 532-6114
(Registrant's telephone number, including area code)
Indicate by check Junk whether the registrant (1) has filed all reports required
to be filled by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 Junk whether the registrant is an accelerated filer (as
defined in Rule 12b - 2 of the Exchange Act).
YES X NO [____]
Common Stock, no par value 5,403,263
(Title of Class) (Outstanding Shares)
Page 1 of 26
ORRSTOWN FINANCIAL SERVICES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial statements (unaudited)
Condensed consolidated balance sheets - June 30, 2005
and December 31, 2004 4
Condensed consolidated statements of income - Three months
ended June 30, 2005 and 2004 5
Condensed consolidated statements of income - Six months
ended June 30, 2005 and 2004 6
Condensed consolidated statements of comprehensive income -
Three months & Six months ended June 30, 2005 and 2004 7
Condensed consolidated statements of cash flows - Six
months ended June 30, 2005 and 2004 8
Notes to condensed consolidated financial statements 9 - 11
Item 2. Management's discussion and analysis of financial condition and
results of operations 12 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Securities Holders 20
Item 5. Other Information 20
Item 6. Exhibits 23 - 26
SIGNATURES 22
Page 2 of 26
PART I - FINANCIAL INFORMATION
Page 3 of 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Unaudited) (Audited) *
June 30, December 31,
(Dollars in Thousands) 2005 2004
ASSETS
Cash and due from banks $ 15,939 $ 11,456
Federal funds sold 29,000 8,393
--------- ---------
Cash and cash equivalents 44,939 19,849
Interest bearing deposits with banks 1,126 1,124
Securities available for sale 79,111 79,829
FHLB, Federal Reserve and Atlantic
Central Bankers Bank stock,
at cost which approximates market 2,468 2,972
value
Loans 424,252 389,268
Allowance for loan losses (4,349) (4,318)
--------- ---------
Net Loans 419,903 384,950
Premises and equipment, net 13,123 13,222
Accrued interest receivable 2,022 1,775
Cash surrender value of life insurance 7,634 7,516
Other assets 3,693 3,414
--------- ---------
Total assets $ 574,019 $ 514,651
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 75,507 $ 66,784
Interest bearing 377,939 338,579
Total deposits 453,446 405,363
Short term borrowings 28,352 19,493
Long-term debt 33,886 35,569
Accrued interest payable 302 266
Other liabilities 4,957 4,710
--------- ---------
Total liabilities 520,943 465,401
--------- ---------
Common stock, no par value - $ .05205
stated value per share;
50,000,000 shares authorized;
5,403,263 and 5,126,205 shares
issued 268 267
Additional paid - in capital 35,174 34,434
Retained earnings 16,961 13,723
Accumulated other comprehensive income 673 826
--------- ---------
Total shareholders' equity 53,076 49,250
--------- ---------
Total liabilities and shareholders' equity $ 574,019 $ 514,651
========= =========
* Condensed from audited financial
statements
The accompanying notes are an integral part of these condensed financial
statements.
Page 4 of 26
ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
June June
(Dollars in Thousands) 2005 2004
INTEREST INCOME
Interest and fees on loans $ 6,851 $ 5,437
Interest and dividends on investment securities 856 808
Interest on short term investments 98 37
----------- -----------
Total interest income 7,805 6,282
----------- -----------
INTEREST EXPENSE
Interest on deposits 1,698 1,266
Interest on short-term borrowings 154 50
Interest on long-term debt 357 367
----------- -----------
Total interest expense 2,209 1,683
----------- -----------
Net interest income 5,596 4,599
Provision for loan losses 24 30
----------- -----------
Net interest income after provision for loan losses 5,572 4,569
----------- -----------
OTHER INCOME
Service charges on deposits 984 769
Other service charges 371 305
Trust department income 569 458
Brokerage income 276 121
Other income 107 43
Securities gains / (losses) 0 48
----------- -----------
Total other income 2,307 1,744
----------- -----------
OTHER EXPENSES
Salaries and employee benefits 2,275 1,893
Net occupancy and equipment expenses 633 612
Data processing 188 161
Advertising 66 116
Other operating expenses 982 914
----------- -----------
Total other expense 4,144 3,696
----------- -----------
Income before income tax 3,735 2,617
Income tax expenses 1,175 726
----------- -----------
Net income $ 2,560 $ 1,891
=========== ===========
PER SHARE DATA
Earnings per share
Basic earnings per share $ 0.48 $ 0.35
Weighted average number of shares outstanding 5,401,641 5,358,565
Diluted earnings per share $ 0.45 $ 0.34
Weighted average number of shares outstanding 5,612,715 5,535,856
Dividends per share $ 0.14 $ 0.1143
The accompanying notes are an integral part of these condensed financial
statements.
Page 5 of 26
ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June June
(Dollars in Thousands) 2005 2004
INTEREST INCOME
Interest and fees on loans $ 13,112 $ 10,639
Interest and dividends on investment securities 1,770 1,727
Interest on short term investments 142 43
----------- ----------
Total interest income 15,024 12,409
----------- ----------
INTEREST EXPENSE
Interest on deposits 3,190 2,481
Interest on short-term borrowings 263 125
Interest on long-term debt 717 738
----------- ----------
Total interest expense 4,170 3,344
----------- ----------
Net interest income 10,854 9,065
Provision for loan losses 48 180
----------- ----------
Net interest income after provision for loan losses 10,806 8,885
----------- ----------
OTHER INCOME
Service charges on deposits 1,791 1,450
Other service charges 641 515
Trust department income 1,106 914
Brokerage income 473 217
Other income 199 150
Securities gains / (losses) (2) 115
----------- ----------
Total other income 4,208 3,361
----------- ----------
OTHER EXPENSES
Salaries and employee benefits 4,475 3,803
Net occupancy and equipment expenses 1,272 1,185
Data processing 329 290
Advertising 161 170
Other operating expenses 1,934 1,645
----------- ----------
Total other expense 8,171 7,093
----------- ----------
Income before income tax 6,843 5,153
Income tax expenses 2,112 1,456
----------- ----------
Net income $ 4,731 $ 3,697
=========== ==========
PER SHARE DATA
Earnings per share
Basic earnings per share $ 0.88 $ 0.69
Weighted average number of shares outstanding 5,396,428 5,350,977
Diluted earnings per share $ 0.84 $ 0.67
Weighted average number of shares outstanding 5,605,520 5,529,486
Dividends per share $ 0.2733 $ 0.2286
The accompanying notes are an integral part of these condensed financial
statements.
Page 6 of 26
ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
June June
(Dollars in Thousands) 2005 2004
COMPREHENSIVE INCOME
Net Income $ 2,560 $ 1,891
Other comprehensive income, net of tax
Unrealized gain (loss) on investment securities 420 (921)
available for sale
-------- --------
Comprehensive Income $ 2,980 $ 970
======== ========
Six Months Ended
June June
(Dollars in Thousands) 2005 2004
COMPREHENSIVE INCOME
Net Income $ 4,731 $ 3,697
Other comprehensive income, net of tax
Unrealized gain (loss) on investment securities (153) (620)
available for sale
-------- --------
Comprehensive Income $ 4,578 $ 3,077
======== ========
The accompanying notes are an integral part of these condensed financial
statements.
Page 7 of 26
ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June June
(Dollars in Thousands) 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,731 $ 3,697
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 586 519
Provision for loan losses 48 180
Other, net (263) (353)
---------- ----------
Net cash provided by operating activities 5,102 4,043
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with banks (2) 400
Purchases of available for sale securities (6,406) ( 4,290)
Sales and maturities of available for sale securities 6,875 16,638
Net sales (purchases) of FHLB Stock 503 173
Net (increase) in loans (35,001) (27,468)
Purchases of bank premises and equipment ( 487) ( 1,137)
---------- ----------
Net cash (used) by investing activities (34,518) ( 15,684)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 48,083 29,677
Cash dividends paid ( 1,476) (1,225)
Proceeds from sale of stock 741 841
Cash paid in lieu of fractional shares ( 19) 0
Net increase (decrease) in short term purchased funds 8,859 (10,918)
Payments on long term debt ( 1,682) ( 1,324)
---------- ----------
Net cash provided by financing activities 54,506 17,051
---------- ----------
Net increase in cash and cash equivalents 25,090 5,410
Cash and cash equivalents at beginning of period 19,849 16,112
---------- ----------
Cash and cash equivalents at end of period $ 44,939 $ 21,522
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,134 $ 3,339
Income Taxes 1,900 1,575
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on investments available for sale (net of
deferred taxes of $( 78) and $(319) at June 30, 2005 and 2004,
respectively) (153) (620)
The accompanying notes are an integral part of these condensed financial
statements.
Page 8 of 26
ORRSTOWN FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The unaudited financial information presented at and for the three and six
months ended June 30, 2005 and 2004 has been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
However, unaudited information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim period. Information presented at December 31, 2004
is condensed from audited year-end financial statements. For further
information, refer to the audited consolidated financial statements, and
footnotes thereto, included in the Annual Report on Form 10-K, for the year
ended December 31, 2004.
Operating
The consolidated financial statements include the accounts of Orrstown Financial
Services, Inc. (the Corporation) and its wholly-owned subsidiaries, Orrstown
Bank (the Bank) and Pennbanks Insurance Company Cell P1. All significant
intercompany transactions and accounts have been eliminated. Operating results
for the three and six months ended June 30, 2005, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2005.
Cash Flows
For purposes of the Statements of Cash Flows, cash and cash equivalents include
Cash and due from banks and Federal funds sold. As permitted by Statement of
Financial Accounting Standards No. 104, the Corporation has elected to present
the net increase or decrease in deposits with banks, loans and deposits in the
Statement of Cash Flows.
Federal Income Taxes
For financial reporting purposes, the provision for loan losses charged to
operating expense is based on management's judgment, whereas for federal income
tax purposes, the amount allowable under present tax law is deducted.
Additionally, deferred compensation is charged to operating expense in the
period the liability is incurred for financial reporting purposes, whereas for
federal income tax purposes, these expenses are deducted when paid. As a result
of the aforementioned timing differences, plus the timing differences associated
with depreciation expense, deferred income taxes are provided in the financial
statements. Income tax expense is less than the amount calculated using the
statutory tax rate primarily as a result of tax exempt income earned from state
and political subdivision obligations.
Investment Securities
Management determines the appropriate classification of securities at the time
of purchase. If management has the intent and the Corporation has the ability
at the time of purchase to hold securities until maturity, they are classified
as securities held to maturity and carried at amortized historical cost.
Securities to be held for indefinite periods of time, and not intended to be
held to maturity, are classified as available for sale and carried at fair
value. Securities held for indefinite periods of time include securities that
management intends to use as part of its asset and liability management strategy
and that may be sold in response to changes in interest rates, resultant
prepayment risk, and other factors related to interest rate and resultant
prepayment risk changes.
Realized gains and losses on dispositions are based on the net proceeds and the
adjusted book value of the securities sold, using the specific identification
method. Unrealized gains and losses on investment securities available for sale
are based on the difference between book value and fair value of each security.
These gains and losses are credited or charged to other comprehensive income,
whereas realized gains and losses flow through the Corporation's results of
operations.
The Corporation has classified all investments securities as "available for
sale". At December 31, 2004, fair value exceeded amortized cost by $1,251,000
and at June 30, 2005 fair value exceeded amortized cost by $1,020,000. In
shareholders' equity, the balance of accumulated other comprehensive income
decreased to $673,000 from $826,000 at December 31, 2004.
Page 9 of 26
Stock-Based Compensation
The Corporation maintains two stock-based compensation plans. These plans
provide for the granting of stock options to the Corporation's employees and
directors. The Corporation accounts for its stock option plans based on the
intrinsic-value method set forth in APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations, under which no compensation
cost has been recognized for any of the periods presented. All options granted
under the plans had an exercise price equal to the fair market value as
established by the average of the daily high bind and daily low offer quotations
for the shares reported in the OTC Bulletin Board service during the ten trading
days immediately preceding the date of purchase. The following table
illustrated the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation", to stock-based employee and/or
director compensation.
Three Months Six Months
Ended Ended
June June June June
(In Thousands, except per share data) 2005 2004 2005 2004
Net income
As reported $ 2,560 $ 1,891 $ 4,731 $ 3,697
Pro forma 2,283 1,506 4,454 3,312
Basic earnings per share
As reported $ 0.48 $ 0.35 $ 0.88 $ 0.69
Pro forma 0.42 0.28 0.82 0.62
Diluted earnings per share
As reported $ 0.45 $ 0.34 $ 0.84 $ 0.67
Pro forma 0.41 0.27 0.80 0.60
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the assumptions shown below:
Nonemployee Employee
Director Stock Stock Option
Option Plan Plan
Grant Date April 1, 2005 June 23, 2005
Fair Value $9.28 $8.59
Expected Life in Years 7 5
Risk Free Interest Rate 4.29% 3.74%
Expected Dividend Yield 1.28% 1.33%
Expected Volatility 19.47% 19.41%
Note 2: Other Commitments
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities which are not reflected in the accompanying
financial statements. These commitments include various guarantees and
commitments to extend credit. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The Bank evaluates each
customer's credit-worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of credit, is based on management's
credit evaluation of the customer. Standby letters of credit and financial
guarantees written are conditional commitments to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank holds collateral supporting those commitments when deemed
necessary by management. As of June 30, 2005, $14,939,000 of standby letters of
credit have been issued. The Bank does not anticipate any losses as a result of
these transactions.
Page 10 of 26
Note 4: Changes in Common Stock
On May 3, 2005, the Board of Directors of Orrstown Financial Services, Inc.,
approved a 5% stock dividend, payable on June 29, 2005 with shareholders of
record as of June 3, 2005. Each shareholder was granted a single share for each
20 shares owned as of the record date. Fractional shares were paid out in cash.
All per share amounts have been restated to give retroactive recognition to the
5% stock dividend.
Note 3: Subsequent Events
On August 1, 2005, Orrstown Bank, a wholly owned subsidiary of Orrstown
Financial Services, Inc., purchased a Carlisle, Pennsylvania-based investment
management business and licensed the use of the name "Gibb Financial Services".
Orrstown Bank will operate the investment management business as part of the
Bank's Asset Management Division.
Page 11 of 26
PART I - FINANCIAL INFORMATION
Item 2.
ORRSTOWN FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of our consolidated financial condition at June
30, 2005 and results of operations for each of the three and six months ended
June 30, 2005 and three and six months ended June 30, 2004. Throughout this
discussion, the yield on earning assets is stated on a fully taxable-equivalent
basis and balances represent average daily balances unless otherwise stated.
Some statements and information may contain forward-looking statements. The
following factors, among others, could cause actual results to differ materially
from forward-looking statements include: general political and economic
conditions, unforeseen changes in the general interest rate environment,
developments concerning credit quality in various corporate lending industry
sectors, legislative or regulatory developments, legal proceedings, pending and
proposed changes in accounting rules, policies, practices, and procedures. Each
of these factors could affect estimates and assumptions used to produce forward
looking statements causing actual results to differ materially from those
anticipated. Future results could also differ materially from historical
performance.
Critical Accounting Policies
The Bank policy related to the allowance for loan losses is considered to be a
critical accounting policy because the allowance for loan losses represents a
particularly sensitive accounting estimate. The amount of the allowance is
based on management's evaluation of the collectibility of the loan portfolio,
including the nature of the loan portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic conditions.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, grouping of like loans,
grading of individual loan quality, review of specific problem loans, the
examination of underlying collateral and current economic conditions that may
affect the borrowers' ability to pay.
SUMMARY OF FINANCIAL RESULTS
Orrstown Financial Services, Inc. recorded net income of $2,560,000 for the
second quarter of 2005 compared to $1,891,000 for the same period in 2004,
representing an increase of $669,000 or 35.4%. Basic earnings per share
increased $0.13 to $0.48 in the recent quarter from the $0.35 earned during the
second three months of 2004. Diluted earnings per share for the same period
were $0.45 and $0.34 respectively.
Net income for the first six months of 2005 was $4,731,000 compared to
$3,697,000 for the same period in 2004, representing an increase of $1,034,000
or 28.0%. Basic earnings per share for the first six months of 2005 was $.88 up
from the $.69 per share realized during the six months ended June 30, 2004. All
per share amounts have been restated to reflect the 5% stock dividend paid to
shareholders on June 29, 2005.
The following statistics compare 2005's second quarter and year-to-date
performance to that of 2004:
Three Months Six Months Ended
Ended
June June June June
2005 2004 2005 2004
Return on average assets 1.90% 1.55% 1.80% 1.55%
Return on average equity 19.73% 16.62% 18.61% 16.55%
Average equity / Average assets 9.61% 9.33% 9.67% 9.35%
Page 12 of 26
RESULTS OF OPERATINS
Quarter ended June 30, 2005 compared to Quarter ended June 30, 2004
Net Interest Income
Net interest income for the second quarter of 2005 was $5,596,000 representing a
growth of $997,000, or 21.7% over the $4,599,000 realized during the second
quarter last year. On a fully taxable equivalent basis (FTE), net interest
income for the second quarter of 2005 and 2004 was $5,770,000 and $4,774,000,
respectively.
Interest income FTE
FTE interest income totaled $7,979,000 for the second quarter of 2005 verses
$6,457,000 for the same period last year, a difference of $1,522,000 or 23.6%.
The rate on earning assets rose 5.56% during the second quarter 2004 to 6.24%
during the same quarter this year. Increases in the prime lending rate and the
federal funds rate during the last half of 2004 and continuing through the first
six months of 2005 have increased the earnings yield of the Bank. Total earning
assets grew $46.6 million or 10.1% from $461.9 million on average for the second
quarter of 2004 to $508.5 million during the second quarter 2005. Earning
assets increases were channeled primarily to the loan portfolio with commercial
loans growing the most. Mortgage loans remained flat compared to the second
quarter last year, and consumer loans grew $8.5 million for the same period.
Commercial loan balances increased $37.9 million from $227.6 to $265.5. Growth
in the volume of the commercial loan portfolio and increases in the prime
lending rate resulted in an almost equal amount of interest income growth during
the second quarter 2005. Total FTE interest income grew $1,522,000 for the same
period, with the loan portfolio contributing $1,410,000 of the total.
Interest expense
Interest expense increased $526,000 from $1,683,000 to $2,209,000 or 31.3% over
the second quarter of 2004. Savings accounts have increased by $31.8 million
due to the popularity of a savings account introduced at the beginning of 2005
that is tied to the prime rate. Balances in other transaction accounts have
decreased and may continue to do so as rates rise. During the first half of
2005, long term debt decreased by $1.4 million due to two maturities. Balances
of short term borrowings increased by $1.6 million due to normal fluctuations in
customer repurchase agreements.
The Corporation's balance sheet is positioned to realize enhanced spreads in a
rising rate environment. As a result of the funds flows mentioned above and the
rising interest rate trend, the interest spread increased from 3.80% to 4.14%
and the interest margin increased from 4.10% to 4.50% from the second quarter
2004 to the second quarter 2005, respectively.
The table that follows states rates on a fully taxable equivalent basis (FTE)
and demonstrates the aforementioned effects:
Three Months Ended
June 2005 June 2004
Tax Tax Tax Tax
Average Equivalent Equivalent Average Equivalent Equivalen
t
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Federal funds sold & interest bearing
bank balances $ 13,256 $ 98 2.97% $ 14,937 $ 37 0.99%
Investment securities 81,302 1,009 4.99% 79,895 958 4.81%
Total Loans 413,928 6,872 6.60% 367,112 5,462 5.92%
Total interest-earning assets 508,486 7,979 6.24% 461,944 6,457 5.56%
Interest Bearing Liabilities:
Interest bearing demand deposits $ 169,013 $ 423 1.00% $ 182,910 $ 476 1.05%
Savings deposits 62,155 265 1.71% 30,352 34 0.45%
Time deposits 132,910 1,010 3.05% 114,120 756 2.66%
Short term borrowings 22,770 154 2.71% 21,163 50 0.95%
Long term borrowings 34,567 357 4.14% 35,953 367 4.11%
Total interest bearing liabilities 421,415 2,209 2.10% 384,498 1,683 1.76%
Net interest income / net interest spread $ 5,770 4.14% $ 4,774 3.80%
Net interest margin 4.50% 4.10%
Page 13 of 26
Non-Interest Income
Total non-interest income, excluding securities gains, increased $611,000, or
36.0%, from $1,696,000 to $2,307,000. There were no net securities gains
(losses) in the second quarter 2005 compared to the $48,000 of gains taken in
the second quarter of 2004. Service charges on deposits increased 28.0% or
$215,000 with $119,000 of the growth due to the overdraft protection program.
Fees from debit cards and merchant accounts added another $68,000. Other
service charges increased by $66,000 due to the success of the secondary
mortgage market program.
Trust fees increased by $111,000 or 24.2%. Brokerage fees increased $155,000 or
128% including $96,000 from Integrity Financial (Advantage Capital) which had
been acquired during the third quarter 2004. The entire asset management area
has experienced robust growth during 2005.
Non-Interest Expense
Other expenses rose from $3,696,000 during the second quarter 2004 to $4,144,000
during 2005's second quarter, an increase of $448,000, or 12.1%. The $382,000
increase in salaries and benefits was the largest contributor to increased
expenses. Annual salary increases, the addition of new employees due to company
growth, and a one time bonus distributed to employees due to the Corporation's
performance, were the main contributors to the increase.
Occupancy and equipment expense rose $21,000, or just 3.4%, over the prior year.
Rent expense increased with the addition of a new lease for a branch due to open
in August 2005 in Camp Hill, Pennsylvania. All other operating expenses
increased by $45,000. The Corporations overhead efficiency ratio dropped to
51.05% for the current quarter versus the second quarter 2004s ratio of 56.84%.
Rapidly growing net interest income and noninterest income combined with
controlled noninterest expenses have combined to improve the efficiency ratio.
Six Months ended June 30, 2005 compared to Six Months ended June 30, 2004
Net Interest Income
Net interest income for the first six months of 2005 was $10,854,000
representing a growth of $1,789,000, or 19.7% over the $9,065,000 realized
during the same quarter last year. On a fully taxable equivalent basis (FTE),
net interest income for the first half of 2005 and 2004 was $11,223,000 and
$9,415,000, respectively.
Interest income FTE
Interest income totaled $15,393,000 for the first six months of 2005 verses
$12,759,000 for the same period last year. From June 30, 2004 to June 30, 2005
there have been eight 25 basis point moves increasing the prime lending rate and
the federal funds sold rate. These rate jumps have contributed to the growth of
the Bank's earning asset yield along with the 10.0% growth in the volume of
total earning assets. The Bank's earning asset yield increased 56 basis points
from the prior years 5.61% to 6.17% for the first six months of 2005. Total
securities decreased slightly by $1.6 million primarily as a result of payments
and/or maturities in the mortgage backed securities portfolio. The total loan
portfolio increased by $45.0 million or 12.5% over the same period last year
with mortgage loan balances remaining steady and consumer loans increasing by
18.3% or $8.7 million. The majority of the growth continues to be in the
commercial loan portfolio which increased from $222.3 million to $257.6 or
15.9%. The growth in earning assets and bump-ups in the prime lending rate have
increased the total interest income by $2,634,000 or 20.6% over the first six
months of 2004.
Interest expense
Total interest expense increased $826,000 from $3,344,000 to $4,170,000 or 24.7%
over the first half of 2004. Although interest bearing demand deposits have
decreased over the first six months of 2004 by $4.5 million, the Bank has
increased its non-interest demand deposits by $8.3 million in the same period.
Balances in savings deposits have grown by 72.5% or $21.3 million due primarily
to the popularity of a new prime based savings product introduced in January
2005. Time deposits balances have increased by $21.6 million due to moderately
increasing certificate of deposit rates and growth of time deposit open
accounts. Borrowings have decreased in balance by $4.4 million primarily from
maturity and amortization of principal of long term debt and a decrease in the
balances of repurchase agreements.
As a result of the balance movements and the positioning of the balance sheet to
thrive in a rising rate environment, the interest spread increased from 3.83% to
4.14% and the interest margin increased from 4.13% during the first half of 2004
to 4.49% during the first half of 2005. In summary, deposit rates have grown at
a slower pace than loan rates, increasing spread. As the economy continues to
improve, the Bank is well positioned to retain these margins if rates remain
steady or continue to increase.
Page 14 of 26
The table that follows states rates on a fully taxable equivalent basis (FTE)
and demonstrates the aforementioned effects:
Six Months Ended
June 2005 June 2004
Tax Tax Tax Tax
Average Equivalent Equivalent Average Equivalent Equivalen
t
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Federal funds sold & interest bearing
bank balances $ 10,258 $ 142 2.79% $ 8,578 $ 43 1.01%
Investment securities 82,678 2,092 5.08% 84,258 2,026 4.82%
Total Loans 404,691 13,159 6.49% 359,699 10,690 5.91%
Total interest-earning assets 497,627 15,393 6.17% 452,535 12,759 5.61%
Interest Bearing Liabilities:
Interest bearing demand deposits $ 172,895 $ 877 1.02% $ 177,413 $ 924 1.05%
Savings deposits 50,848 365 1.45% 29,473 66 0.45%
Time deposits 132,416 1,948 2.97% 110,801 1,491 2.71%
Short term borrowings 21,111 263 2.48% 24,538 125 1.03%
Long term borrowings 35,026 717 4.07% 36,062 738 4.07%
Total interest bearing liabilities 412,296 4,170 2.04% 378,287 3,344 1.78%
Net interest income / net interest spread $ 11,223 4.14% $ 9,415 3.83%
Net interest margin 4.49% 4.13%
Non-Interest Income
Other income, excluding securities gains, increased $964,000, or 29.7%, from
$3,246,000 to $4,210,000. Securities gains (losses) decreased from $115,000 of
gains in 2004 to $2,000 of net losses in 2005. Service charge on deposits
increased 23.5% or $341,000. The overdraft protection program increased
$173,000, while debit card fees added $90,000 and merchant account service
charges added $51,000. Other service charges increased by $126,000. The
largest increase in other service charges was by secondary mortgage market fees
which grew $131,000 versus the first half of 2004. Insurance fees decreased by
$16,000 due to a decline in activity versus the prior year.
The Trust and brokerage area of the Bank has done an outstanding job this year
increasing income by $448,000 or 39.6% over the first six months of 2004 making
it the largest contributor to noninterest income growth. Trust assets under
management reached $352 million at June 30, 2005. Trust income grew $192,000
and brokerage income increased $256,000 including $186,000 from Integrity
Financial (Advantage Capital) which was purchased in July 2004. Other brokerage
fees increased $70,000 versus the first half of 2004.
Non-Interest Expense
Other expenses rose from $7,093,000 during the first half 2004 to $8,171,000
during the same period of 2005, an increase of $1,078,000, or 15.2%. Salaries
increased $480,000 while benefits increased $192,000. Increased expenses for
salaries include annual increases and the addition of new employees. Profit
sharing expense grew by $77,000, and a 24.3% rise in the cost of employee
insurance plans added an additional $65,000 to employee benefit expense.
Occupancy and equipment expense combined rose a modest $87,000, or 7.3%.
Depreciation expense contributed $67,000 of the expense. Data processing
expense increased by $39,000. Rising merchant processing and debit card program
costs have been offset by rising revenue in those areas. Most areas of expense
growth have been commensurate with growth of the Corporation as a whole.
Management has maintained control over increasing expenses in the past and will
continue to watch for ways to control rising operating costs going forward. The
overhead efficiency ratio of 52.68% for the first six months has improved from
the 55.77% reported for the first half of 2004 as rising net interest income and
noninterest income have outstripped more modest increases in noninterest
expenses.
Page 15 of 26
Income Tax Expense
Income tax expense increased $449,000, or 61.8%, during the second quarter of
2005 versus the second quarter of 2004. For the first six months of 2005 the
income tax expense rose $656,000 or 45.1% over the same period 2004. The
Corporation's insurance subsidiary, Cell P-1, is not part of the Corporation's
consolidated federal income tax return, but had deferred income tax expense of
$30,000 recorded during the first quarter of 2005 increasing the effective
income tax rate for the first six months of this year versus last year. The
marginal federal income tax bracket is 34% for all periods presented. Effective
income tax rates were as follows:
Three Months Six Months Ended
Ended
June June June June
2005 2004 2005 2004
Effective income tax rate 31.5% 27.7% 30.9% 28.3%
Provision and Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Through this review and evaluation process, an amount deemed
adequate to meet current growth and future loss expectations is charged to
operations.
The provision for loan losses amounted to $24,000 and $30,000 for the second
quarter of 2005 and 2004, respectively. These provisions compared to net
charge-offs of $13,000 for the second quarter 2005 and $5,000 for the same
period last year. The provision for loan losses remained almost flat while
loans increased 12.8% on an average daily basis.
For the first six months of 2005 the provision for loan losses was $48,000 a
73.3% reduction from the $180,000 taken in the first half of 2004. The
provision for 2005 compared to net charge-offs of $17,000 for the same period
versus $11,000 of net recoveries for 2004. The 2005 provision has been slowed
in order to reduce the unallocated portion of our loan loss reserve. The
unallocated portion of the loan loss reserve stood at $1,326,000 and represented
30.5% of the total reserve at June 30, 2005, down from $1,980,000 representing
45.5% of the reserve at June 30, 2004. The loan loss reserve was 43.7%
unallocated at December 31, 2004.
The reserve at June 30, 2005 represented 1.03% of loans outstanding. The
provision for loan losses and the other changes in the allowance for loan losses
are shown below:
(Dollars in Thousands) Three Months Six Months Ended
Ended
June June June June
2005 2004 2005 2004
Balance at beginning of period $ 4,338 $ 4,327 $ 4,318 $ 4,161
Recoveries of loans previously charged 11 7 15 28
off
Additions to allowance charged to 24 30 48 180
expense
------- ------- ------- -------
Total 4,373 4,364 4,381 4,369
Loans charged off 24 12 32 17
------- ------- ------- -------
Balance at end of period $ 4,349 $ 4,352 $ 4,349 $ 4,352
======= ======= ======= =======
Page 16 of 26
Nonperforming Assets / Risk Elements
Nonperforming assets at June 30, are as follows:
(Dollars in Thousands) 2005 2004
Loans on nonaccrual (cash) basis $ 188 $ 127
Loans whose terms have been renegotiated 0 1,394
OREO 0 0
---------- ----------
Total nonperforming loans and OREO 188 1,521
---------- ----------
Loans past due 90 or more days and still accruing 3,078 1,753
---------- ----------
Total nonperforming and other risk assets $ 3,266 $ 3,274
========== ==========
Ratio of total risk assets to total loans and OREO 0.77% 0.88%
Ratio of total risk assets to total assets 0.57% 0.67%
Any loans classified for regulatory purposes as loss, doubtful, substandard or
special mention that have not been disclosed under Item III of Industry Guide 3
do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources.
CAPITAL
Orrstown Financial Services, Inc.'s is a financial holding company and, as such,
must maintain a well capitalized status in its bank subsidiary. Management
foresees no problem in maintaining capital ratios well in excess of regulatory
minimums. A comparison of Orrstown Financial Services, Inc.'s capital ratios to
regulatory minimum requirements at June 30, 2005 are as follows:
Orrstown Regulatory
Financial Regulatory Well Capitalized
Services, Minimums Minimums
Inc.
Leverage Ratio 9.45% 4% 5%
Risk Based Capital Ratios:
Tier I Capital Ratio 11.91% 4% 6%
Total (Tier I & II) Capital Ratio (core capital
plus allowance for loan losses) 12.95% 8% 10%
The growth experienced during 2005 has been supported by capital growth in the
form of retained earnings and capital infusion from the dividend reinvestment
and employee stock purchase plans. Dividend reinvestment plan participants have
added $520,000 to equity as of June 30, 2005. Also during the first half of
2005 there were numerous Employee Stock Options exercised, increasing capital by
$177,000. Equity represented 9.25% of assets at June 30, 2005 which is down
from 9.57% at December 31, 2004 due to an influx of funds just prior to June 30.
All balance sheet fluctuations exceeding 5% have been created by either the
growth that has been experienced during 2005 or single day fluctuations.
Management is not aware of any current recommendations by regulatory authorities
which, if implemented, would have a material effect on the Corporation's
liquidity, capital resources or operations.
LIQUIDITY
The primary function of asset/liability management is to assure adequate
liquidity while minimizing interest rate risk. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Sources of
liquidity include investment securities, loan and lease income and payments, and
increases in customer's deposit accounts. Additionally, the Bank is a Federal
Home Loan Bank (FHLB) member, and standard credit arrangements available to FHLB
members provide increased liquidity. Funds provided from operating activities
were a significant source of liquidity for the first six months of 2005. The
net increase in deposits of $48,083,000 represented core deposits primarily and
$34,984,000 of those funds were channeled into loan growth. Federal funds sold
grew $20,607,000 during the same period, increasing liquidity.
Page 17 of 26
PART I - FINANCIAL INFORMATION
Item 3. 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.
Rate sensitivity is measured by monthly gap analysis, quarterly rate shocks, and
periodic simulation. At June 30, 2005, the cumulative gap was $119,127,000 and
the RSA/ RSL cumulative ratio was 1.74% which has decreased slightly from the
1.86% since December 31, 2004. The asset biased, or positive, gap position
indicates that earnings are naturally enhanced, or more easily maintained, in a
rising rate environment. This indicates that the balance sheet is well
positioned to react to anticipated rate increases during 2005 and positioned
adequately to avoid material earnings damage if rates do not rise. The deposit
mix leans heavily toward transaction accounts rather than time deposits. Many
of the transaction accounts have discretionary pricing so great flexibility
exists for deposit side price adjustments.
PART I - FINANCIAL INFORMATION
Item 4. Controls and Procedures
(a) Evaluation of disclosure 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) as of June 30, 2005. Based on such
evaluation, such officers have concluded that, as of June 30, 2005, 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.
(b) Changes in internal controls:
There have not been any significant changes in the Corporation's internal
control over financial reporting or in other factors that could significantly
affect such control during the second quarter of 2005.
Page 18 of 26
PART II - OTHER INFORMATION
Page 19 of 26
OTHER INFORMATION
Item 1 - Legal Proceedings
The nature of Orrstown Financial Services, Inc.'s business generates a
certain amount of litigation involving matters arising out of the ordinary
course of business. In the opinion of management, there are no legal proceedings
that might have a material effect on the results of operations, liquidity, or
the financial position of Orrstown at this time.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Orrstown Financial Services, Inc. was held on May 3,
2005. Matters that were voted on by security holders were:
1. Elect three directors to Class A for three year terms expiring in
2008;
2. and transact such other business as may properly come before
the meeting.
Directors that were re-elected at the Annual Meeting were:
Jeffrey W. Coy
John S. Ward
Joel R. Zullinger
Each director received affirmative votes representing at least 69.6% of the
shares outstanding.
No other matters were voted upon at the Annual Meeting.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350
Page 20 of 26
(b) Reports on From 8-K
The Registrant filed the following reports with the
Commission on Form 8-K
Report Dated June 10, 2005
Registrant announced a planned branch opening in Camp
Hill, Pennsylvania in the third quarter of 2005.
Report Dated June 28, 2005
Registrant announced the declaration of a regular cash
dividend of $0.14 per share, payable on July 29, 2005
with a record date of July 7, 2005.
Report Dated July 21, 2005
Registrant announced its quarterly and year- to-date
earnings for the period ended June 30, 2005.
Report Dated August 2, 2005
Registrant announced it has entered into a definitive
agreement to purchase an investment management firm
based in Carlisle, Pennsylvania.
Page 21 of 26
SIGNATURES
Pursuant to the requirements 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.
/s/ Kenneth R. Shoemaker
----------------------------------------
(Kenneth R. Shoemaker, President & CEO)
(Duly Authorized Officer)
/s/ Bradley S. Everly
----------------------------------------
(Bradley S. Everly, Senior Vice
President & CFO)
(Chief Financial Officer)
/s/ Robert B. Russell
----------------------------------------
(Robert B. Russell, Controller)
(Chief Accounting Officer)
Date August 3, 2005
--------------
Page 22 of 26
Exhibit 31.1
CERTIFICATION
I, Kenneth R. Shoemaker, President and CEO, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Orrstown Financial
Services, Inc.
2. Based on my knowledge, the quarterly 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 quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
(d) disclosed in this quarterly 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)
August 3, 2005
Page 23 of 26
Exhibit 31.2
CERTIFICATION
I, Bradley S. Everly, Sr. Vice President and CFO, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Orrstown Financial
Services, Inc.
2. Based on my knowledge, the quarterly 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 quarterly
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
(d) disclosed in this quarterly 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)
August 3, 2005
Page 24 of 26
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 Quarterly Report of Orrstown Financial Services,
Inc. (the Corporation) on Form 10-Q for the period ending June 30, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the Report), I,
Kenneth R. Shoemaker, 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.
/s/ Kenneth R. Shoemaker
---------------------------------------
Kenneth R. Shoemaker
Chief Executive Officer
August 3, 2005
Page 25 of 26
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 Quarterly Report of Orrstown Financial Services,
Inc. (the Corporation) on Form 10-Q for the period ending June 30, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the Report), I,
Bradley S. Everly, 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.
/s/ Bradley S. Everly
---------------------------------------
Bradley S. Everly
Chief Financial Officer
August 3, 2005
Page 26 of 26