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 quarter ended March 31, 2004 Commission file number 33-18888
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)
Registrant's telephone number, including area code: (717) 532-6114
Indicate by check mark 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 ________
Class Outstanding at April 26, 2004
(Common Stock, no par value ) 5,102,673
Page 1 of 21
ORRSTOWN FINANCIAL SERVICES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial statements (unaudited)
Condensed consolidated balance sheets - March 31, 2004
and December 31, 2003 4
Condensed consolidated statements of income - Three months
ended March 31, 2004 and 2003 5
Condensed consolidated statements of comprehensive income -
Three months ended March 31, 2004 and 2003 6
Condensed consolidated statements of cash flows - Three
months ended March 31, 2004 and 2003 7
Notes to condensed consolidated financial statements 8 - 9
Item 2. Management's discussion and analysis of financial
condition and results of operations 10 - 13
PART II - OTHER INFORMATION
Other Information 15
Signatures 16
Exhibits 17 - 21
Page 2 of 21
PART I - FINANCIAL INFORMATION
Page 3 of 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORRSTOWN FINANCIAL SERVICES, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Unaudited) (Audited) *
March 31, December 31,
(Dollars in Thousands) 2004 2003
ASSETS
Cash and due from banks $ 8,820 $ 12,283
Interest bearing deposits with banks 354 1,001
Federal funds sold 10,478 3,829
Securities available for sale 77,850 89,074
Federal Home Loan Bank, Federal Reserve and Atlantic
Central
Bankers Bank Stock, at cost which approximates 3,205 2,912
market value
Loans 359,165 345,054
Allowance for loan losses (4,327) (4,161)
--------- ---------
Net Loans 354,838 340,893
Premises and equipment, net 11,435 11,168
Accrued interest receivable 1,608 1,647
Cash surrender value of life insurance 7,302 7,234
Other assets 2,504 2,352
--------- ---------
Total assets $ 478,394 $ 472,393
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 52,982 $ 52,276
Interest bearing 317,331 306,367
--------- ---------
Total deposits 370,313 358,643
Federal funds purchased and other short term borrowed 22,810 29,440
funds
Other borrowed funds 36,031 37,193
Accrued interest payable 229 226
Other liabilities 4,163 4,056
--------- ---------
Total liabilities 433,546 429,558
--------- ---------
Common stock, no par value - $ .05205 stated value per
share
10,000,000 shares authorized with 5,097,248 shares
issued
at March 31, 2003 and $.1041 stated value per
share with
2,537,011 shares issued at December 31, 2003 265 264
Additional paid - in capital 33,445 32,928
Retained earnings 9,703 8,509
Accumulated other comprehensive income 1,435 1,134
--------- ---------
Total shareholders' equity 44,848 42,835
--------- ---------
Total liabilities and shareholders' equity $ 478,394 $ 472,393
========= =========
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
Page 4 of 21
ORRSTOWN FINANCIAL SERVICES, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March March
(Dollars in Thousands) 2004 2003
INTEREST INCOME
Interest and fees on loans $ 5,202 $ 4,636
Interest on federal funds sold 4 21
Interest and dividends on investment 919 1,039
securities
Interest income on deposits with banks 2 4
-------- --------
Total interest income 6,127 5,700
-------- --------
INTEREST EXPENSE
Interest on deposits 1,215 1,295
Interest on borrowed money 446 407
-------- --------
Total interest expense 1,661 1,702
-------- --------
Net interest income 4,466 3,998
Provision for loan losses 150 252
-------- --------
Net interest income after provision for loan
losses 4,316 3,746
-------- --------
OTHER INCOME
Service charges on deposits 681 610
Other service charges 210 254
Trust department income 456 319
Brokerage income 96 111
Other income 107 101
Securities gains / (losses) 67 178
-------- --------
Total other income 1,617 1,573
-------- --------
OTHER EXPENSES
Salaries and employee benefits 1,910 1,676
Net occupancy and equipment expenses 573 506
Other operating expenses 914 937
-------- --------
Total other expense 3,397 3,119
-------- --------
Income before income tax 2,536 2,200
Income tax expenses 730 656
-------- --------
Net income $ 1,806 $ 1,544
======== ========
PER SHARE DATA
Earnings per share
Basic earnings per share $ 0.35 $ 0.31
Weighted average number of shares 5,088,942 5,042,224
outstanding
Diluted earnings per share $ 0.34 $ 0.30
Weighted average number of shares 5,260,132 5,176,950
outstanding
Dividends per share $ 0.12 $ 0.0955
The accompanying notes are an integral part of these condensed financial
statements.
Page 5 of 21
ORRSTOWN FINANCIAL SERVICES, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
March March
(Dollars in Thousands) 2004 2003
COMPREHENSIVE INCOME
Net Income $ 1,806 $ 1,544
Other comprehensive income, net of tax
Unrealized gain (loss) on investment 301 ( 574)
securities available for sale
-------- --------
Comprehensive Income $ 2,107 $ 970
======== ========
The accompanying notes are an integral part of these condensed financial
statements.
Page 6 of 21
ORRSTOWN FINANCIAL SERVICES, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March March
(Dollars in Thousands) 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,806 $ 1,544
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 253 222
Provision for loan losses 150 252
Other, net (215) (26)
--------- ---------
Net cash provided by operating activities 1,994 1,992
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing 647 (233)
deposits with banks
Purchases of available for sale securities (259) (12,369)
Sales and maturities of available for sale 11,928 18,279
securities
Net (purchases) of FHLB Stock (293) (650)
Net (increase) in loans (14,095) (18,314)
Purchases of bank premises and equipment (520) (511)
--------- ---------
Net cash (used) by investing activities (2,592) (13,798)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,670 18,180
Cash dividends paid (612) (480)
Proceeds from sale of stock 518 176
Cash paid in lieu of fractional shares - -
Net (decrease) in short term purchased funds (6,630) (870)
Proceeds in long term debt - -
Payments on long term debt (1,162) -
--------- ---------
Net cash provided by financing activities 3,784 17,006
--------- ---------
Net increase in cash and cash equivalents 3,186 5,200
Cash and cash equivalents at beginning of period 16,112 18,873
--------- ---------
Cash and cash equivalents at end of period $ 19,298 $ 24,073
19,298
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,658 $ 1,703
Income Taxes 0 0
Supplemental schedule of noncash investing and
financing activities:
Unrealized gain (loss) on investments available
for sale (net of
deferred taxes of $155 and $296 at March 31,
2004 and 2003,
respectively) 301 (574)
The accompanying notes are an integral part of these condensed financial
statements.
Page 7 of 21
ORRSTOWN FINANCIAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for the three months
ended March 31, 2004 and 2003 have been reviewed by independent certified public
accountants. Their report on their review is attached as Exhibit 99 to this 10-
Q.
Note 1: Basis of Presentation
The financial information presented at and for the three months ended March 31,
2004 and 2003 is unaudited. Information presented at December 31, 2003 is
condensed from audited year-end 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.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
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.
Cash Flows
For purposes of the Statements of Cash Flows, the Corporation has defined cash
and cash equivalents as those amounts included in the balance sheet captions
"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.
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. The options have
exercise prices equal to the market value of the underlying common stock on the
dates of grant. If grants are made during a reporting period the proforma
effect on net income and earnings per share are disclosed via footnote as if the
Corporation had applied the fair value recognition provisions of FASB 123,
"Accounting for Stock-Based Compensation", to stock-based employee and/or
director compensation. No grants were made during the periods presented herein.
Page 8 of 21
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 March 31, 2004 fair value exceeded amortized cost by $2,175,000. In
shareholders' equity, the balance of accumulated other comprehensive income
increased to $1,435,000 compared to December 31, 2003, after recognizing the tax
effects of the unrealized gains. At December 31, 2003, fair value exceeded
amortized cost by $1,719,000 decreasing accumulated other comprehensive income
to $1,134,000 after recognizing the tax effects of the unrealized gains.
Note 3: 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 and the Bank does not anticipate any losses as a
result of these transactions.
Note 4: Changes in Common Stock
On January 2, 2004 the Board of Directors of Orrstown Financial Services, Inc.
approved a 2-for-1 stock split paid on February 10, 2004 to shareholders of
record on January 16, 2004. Under this split, shareholders received one
additional share of common stock for each share owned at the close of business
on January 16, 2004. All per share amounts have been adjusted to give
retroactive recognition to the 2-for-1 stock split and the 5% stock dividend
paid to shareholders on May 30, 2003.
Note 5: Subsequent Event
On May 4, 2004, at the Annual Meeting of Shareholders of Orrstown Financial
Services, Inc., there will be a vote by shareholders of record as of March 25,
2004, to approve an amendment to the Articles of Incorporation to increase the
number of authorized share of the Corporation's common stock from 10 million to
50 million shares.
Page 9 of 21
Item 2.
ORRSTOWN FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Orrstown Financial Services, Inc. recorded net income of $1,806,000 for the
first quarter of 2004 compared to $1,544,000 for the same period in 2003,
representing an increase of $262,000 or 17.0%. Basic earnings per share was
$0.35 in the recent quarter up $0.04 from the $0.31 earned during the first
three months of 2003. Diluted earnings per share for the same period was $0.34
and $0.30 respectively. All per share amounts have been restated to reflect the
5% stock dividend paid to shareholders on May 30, 2003, and the 2-for-1 common
stock split paid to shareholders on February 10, 2004.
The following statistics compare 2004's first quarter performance to that of
2003:
Three Months
Ended
March March
2004 2003
Return on average assets 1.54% 1.52%
Return on average equity 16.47% 16.15%
Average equity / Average assets 9.37% 9.41%
A more detailed discussion of the elements having the greatest impact on net
income follows.
Net Interest Income
Net interest income for the first quarter of 2004 was $4,466,000 representing a
growth of $468,000, or 11.7% over the $3,998,000 realized during the same
quarter last year. All net interest income growth was due to volume increases.
Even though the interest spread decreased from 4.01% in the first three months
of 2003 to 3.86% during the first quarter of 2004, interest income grew by
$427,000 while interest expense declined by $41,000. The interest margin
tightened from 4.32% in the first quarter 2003 to 4.16% during the similar 2004
period. Growth in interest earning assets was primarily due to continued strong
loan demand, led by an average daily balance increase of $40,740,000 in
commercial loans for the first quarter 2004 compared to the first quarter 2003.
Consumer loans grew $12,328,000 and mortgage loans increased $10,296,000 during
the same period. The decline of $11,224,000 in securities available for sale
from December 31, 2003 to March 31, 2004 increased liquidity and enabled the
funding of loans in the first quarter of 2004. Average daily balances of
deposits were up $38,646,000, or 12.1% over first quarter 2003 levels, with non-
interest deposit balances growing $10,358,000 over the first three months last
year.
The table that follows states rates on a fully taxable equivalent basis (FTE)
and demonstrates the aforementioned effects:
(Dollars in Thousands) Three Months Ended
March 2004 March 2003
Avg Rates Avg Rates
Balance Balance
Interest earning assets 443,126 5.66% 387,364 6.10%
Interest bearing liabilities 372,075 1.80% 329,705 2.09%
Free Funds 71,051 57,659
Net interest income 4,466 3,998
Net interest spread 3.86% 4.01%
Net interest margin 4.16% 4.32%
Free funds ratio 16.03% 14.88
Page 10 of 21
Non-Interest Income and Expense
The following compares three months ended March 31, 2004 to three months ended
March 31, 2003:
Other income, excluding securities gains, increased $155,000, or 11.1%, from
$1,395,000 during the first quarter of 2003 to $1,550,000 during the first
quarter of 2004. Fees from service charges on deposit accounts increased
$71,000 or 11.6% over the prior years first quarter. Bounce protection fees and
merchant account fees were the primary contributors there. Other service
charges decreased by $44,000 for the same time frame. Loan fees decreased over
all, although the fees from secondary market mortgage program brought in $36,000
for the quarter ended March 31, 2004. The secondary market mortgage program
started in June of 2003, therefore there were no related fees in the first
quarter 2003. Other loan fees decreased by $45,000, while ATM fees were up
$14,000 and insurance fees decreased by $46,000. In other income, asset
management fees increased by $137,000 and securities gains decreased by
$111,000.
Other expenses rose from $3,119,000 during the first quarter 2003 to $3,397,000
during 2004's first quarter, an increase of only $278,000, or 8.9%. The
$234,000 increase in salaries and benefits was the largest contributor to
increased expenses with annual salary increases and the addition of new
employees due to company growth. Occupancy and equipment expense rose 13.2%
over the prior year due, somewhat, to the addition of our twelfth branch that
opened in June of 2003. The Bank is now looking forward to the opening of it's
thirteenth branch in the Carlisle region during the second quarter of 2004. All
other operating expenses decreased by $23,000 which is reflected in our low
overhead efficiency ratio of 54.66% for the first three months of 2004.
Income Tax Expense
Income tax expense increased $74,000, or 11.3%, during the first quarter of 2004
versus the first quarter of 2003. Tax exempt income has become a slightly
smaller part of the revenue steam. Effective income tax rates were as follows:
Three Months
Ended
March March
2004 2003
Effective income tax rate 28.8% 29.8%
The marginal federal income tax bracket is 34% for all periods presented.
Provision and Allowance for Loan Losses
The provision for loan losses and the other changes in the allowance for loan
losses are shown below:
(Dollars in Thousands) Three Months
Ended
March March
2004 2003
Balance at beginning of period $ 4,161 $ 3,734
Recoveries of loans previously charged off 21 10
Additions to allowance charged to expense 150 252
------- -------
Total 4,332 3,996
Loans charged off 5 17
------- -------
Balance at end of period $ 4,327 $ 3,979
======= =======
In the opinion of management, the allowance, when taken as a whole, is adequate
to absorb reasonably estimated loan losses inherent in the Bank's loan
portfolio. The unallocated portion of the allowance for loan losses was
approximately 56% at March 31, 2004.
Page 11 of 21
Nonperforming Assets / Risk Elements
Nonperforming assets at March 31, are as follows:
(Dollars in Thousands) 2004 2003
Loans on nonaccrual (cash) basis
Loans secured by real estate $ 102 $ 68
Installment loans - 18
Commercial loans - -
Credit card - -
------- -------
Total nonaccrual loans $ 102 $ 86
Loans whose terms have been renegotiated
Loans secured by real estate 1,402 1,420
Installment loans - -
Commercial loans - -
Credit card - -
------- -------
Total renegotiated loans 1,402 1,420
------- -------
OREO 211 211
------- -------
Total nonperforming loans and OREO $ 1,715 $ 1,717
======= =======
Ratio of nonperforming assets to total loans and OREO 0.48% 0.57%
Ratio of nonperforming assets to total assets 0.36% 0.40%
Loans past due 90 or more days and still accruing
Loans secured by real estate $ 2,171 $ 1,345
Installment loans 39 0
Commercial loans 12 193
Credit card 0 0
------- -------
Total loans 90 or more days past due $ 2,222 $ 1,538
======= =======
Ratio of loans 90 or more days past due to total loans
and OREO 0.62% 0.51%
Ratio of loans 90 or more days past due to total assets 0.46% 0.36%
------- -------
Total nonperforming and other risk assets $ 3,937 $ 3,255
======= =======
Ratio of total risk assets to total loans and OREO 1.10% 1.09%
Ratio of total risk assets to total assets 0.82% 0.76%
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 Resources and Balance Sheet Fluctuations
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 March 31, 2004 are as follows:
Orrstown Regulatory
Financial Regulatory Well Capitalized
Services, Minimums Minimums
Inc.
Leverage Ratio 9.20% 4% 5%
Risk Based Capital Ratios:
Tier I Capital Ratio 12.36% 4% 6%
Total (Tier I & II) Capital Ratio (core capital
plus allowance for loan losses) 13.60% 8% 10%
Page 12 of 21
The growth experienced during 2004 has been supported by capital growth in the
form of retained earnings and capital infusion from the dividend reinvestment
and ESOP plans. Dividend reinvestment plan participants have added $216,000 to
equity as of March 31, 2004. Also during the first quarter of 2004 there were
numerous Employee Stock Options exercised, increasing capital by $302,000, thus
decreasing diluted shares. Equity represented 9.37% of assets at March 31, 2004
which is up from 9.07% at December 31, 2003 mainly due to the retaining of first
quarter 2004 earnings.
All balance sheet fluctuations exceeding 5% have been created by either the
growth that has been experienced during 2004 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.
Sarbanes-Oxley Act 2003 Requirements
On July 30, 2003, the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act)was
signed into law. 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 files reports under the Securities Exchange Act of
1934 (the Exchange Act). 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 Securities and
Exchange Commission (the SEC). Because the Corporation's common stock is
registered with the SEC, it is currently subject to the Sarbanes-Oxley Act.
The Corporation anticipates that it will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations, but
does not expect that such compliance will have a material impact on the
Corporation or the Banks' results of operations or financial condition.
The Board of Directors revised the Audit Committee Charter in 2003 in order to
bring it into conformity with requirements specified in the Sarbanes-Oxley Act
and related SEC regulations. The Corporation's audit committee held its
regularly scheduled meeting during the first quarter 2004. The audit committee
consists of four outside directors with varied business and financial expertise.
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 March 31, 2004. Based on such
evaluation, such officers have concluded that , as of March 31, 2004, 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 first quarter of 2004.
Page 13 of 21
PART II - OTHER INFORMATION
Page 14 of 21
OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
None
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
99 Report of Independent Accountant's on interim financial
statements
(b) Reports on Form 8 - K
None
Page 15 of 21
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 April 26, 2004
--------------
Page 16 of 21
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)) 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) 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
(c) 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)
April 26, 2004
Page 17 of 21
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)) 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) 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
(c) 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)
April 26, 2004
Page 18 of 21
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 March 31, 2004 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
April 26, 2004
Page 19 of 21
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 March 31, 2004 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
April 26, 2004
Page 20 of 21
EXHIBIT 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Orrstown Financial Services, Inc.
Shippensburg, Pennsylvania
We have reviewed the accompanying consolidated balance sheet of Orrstown
Financial Services, Inc. and it's subsidiaries as of March 31, 2004 and the
related consolidated statements of income for the three months ended March 31,
2004 and 2003 and consolidated statements of comprehensive income for the three
months ended March 31, 2004 and 2003 and consolidated statements of cash flows
for the three months ended March 31, 2004 and 2003. These financial statements
are the responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
---------------------------------------
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, Pennsylvania
April 26, 2004
Page 21 of 21