10-Q 1 tenq.txt TENQ.TXT 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 September 30, 2002 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 October 22, 2002 ---------------------------- ------------------------------- (Common Stock, no par value) 2,393,876 ORRSTOWN FINANCIAL SERVICES, INC. INDEX
Page Part I - FINANCIAL INFORMATION Item 1. Financial statements (unaudited) Condensed consolidated balance sheets - September 30, 2002 and December 31, 2001 4 Condensed consolidated statements of income - Three months ended September 30, 2002 and 2001 5 Condensed consolidated statements of income - Nine months ended September 30, 2002 and 2001 6 Condensed consolidated statements of comprehensive income - three & nine months ended September 30, 2002 and 2001 7 Condensed consolidated statements of cash flows - Nine months ended September 30, 2002 and 2001 8 Notes to condensed consolidated financial statements 9 - 10 Item 2. Management's discussion and analysis of financial condition and results of operations 11 - 14 PART II - OTHER INFORMATION Other Information 16 Signatures 17 Certifications of Principal Executive Officer and Principal Financial Officer 18 and 19 Exhibits 20 - 22
PART I - FINANCIAL INFORMATION
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)* September 30, December 31, (Dollars in Thousands) 2002 2001 ASSETS Cash and due from banks $ 11,464 $ 12,650 Interest bearing deposits with banks 1,235 679 Federal funds sold 19,901 24,347 Securities available for sale 83,397 68,422 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 1,804 1,703 Loans 274,654 249,816 Allowance for loan losses (3,496) (3,104) -------- -------- Net Loans 271,158 246,712 Premises and equipment, net 9,568 9,019 Accrued Interest receivable 1,631 1,541 Cash value-life insurance 6,781 5,923 Other assets 2,177 2,732 -------- -------- Total assets $409,116 $373,728 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 43,722 $ 39,881 Interest bearing 265,808 241,287 -------- -------- Total deposits 309,530 281,168 Federal funds purchased and other short term borrowed funds 28,357 31,531 Long term borrowed funds 31,512 26,512 Accrued interest payable 259 373 Other liabilities 3,232 2,982 -------- -------- Total liabilities 372,890 342,566 -------- -------- Common stock, no par value-$.1041 stated value per share at September 30, 2002 and December 31, 2001, 10,000,000 shares authorized with 2,393,876 shares issued at September 30, 2002 and 2,378,608 issued at December 31, 2001 249 248 Additional paid - in capital 25,707 25,077 Retained earnings 8,727 5,557 Accumulated other comprehensive income 1,543 280 -------- -------- Total stockholders' equity 36,226 31,162 -------- -------- Total liabilities and stockholders' equity $409,116 $373,728 ======== ========
* Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. Page 4
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended September 30, September 30, (Dollars in Thousands) 2002 2001 INTEREST INCOME Interest and fees on loans $ 4,760 $ 5,047 Interest on federal funds sold 84 129 Interest and dividends on investment securities 1,084 1,026 Interest income on deposits with banks 5 5 ----------- ----------- Total interest income 5,933 6,207 ----------- ----------- INTEREST EXPENSE Interest on deposits 1,526 2,096 Interest on borrowed money 511 585 ----------- ----------- Total interest expense 2,037 2,681 ----------- ----------- Net interest income 3,896 3,526 Provision for loan losses 150 170 ----------- ----------- Net interest income after provision for loan losses 3,746 3,356 ----------- ----------- OTHER INCOME Service charges on deposits 589 478 Other service charges 217 54 Trust department income 344 310 Brokerage income 108 74 Other income 86 85 Securities gains / (losses) (6) (9) ----------- ----------- Total other income 1,338 992 ----------- ----------- OTHER EXPENSES Salaries and employee benefits 1,567 1,351 Net occupancy and equipment expenses 464 417 Other operating expenses 962 696 ----------- ----------- Total other expense 2,993 2,464 ----------- ----------- Income before income tax 2,091 1,884 Income tax expenses 509 501 ----------- ----------- Net income $ 1,582 $ 1,383 =========== =========== PER SHARE DATA Earnings per share Basic earnings per share $ 0.66 $ 0.58 Weighted average number of shares outstanding 2,392,993 2,369,508 Diluted earnings per share $ 0.64 $ 0.57 Weighted average number of shares outstanding 2,457,701 2,410,568 Dividends per share $ 0.18 $ 0.15
The accompanying notes are an integral part of these condensed financial statements. Page 5
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Nine Months Ended September 30, September 30, (Dollars in Thousands) 2002 2001 INTEREST INCOME Interest and fees on loans $ 13,901 $ 14,517 Interest on federal funds sold 197 316 Interest and dividends on investment securities 3,152 3,177 Interest income on deposits with banks 15 11 ---------- ---------- Total interest income 17,265 18,021 ---------- ---------- INTEREST EXPENSE Interest on deposits 4,678 6,444 Interest on borrowed money 1,455 1,766 ---------- ---------- Total interest expense 6,133 8,210 ---------- ---------- Net interest income 11,132 9,811 Provision for loan losses 450 290 ---------- ---------- Net interest income after provision for loan losses 10,682 9,521 ---------- ---------- OTHER INCOME Service charges on deposits 1,613 1,390 Other service charges 685 508 Trust department income 1,047 918 Brokerage income 320 204 Other income 248 249 Securities gains / (losses) 12 22 ---------- ---------- Total other income 3,925 3,291 ---------- ---------- OTHER EXPENSES Salaries and employee benefits 4,479 3,848 Net occupancy and equipment expenses 1,327 1,256 Other operating expenses 2,688 2,472 ---------- ---------- Total other expense 8,494 7,576 ---------- ---------- Income before income tax 6,113 5,236 Income tax expenses 1,700 1,437 ---------- ---------- Net income $ 4,413 $ 3,799 ---------- ---------- PER SHARE DATA Earnings per share Basic earnings per share $ 1.85 $ 1.61 Weighted average number of shares outstanding 2,388,497 2,363,531 Diluted earnings per share $ 1.81 $ 1.58 Weighted average number of shares outstanding 2,438,716 2,391,732 Dividends per share $ 0.52 $ 0.44
The accompanying notes are an integral part of these condensed financial statements. Page 6
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended September 30, September 30, (Dollars in Thousands) 2002 2001 COMPREHENSIVE INCOME Net Income $ 1,582 $ 1,383 Other comprehensive income, net of tax Unrealized gain (loss) on investment securities available for sale 645 722 ---------- ---------- Comprehensive Income $ 2,227 $ 2,105 ========== ==========
Nine Months Ended September 30, September 30, (Dollars in Thousands) 2002 2001 COMPREHENSIVE INCOME Net Income $ 4,413 $ 3,799 Other comprehensive income, net of tax Unrealized gain (loss) on investment securities available for sale 1,263 917 ---------- ---------- Comprehensive Income $ 5,676 $ 4,716 ========== ==========
The accompanying notes are an integral part of these condensed financial statements. Page 7
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, September 30, (Dollars in Thousands) 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,413 $ 3,799 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 588 569 Provision for loan losses 450 290 Other, net (897) (485) -------------- -------------- Net cash provided by operating activities 4,554 4,173 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in interest bearing deposits with banks (556) (567) Purchases of available for sale securities (24,407) (29,374) Sales and maturities of available for sale securities 11,335 33,968 Net (purchases) redemption of FHLB Stock (101) 431 Net (increase) in loans (24,896) (38,789) Purchases of bank premises and equipment (1,137) (295) -------------- -------------- Net cash provided (used) by investing activities (39,762) (34,626) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 28,362 27,598 Cash dividends paid (1,244) (1,031) Proceeds from sale of stock 632 718 Cash paid in lieu of fractional shares 0 (20) Net increase (decrease) in short term purchased funds (3,174) 17,379 Proceeds in long term debt 5,000 8,000 Payments on long term debt 0 (316) -------------- -------------- Net cash provided by financing activities 29,576 52,328 -------------- -------------- Net increase (decrease) in cash and cash equivalents (5,632) 21,875 Cash and cash equivalents at beginning of period 36,997 14,070 -------------- -------------- Cash and cash equivalents at end of period $ 31,365 $ 35,945 ============== ============== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 6,247 $ 8,412 Income Taxes 1,850 1,500 Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred taxes of $650 and $470 at September 30, 2002 and 2001, respectively) 1,263 917
The accompanying notes are an integral part of these condensed financial statements. Page 8 ORRSTOWN FINANCIAL SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2002 (UNAUDITED) Review of Interim Financial Statements The condensed consolidated financial statements as of and for the three and nine month periods ended September 30, 2002 and 2001 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 and nine months ended September 30, 2002 and 2001 is unaudited. Information presented at December 31, 2001 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. Principles of Consolidation The consolidated financial statements include the accounts of the corporation and its wholly-owned subsidiary, Orrstown Bank. All significant intercompany transactions and accounts have been eliminated. NOTE 3. 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 in banks, loans and deposits in the statement of cash flows. NOTE 4. 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, certain expenses are 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 these timing differences, deferred income taxes are provided in the financial statements. Income tax expense is less than the amount calculated using the statutory tax rate as a result of tax exempt income earned primarily from state and political subdivision obligations. NOTE 5. 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. Page 9 NOTE 6. 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 or on a long - term basis, 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 or on a long - term basis 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 shareholders' equity, whereas realized gains and losses flow through the corporation's operations. Management has classified all investments securities as "available for sale". At September 30, 2002 fair value exceeded amortized cost by $ 2,337,000. In stockholders' equity, the balance of accumulated other comprehensive income increased to $ 1,543,000 after recognizing the tax effects of the unrealized gains. At December 31, 2001, fair value exceeded amortized cost by $ 425,000 increasing accumulated other comprehensive income to $ 280,000 after recognizing the tax effects of the unrealized gains. Page 10 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 $ 1,582,000 for the third quarter of 2002 compared to $ 1,383,000 for the same period in 2001, representing an increase of $ 199,000 or 14.4%. Basic earnings per share was $ 0.66 for the third quarter of 2002 up $ 0.08 from the $ 0.58 earned during the third quarter of 2001. Net income for the first nine months of 2002 was $ 4,413,000 compared to $ 3,799,000 for the same period in 2001, representing an increase of $ 614,000 or 16.2%. Net income per share for the first nine months of 2002 was $ 1.85 up from the $ 1.61 per share realized during the nine months ended September 30, 2001. The following statistics compare 2002's third quarter and year-to-date performance to that of 2001:
Three Months Ended Nine Months Ended September September September September 2002 2001 2002 2001 Return on average assets 1.58% 1.57% 1.56% 1.54% Return on average equity 17.81% 18.34% 17.62% 17.60% Average equity / Average assets 8.88% 8.54% 8.84% 8.75%
A more detailed discussion of the elements having the greatest impact on net income follows. Net Interest Income Net interest income for the third quarter of 2002 was $ 3,896,000 representing a growth of $ 370,000, or 10.5% over the $ 3,526,000 realized during the third quarter of 2001. Growth was due to volume as the net interest margin tightened from 4.45% in the third quarter 2001 to 4.17% during third quarter 2002. Core deposit growth was excellent with average daily balances up $ 40.3 million, or 31.7% from third quarter 2001 levels. Transaction account products have been well received. In addition, commercial loan growth was strong with third quarter average daily balances up $ 27.5 million, or 20.7% over third quarter 2001 levels. Net interest income for the first nine months of 2002 was $ 11,132,000 representing an increase of $ 1,321,000, or 13.5% over the $ 9,811,000 generated during the first nine months of 2001. Net interest income gains were due to volume increases in core deposits and continued commercial loan demand. The tables that follow state rates on a fully taxable equivalent basis (FTE) and demonstrates the aforementioned effects:
(Dollars in Thousands) Three Months Ended September 2002 September 2001 Avg Avg Balance Rates Balance Rates Interest earning assets $370,707 6.34% $325,925 7.71% Interest bearing liabilities 315,844 2.56% 281,561 3.78% -------- -------- Free Funds $ 54,863 $ 44,364 ======== ======== Net interest income $ 3,896 $ 3,526 ======== ======== Net interest spread 3.78% 3.93% Free funds ratio 14.80% 13.61% Net interest margin 4.17% 4.45%
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(Dollars in Thousands) Nine Months Ended September 2002 September 2001 Avg Avg Balance Rates Balance Rates Interest earning assets $353,321 6.61% $305,700 8.01% Interest bearing liabilities 302,868 2.71% 266,156 4.12% -------- -------- Free Funds $ 50,453 $ 39,544 ======== ======== Net interest income $ 11,132 $ 9,811 ======== ======== Net interest spread 3.90% 3.89% Free funds ratio 14.28% 12.94% Net interest margin 4.29% 4.42%
Non-Interest Income and Expense The following compares three months ended September 30, 2002 to three months ended September 30, 2001: Other income increased $ 346,000, or 34.9%, from $ 992,000 during the third quarter of 2001 to $ 1,338,000 during the third quarter of 2002. Primary growth areas included overdraft fees, asset management fees, insurance income, merchant account fees and debit card fees. Other expenses increased from $ 2,464,000 during the third quarter 2001 to $ 2,993,000 during 2002's third quarter, resulting in an increase of $ 529,000, or 21.5%. Salaries and benefits expense grew $ 216,000, or 16.0% due to annual reviews, staff increases and the opening of our eleventh branch in Carlisle, Pennsylvania on June 24, 2002. The opening of the eleventh branch and renovations to the Stonehedge office added to the investment in premises and equipment increase of $ 549,000 for the current year. Occupancy, equipment, data processing and supplies expense all increased proportionally with growth. The following compares nine months ended September 30, 2002 to nine months ended September 30, 2001: Other income grew $ 634,000, or 19.3%, from $ 3,291,000 during the first nine months of 2001 to $ 3,925,000 during the same period of 2002. The primary areas of increase were asset management fees up $ 245,000, overdraft fees up $ 119,000, insurance fees net of reserves up $ 108,000, loan fees up $ 76,000, merchant fees up $ 42,000 and debit card fees up $ 38,000. Other expenses rose from $ 7,576,000 during the first nine months of 2001 to $ 8,494,000 for the nine months ended September 30, 2002, growing $ 918,000, or 12.1%. Again, salary and benefit increases of $ 631,000 represented the largest area of increase but other expense areas increased proportionally with the company's overall growth. Income Tax Expense Income tax expense increased $ 8,000, or 1.6%, during the third quarter of 2002 versus the third quarter of 2001. For the first nine months of 2002 versus 2001, income tax expense rose $ 263,000, or 18.3%. Tax exempt income has become a smaller part of the revenue stream. Effective income tax rates were as follows:
Three Months Ended Nine Months Ended September September September September 2002 2001 2002 2001 Effective income tax rate 24.3% 26.6% 27.8% 27.4%
The marginal federal income tax bracket is 34% for all periods presented. Page 12 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 Nine Months Ended September September September September 2002 2001 2002 2001 Balance at beginning of period $3,354 $2,803 $3,104 $2,691 Recoveries of loans previously charged off 4 1 9 3 Additions to allowance charged to expense 150 170 450 290 ------ ------ ------ ------ Total 3,508 2,974 3,563 2,984 Loans charged off 12 74 67 84 ------ ------ ------ ------ Balance at end of period $3,496 $2,900 $3,496 $2,900 ====== ====== ====== ======
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 62% at September 30, 2002. Nonperforming Assets / Risk Elements Nonperforming assets at September 30, are as follows:
September 30 (Dollars in Thousands) 2002 2001 Loans on nonaccrual (cash) basis Loans secured by real estate $ 28 $ 0 Installment loans 9 9 Commercial loans 0 30 Credit card 0 0 ------ ------ Total nonaccrual loans 37 39 ------ ------ Loans whose terms have been renegotiated Loans secured by real estate 1,428 0 Installment loans 0 0 Commercial loans 0 0 Credit card 0 0 ------ ------ Total renegotiated loans 1,428 0 ------ ------ OREO 211 0 ------ ------ Total nonperforming loans and OREO $1,676 $ 39 ====== ====== Ratio of nonperforming assets to total loans and OREO 0.61% 0.02% Ratio of nonperforming assets to total assets 0.41% 0.01% Loans past due 90 or more days and still accruing Loans secured by real estate $1,040 $ 504 Installment loans 9 71 Commercial loans 11 52 Credit card 0 5 ------ ------ Total loans 90 or more days past due $1,060 $ 632 ====== ====== Ratio of loans 90 or more days past due to total loans and OREO 0.39% 0.25% Ratio of loans 90 or more days past due to total assets 0.26% 0.17% Total nonperforming and other risk assets $2,736 $ 671 ====== ====== Ratio of total risk assets to total loans and OREO 1.00% 0.27% Ratio of total risk assets to total assets 0.67% 0.18%
Page 13 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 A comparison of Orrstown Financial Services, Inc's capital ratios to regulatory minimum requirements at September 30, 2002 is as follows:
Orrstown Financial Regulatory Minimum Services Requirements Leverage Ratio 8.68% 4% Risk Based Capital Ratios: Tier I Capital Ratio 12.51% 4% Total (Tier II) Capital Ratio (core capital plus allowance for loan losses 13.76% 8%
The growth experienced during 2002 has been supported by capital growth in the form of retained earnings and capital infusion from the dividend reinvestment plan. Dividend reinvestment plan participants have added $ 631,000 to equity as of September 30, 2002. Equity represented 8.85% of assets at September 30, 2002 which is up from 8.34% at December 31, 2001. All balance sheet fluctuations exceeding 5% have been created by either the growth that has been experienced during 2002 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. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive and chief financial officers of the company concluded that the company's disclosure controls and procedures were adequate. (b) Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of the controls by the Chief Executive and Chief Financial officers. Page 14 PART II - OTHER INFORMATION 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 99 - Report of independent accountant's on interim financial statements 99.1 - Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 99.2 - Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8 - K None Page 16 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, Sr. Vice President & CFO) (Chief Financial Officer) /s/ Robert B. Russell -------------------------------------------- (Robert B. Russell, Vice President & CAO) (Chief Accounting Officer) Date November 4, 2002 ---------------- Page 17 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-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 By:/s/Kenneth R. Shoemaker ------------------ -------------------------- Kenneth R. Shoemaker President & CEO (Principal Executive Officer) Page 18 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-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 By: /s/Bradley S. Everly ------------------ ------------------------- Bradley S. Everly Sr. Vice President and CFO (Principal Financial Officer) Page 19