10-Q/A 1 zmarch10q.txt FORM 10 - Q/A 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, 2003 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 30, 2003 -------------------------------- ----------------------------- (Common Stock, no par value ) 2,405,551 Page 1 ORRSTOWN FINANCIAL SERVICES, INC. INDEX Page -------- Part I - FINANCIAL INFORMATION Item 1. Financial statements (unaudited) Condensed consolidated balance sheets - March 31, 2003 and December 31, 2002. 4 Condensed consolidated statements of income - Three months ended March 31, 2003 and 2002. 5 Condensed consolidated statements of comprehensive income - Three months ended March 31, 2003 and 2002. 6 Condensed consolidated statements of cash flows - Three Months ended March 31, 2003 and 2002. 7 Notes to condensed consolidated financial statements 8 - 10 Item 2. Management's discussion and analysis of financial condition and results of operations 11 - 16 PART II - OTHER INFORMATION Other Information 18 Signatures 19 Certifications of Principal Executive Officer and Principal Financial Officer 20 - 23 Exhibits 24 - 26 Page 2 PART I - FINANCIAL INFORMATION Page 3 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) 2003 2002 ---------------------------------------------------------------------- - ASSETS Cash and due from banks $ 13,062 $ 10,656 Interest bearing deposits with banks 1,328 1,095 Federal funds sold 11,011 8,217 Securities available for sale 83,318 90,106 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 2,918 2,268 Loans 299,698 281,391 Allowance for loan losses ( 3,979) ( 3,734) -------- --------- Net Loans 295,719 277,657 Premises and equipment, net 10,138 9,849 Accrued interest receivable 1,668 1,606 Cash value-life insurance 6,984 6,916 Other assets 2,394 1,928 --------- --------- Total assets $ 428,540 $ 410,298 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 43,718 $ 42,704 Interest bearing 293,630 276,464 --------- --------- Total deposits 337,348 319,168 --------- --------- Federal funds purchased and other short term borrowed funds 19,938 20,808 Long term borrowed funds 28,539 28,539 Accrued interest payable 247 248 Other liabilities 3,840 3,573 --------- --------- Total liabilities 389,912 372,336 --------- --------- Common stock, no par value-$.1041 stated value per share at March 31, 2003 and December 31, 2002, 10,000,000 shares authorized with 2,401,969 shares issued at March 31, 2003 and 2,398,405 issued at December 31, 2002 250 250 Additional paid - in capital 26,089 25,913 Retained earnings 10,814 9,750 Accumulated other comprehensive income 1,475 2,049 --------- --------- Total stockholders' equity 38,628 37,962 --------- --------- Total liabilities and stockholders' equity $ 428,540 $ 410,298 ========= ========= *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 ------------------ March March (Dollars in Thousands) 2003 2002 --------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 4,636 $ 4,542 Interest on federal funds sold 21 56 Interest and dividends on investment securities 1,039 1,002 Interest income on deposits with banks 4 5 ------- ------- Total interest income 5,700 5,605 ------- ------- INTEREST EXPENSE Interest on deposits 1,295 1,608 Interest on borrowed money 407 454 ------- ------- Total interest expense 1,702 2,062 ------- ------- Net interest income 3,998 3,543 Provision for loan losses 252 150 ------- ------- Net interest income after provision for loan losses 3,746 3,393 ------- ------- OTHER INCOME Service charges on deposits 610 476 Other service charges 254 219 Trust department income 319 322 Brokerage income 111 80 Other income 101 80 Securities gains / (losses) 178 1 ------- ------- Total other income 1,573 1,178 ------- ------- OTHER EXPENSES Salaries and employee benefits 1,676 1,479 Net occupancy and equipment expenses 506 428 Other operating expenses 937 781 ------- ------- Total other expense 3,119 2,688 ------- ------- Income before income tax 2,200 1,883 Income tax expenses 656 549 ------- ------- Net income $ 1,544 $ 1,334 ======= ======= PER SHARE DATA Earnings per share Basic earnings per share $ 0.64 $ 0.56 Weighted average number of shares outstanding 2,400,746 2,383,332 Diluted earnings per share $ 0.63 $ 0.55 Weighted average number of shares outstanding 2,464,929 2,424,392 Dividends per share $ 0.20 $ 0.17
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 COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended ------------------ March March (Dollars in Thousands) 2003 2002 --------------------------------------------------------------------------- COMPREHENSIVE INCOME Net Income $ 1,544 $ 1,334 Other comprehensive income, net of tax Unrealized gain (loss) on investment securities available for sale ( 574) ( 104) ------- -------- Comprehensive Income $ 970 $ 1,230 ======= =======
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 CASH FLOWS (UNAUDITED) Three Months Ended --------------------- March March (Dollars in Thousands) 2003 2002 ---------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,544 $ 1,334 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 222 188 Provision for loan losses 252 150 Other, net ( 26) ( 192) -------- -------- Net cash provided by operating activities 1,992 1,480 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in interest bearing ( 233) ( 369) deposits with banks Purchases of available for sale securities ( 12,369) ( 8,444) Sales and maturities of available for sale securities 18,279 4,906 Net (purchases) redemption of FHLB Stock ( 650) ( 100) Net (increase) in loans ( 18,314) ( 3,993) Purchases of bank premises and equipment ( 511) ( 487) -------- -------- Net cash provided (used) by investing activities ( 13,798) ( 8,487) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 18,180 1,462 Cash dividends paid ( 480) ( 405) Proceeds from sale of stock 176 257 Cash paid in lieu of fractional shares 0 0 Net increase (decrease) in short term purchased funds ( 870) ( 5,359) Proceeds in long term debt 0 5,000 Payments on long term debt 0 0 -------- -------- Net cash provided by financing activities 17,006 955 -------- -------- Net increase (decrease) in cash and cash equivalents 5,200 ( 6,052) Cash and cash equivalents at beginning of period 18,873 36,997 -------- -------- Cash and cash equivalents at end of period $ 24,073 $ 30,945 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 1,703 $ 2,120 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 $296 and $448 at March 31, 2003 and 2002, respectively) ( 574) ( 104)
The accompanying notes are an integral part of these condensed financial statements. Page 7 ORRSTOWN FINANCIAL SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 (UNAUDITED) Review of Interim Financial Statements The condensed consolidated financial statements as of and for the three months ended March 31, 2003 and 2002 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, 2003 and 2002 is unaudited. Information presented at December 31, 2002 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 subsidiaries, Orrstown Bank and Pennbanks Insurance Company Cell P1. 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 with banks, loans and deposits in the Statement of Cash Flows. Page 8 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, 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 these timing differences in 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. NOTE 5. Stock-Based Compensation The Corporation grants stock options to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. The Corporation accounts for stock option grants using the intrinsic-value method in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Under the intrinsic-value method, because the exercise price of the Corporation's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. If grants are made during a reporting period the pro forma 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. 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, 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 Page 9 NOTE 6. Investment Securities (Continued) 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, 2003 fair value exceeded amortized cost by $ 2,235,000. This resulted in an increase in shareholders' equity, the balance of accumulated other comprehensive income increased to $ 1,475,000 after recognizing the tax effects of the unrealized gains. At December 31, 2002, fair value exceeded amortized cost by $ 3,105,000 increasing accumulated other comprehensive income to $ 2,049,000 after recognizing the tax effects of the unrealized gains. NOTE 7. 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 8. Subsequent Event On April 29, 2003 a 5% stock dividend was declared. The stock dividend will be paid May 30, 2003 to shareholders of record on May 12, 2003. Per share amounts will be restated in future filings to reflect the effects of the stock dividend. 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 $ 1,544,000 for the first quarter of 2003 compared to $ 1,334,000 for the same period in 2002, representing an increase of $ 210,000 or 15.8%. Basic earnings per share was $0.64 for the first quarter of 2003 up $ 0.08 from the $ 0.56 earned during the first quarter of 2002. The following statistics compare 2003's first quarter to that of 2002: Three Months Ended ------------------ March March 2003 2002 ------------------ Return on average assets 1.52% 1.49% Return on average equity 16.15% 16.93% Average equity / Average assets 9.41% 8.82%
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 2003 was $ 3,998,000 representing a growth of $ 455,000, or 12.8% over the $ 3,543,000 realized during the first quarter of 2002. Growth was due to volume increases. Commercial loans were up $ 32.9 million in average daily balances versus the first quarter 2002. The net interest margin tightened from 4.37% in the first quarter 2002 to 4.32% during the first three months of 2003; while the net interest spread increased by 4 basis points for the same period. Core deposit growth was strong with average daily balances up $ 46.0 million, or 25.8% over first quarter 2002 levels. Growth continues to be sustained in the commercial loan and core deposit areas. Reliance upon purchased funds and noncore deposits has declined significantly and has helped to drop the yield on interest bearing liabilities from 2.88% during first quarter 2002 to 2.09% for first quarter 2003. Page 11 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 2003 March 2002 Avg Balance Rates Avg Balance Rates Interest earning assets 387,364 6.10% 338,028 6.85% Interest bearing liabilities 329,705 2.09% 290,873 2.88% --------- --------- Free Funds 57,659 47,155 --------- --------- Net interest income 3,998 3,543 Net interest spread 4.01% 3.97% Free funds ratio 14.88% 13.95% Net interest margin 4.32% 4.37%
Non-Interest Income and Expense The following compares three months ended March 31, 2003 to three months ended March 31, 2002: Other income increased $ 395,000, or 33.5%, from $ 1,178,000 during the first quarter of 2002 to $ 1,573,000 during the first quarter of 2003. Fees from deposit service charges grew $ 134,000, or 28.2% over 2002. Debit card fees, merchant fees and bounce protection fees were the leading service charge gainers. Other contributing factors included an increase in securities gains of $ 177,000, a $ 23,000 increase in insurance fees and a $ 28,000 increase in asset management fees. Other expenses rose from $ 2,688,000 during the first quarter 2002 to $ 3,119,000 during 2003's first quarter for an increase of $ 431,000, or 16.0%. Growth experienced over the past year has increased operational expenses including salaries and benefits. In addition our eleventh full service branch was opened during 2002's second quarter and our twelfth is slated to open in Chambersburg, Pennsylvania during the second quarter 2003, contributing to an increase in occupancy and equipment expense of 18.2% over the prior year. Expenses related to the credit life and disability cell were up by approximately $ 41,000 versus first quarter 2002. Page 12 Income Tax Expense Income tax expense increased $ 107,000, or 19.4%, during the first quarter of 2003 versus the first quarter of 2002. Tax exempt income has become a smaller part of the revenue stream. Effective income tax rates were as follows: Three Months Ended March March 2003 2002 Effective income tax rate 29.8% 29.2%
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 2003 2002 Balance at beginning of period $ 3,734 $ 3,104 Recoveries of loans previously charged off 10 1 Additions to allowance charged to expense 252 150 ------- ------- Total 3,996 3,255 Loans charged off 17 47 ------- ------- Balance at end of period $ 3,979 $ 3,208 ======= =======
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 58% at March 31, 2003. Page 13 Nonperforming Assets / Risk Elements Nonperforming assets at March 31, are as follows: (Dollars in Thousands) 2003 2002 --------------------------------------------------------------------- Loans on nonaccrual (cash) basis Loans secured by real estate $ 68 $ 10 Installment loans 18 12 Commercial loans 0 0 Credit card 0 0 ------- ------- Total nonaccrual loans 86 22 ------- ------- Loans whose terms have been renegotiated Loans secured by real estate 1,420 1,428 Installment loans 0 0 Commercial loans 0 0 Credit card 0 0 ------- ------- Total renegotiated loans 1,420 1,428 ------- ------- OREO 211 211 ------- ------- Total nonperforming loans and OREO $ 1,717 $ 1,661 ======= ======= Ratio of nonperforming assets to total loans and OREO 0.57% 0.65% Ratio of nonperforming assets to total assets 0.40% 0.44% Loans past due 90 or more days and still accruing Loans secured by real estate $ 1,345 $ 836 Installment loans 0 14 Commercial loans 193 88 Credit card 0 7 ------- ------- Total loans 90 or more days past due $ 1,538 $ 1,045 ======= ======= Ratio of loans 90 or more days past due to total Loans and OREO 0.51% 0.41% Ratio of loans 90 or more days past due to total assets 0.36% 0.28% _______ _______ ------- ------- Total nonperforming and other risk assets $ 3,255 $ 2,706 ======= ======= Ratio of total risk assets to total loans and OREO 1.09% 1.07% Ratio of total risk assets to total assets 0.76% 0.72%
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. Page 14 Capital Resources and Balance Sheet Fluctuations Orrstown Financial Services, Inc. is a financial holding company and, as such must maintain a well capitalized status in its bank subsidiary. A comparison of Orrstown Financial Services, Inc's capital ratios to regulatory requirements at March 31, 2003 are as follows: Orrstown Rebulatory Financial Regulatory Well Capitalized Services, Inc. Minimums Minimums Leverage Ratio 9.00% 4% 5% Risk Based Capital Ratios: Tier I Capital Ratio 12.28% 4% 6% Total (Tier I & II) Capital Ratio(core capital plus allowance for loan losses) 13.53% 8% 10%
The growth experienced during 2003 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 $ 177,000 to equity as of March 31, 2003. Equity represented 9.01% of assets at March 31, 2003 which is down from 9.25% at December 31, 2002 due to significant asset growth and an equity markdown related to the investment portfolio during first quarter 2003. All balance sheet fluctuations exceeding 5% have been created by either the growth that has been experienced during 2003 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 2002 Requirements During first quarter 2003 the Board of Directors approved adoption of a Code of Ethics for Financial Officers which applies to the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and complies with Sarbanes-Oxley Act requirements. The Corporation's audit committee held its regularly scheduled meeting during first quarter 2003. The audit committee consists of four outside directors with varied business and financial expertise. Page 15 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 or Chief Financial officers. Page 16 PART II - OTHER INFORMATION Page 17 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 18 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, Controller) (Chief Accounting Officer) Date: April 30, 2003 ------------------------- Page 19 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 other 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 auditor any material weakness 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. Page 20 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. By: /s/ Kenneth R. Shoemaker --------------------- Kenneth R. Shoemaker President and CEO (Principal Executive Officer) April 30, 2003 Page 21 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 other 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 auditor any material weakness 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. Page 22 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. By: /s/ Bradley S. Everly --------------------------- Bradley S. Everly Sr. Vice President and CFO (Principal Financial Officer) April 30, 2003 Page 23 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, 2003 and the related consolidated statements of income for the three months ended March 31, 2003 and 2002 and consolidated statements of comprehensive income for the three months ended March 31, 2003 and 2002 and consolidated statements of cash flows for the three months ended March 31, 2003 and 2002. 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 30, 2003 Page 24 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Orrstown Financial Services, Inc. (the Corporation) on Form 10-Q for the period ending March 31, 2003 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 final condition and results of operations of the Corporation. /s/ Kenneth R. Shoemaker --------------------------- Kenneth R. Shoemaker Chief Executive Officer April 30, 2003 Page 25 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Orrstown Financial Services, Inc. (the Corporation) on Form 10-Q for the period ending March 31, 2003 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 final condition and results of operations of the Corporation. /s/ Bradley S. Everly --------------------------- Bradley S. Everly Chief Financial Officer April 30, 2003 Page 26