ORRSTOWN FINANCIAL SERVICES, INC.
3580 Orrstown Road
Orrstown, PA l7244
(7l7) 532-6ll4
PROXY STATEMENT
l999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
TUESDAY, April 6, l999
GENERAL
Solicitation of Proxies
This proxy statement is furnished in connection with the
solicitation of proxies, in the accompanying form, by Orrstown
Financial Services, Inc., (the "Company") on behalf of the Board
of Directors for use at the annual meeting of shareholders to be
held at 9:00 A.M. on Tuesday, April 6, l999, and any adjournments
or postponements thereof. This proxy statement and the
accompanying proxy form are being mailed to shareholders on or
about March 8, l999.
The expense of soliciting proxies will be borne by the
Company, and the officers, directors and employees of the Company
may, without additional compensation, solicit proxies personally
or by telephone.
Date, Time and Place of Meeting
The regular annual meeting of the shareholders of the Company
will be held on Tuesday, April 6, l999, at 9:00 A.M., at the
Shippensburg Firefighters Activities Center, 33 West Orange
Street, Shippensburg, Pennsylvania.
Shareholders Entitled to Vote
Shareholders of record at the close of business on March l,
l999, shall be entitled to vote at the meeting.
Purpose of Meeting
The shareholders will be asked to consider the following
matters at the meeting: (i) to elect three directors for a three-
year term, and (ii) to consider and vote upon such other business
as may properly be brought before the meeting and any adjournments
or postponements thereof.
Revocability and Voting of Proxies
The execution and return of the enclosed proxy will not
affect a shareholder's right to attend the meeting and to vote in
person. Any proxy given pursuant to this solicitation may be
revoked at any time by a written instrument signed in the same
manner as the proxy and received by the Secretary of the Company
at or before the annual meeting. If you attend the annual
meeting, you may, if you wish, revoke your proxy by voting in
person. Unless revoked, any duly executed proxy given pursuant to
this solicitation will be voted at the meeting in accordance with
the instructions thereof of the shareholder giving the proxy. In
the absence of instructions, all duly executed proxies will be
voted FOR the election of the nominees identified in this proxy
statement. Although the Board of Directors knows of no other
business to be presented, in the event that any other matters are
properly brought before the meeting, any proxy given pursuant to
this solicitation will be voted in the discretion of the proxies.
Voting of Shares and Principal Holders Thereof
At the close of business on March l, l999, which is the
record date for determination of shareholders entitled to receive
notice of and to vote at the meeting and any adjournment or
postponement thereof, the Company had outstanding 2,055,3l6 shares
of common stock. There is no other class of stock outstanding.
A majority of the outstanding common stock present in person
or by proxy constitutes a quorum for the conduct of business.
Each share is entitled to one vote on all matters submitted to a
vote of the shareholders.
The Company does not know of any person who beneficially
owned more than 5% of the outstanding common stock of the Company
on the record date.
Recommendations of the Board of Directors
The Board of Directors recommends that the shareholders vote
FOR the election of the three nominees identified in this proxy
statement.
INFORMATION CONCERNING ELECTION OF DIRECTORS
General Information
Three directors are to be elected at the l999 annual meeting,
each to hold office until the annual meeting of the shareholders
in 2002 or until a successor is elected. It is the intention of
the persons named in the enclosed form of proxy, if authorized, to
vote the proxies for the election as directors for a three-year
term of Jeffrey W. Coy, John S. Ward, and Joel R. Zullinger.
In the event any nominee declines or is unable to serve as a
director, the persons named as proxies shall have full discretion
to vote for any person who may be nominated.
The following table sets forth information regarding the
nominees for directors and current directors whose terms do not
yet expire. All current directors of the Company also serve on
the board of Orrstown Bank.
Name Age Principal Occupation Bank Director
for Last Five Years Since
and Position with
Company
NOMINEES FOR CLASS A DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN l999
Jeffrey W. Coy 47 State Legislator l984
John S. Ward 61 Chief Clerk, Cumberland l999
County
Joel R. Zullinger 50 Attorney-at-Law; l 98l
Chairman of the Board
of Company and Bank
CLASS B DIRECTORS
WHOSE TERMS EXPIRE IN 200l
Denver L. Tuckey 64 Retired Businessman l995
Glenn W. Snoke 50 President, Snokes l999
Excavating & Paving
Gregory A. 43 President, Tri-Valley l997
Rosenberry Forestry, Inc.
CLASS C DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Anthony F. Ceddia 55 President, Shippensburg l996
University
Robert T. Henry 70 Retired Pharmacist and l989
Businessman
Andrea Pugh 46 President, PharmCare l996
Consultants
Kenneth R. 5l President and Chief l986
Shoemaker Executive Officer of
Company and Bank
Security Ownership of Nominees for Director, Current Directors and
Management
The following table sets forth the number of shares of common
stock of the Company beneficially owned as of March l, l999, by
each of the Company's nominees for directors, current directors,
and officers as a group. Unless otherwise indicated, the shares
listed in the table are owned directly by the individual, his or
her spouse, or both, or as custodian for the benefit of his or her
minor children, and the individual has sole voting and investment
power with respect to the shares or such power is shared with his
or her spouse.
Name Shares of Common Stock Percent of
Total
Beneficially Owned Common Stock
Anthony F. Ceddia 680 0.03%
Jeffrey W. Coy 14,040 0.68%
Robert T. Henry 15,040 0.73%
Andrea Pugh 2,403 0.l2%
Gregory A. Rosenberry 2,647 0.13%
Kenneth R. Shoemaker 11,696 0.57%
Denver L. Tuckey 2,379 0.l2%
Glenn W. Snoke 1,847 0.08%
John S. Ward 286 0.01%
Joel R. Zullinger 9,204 0.45%
All nominees and directors
as a group (l0 persons) 60,222 2.93%
Principal Officers and Executive Officers of Holding Company
The following table sets forth selected information about the
principal officers of the holding company, each of whom is elected
by the Board of Directors and each of whom holds office at the
discretion of the Board.
Name/Office Held Held Bank Employee Age as
Since Since of
3/l/99
Joel R. Zullinger, Chairman l998 (l) 50
of the Board
Jeffrey W. Coy, Vice Chairman l998 (l) 47
of the Board
Robert T. Henry, Secretary l998 (l) 70
of the Board
Kenneth R. Shoemaker, President l987 l986 51
and Chief Executive Officer
Stephen C. Oldt, Executive Vice l987 l987 55
President
Philip E. Fague, Senior Vice 1997 l988 39
President and Senior Trust
Officer
Bradley S. Everly, Senior Vice 1997 l997 47
President/Senior Loan Officer
Benjamin Stoops, Vice President 1998 1998 47
Senior Operations Officer
(l) Mr. Zullinger, Mr. Coy and Mr. Henry are not employees of the
Bank.
Senior Operating Officers of the Bank
Name/Office Held Held Bank Employee Age as
Since Since of
3/l/99
Kenneth R. Shoemaker, President l987 l986 51
and Chief Executive Officer
Stephen C. Oldt, Executive Vice l987 l987 55
President and Chief Operating
Officer
Philip E. Fague, Senior Vice 1990/ l988 39
President
Senior Trust Officer l993
Bradley S. Everly, Senior Vice l997/ l997 47
President/Senior Loan Officer
Benjamin Stoops, Vice President/ 1998 1998 47
Senior Operations Officer
Transactions with Directors and Executive Officers
The Company's subsidiary, Orrstown Bank, has granted loans to
executive officers and directors of the Company, its subsidiary
and to their associates in the ordinary course of Orrstown Bank's
business during l998. The following directors had loans with the
bank in excess of $60,000.00 as of December 3l, l998: Jeffrey W.
Coy, Ned R. Fogelsonger (deceased), and Kenneth R. Shoemaker. All
loans and commitments to loan made to such persons and to the
companies with which they are associated were made on
substantially the same terms, including interest rates, collateral
and repayment terms, as those prevailing at the time for
comparable transactions with other persons and did not involve
more than a normal risk or collectibility or present other
unfavorable features. It is anticipated that the Orrstown Bank
will enter into similar transactions in the future. The aggregate
dollar amount of loans to all officers and directors was
$l,690,8ll.48 at December 3l, l998. During l998, $l,068,l55.26 of
new loans were made to all officers and directors and repayments
totaled $698,786.97.
Joel R. Zullinger, an attorney with the law firm of Joel R.
Zullinger - Hamilton C. Davis, a Professional Corporation, has
provided legal services to Orrstown Bank since l980 and to
Orrstown Financial Services, Inc., since l988, and is expected to
continue to do so in the future.
MEETINGS AND COMMITTEES
OF THE BOARD OF DIRECTORS
During the year l998 the Board of Directors of the Company
held six meetings, while the Orrstown Bank Board of Directors held
thirteen meetings.
The Company has an executive committee consisting of Jeffrey
W. Coy, Chairman, Robert T. Henry, Kenneth R. Shoemaker, and Joel
R. Zullinger. The executive committee acts on matters between
regular meetings of the board. The executive committee of the
Company held no meetings during the year. Orrstown Bank has an
executive committee consisting of the same members as the
Company's executive committee and which held thirteen meetings
during the year. The Company does not have an audit committee,
nominating committee, or a compensation committee; however,
Orrstown Bank has an audit committee whose members were Andrea
Pugh, Chair, Ned R. Fogelsonger, and Joel R. Zullinger.
During the year l998 all of the directors attended at least
75% of the aggregate of (l) the total number of meetings of the
Board of Directors and (2) the total number of meetings held by
all committees of the Board on which he or she served.
For the year l998 the directors of the Company received
$250.00 per board meeting attended and $l50.00 for each committee
meeting attended. All directors of the Company also serve on the
board of Orrstown Bank. For the year l998, Orrstown Bank paid
each director $600.00 per month and a yearly retainer of
$3,500.00. In addition the Chair of the Board of Orrstown Bank
was paid a stipend of $2,000.00 and the Vice Chair a stipend of
$l,500.00. Each Orrstown Bank director, with the exception of
Kenneth R. Shoemaker, was also paid $l50.00 for each committee
meeting attended.
Orrstown Bank has a deferred compensation arrangement with
seven of its board members or former board members whereby a
director or his beneficiaries will receive a monthly benefit
beginning at age 65. The arrangement is funded by an amount of
life insurance on each participating director calculated to meet
the bank's obligations under the compensation agreement. The cash
value of the life insurance policies is an unrestricted asset of
the bank. The estimated present value of future benefits to be
paid, which are included in other liabilities, amounted to
$l66,2l4.00 at December 3l, l998. Annual expense of $l9,064.00
was charged to operations for l998.
In l995, Orrstown Bank and the Company established a non-
qualified deferred compensation plan for directors and for Stephen
C. Oldt, Executive Vice President. Each participant may elect
each year to defer all or a portion of his or her board fees and
compensation. Those deferring compensation must begin withdrawal
from the plan by age 75. The amount deferred is invested in a
rabbi trust with the trust department of Orrstown Bank as
trustee. The investments are directed by the participants and
there is no guarantee as to their performance. Growth of each
participant's account is a result of investment performance and
not as a result of an interest factor or interest formula
established by the participant.
In l998 Orrstown Bank established a Directors' Retirement
Plan which provides participating directors a $l2,000.00 per year
benefit (indexed for inflation by 4.00% per year until payments
commence) for the lesser of ten years or the number of years
served. This program encourages current directors to continue to
serve as directors and enables the Bank to reward its long-serving
directors for their valuable services to the Bank.
EXECUTIVE COMPENSATION AND BENEFITS
Executive Committee Report on Executive Compensation
Initial review and recommendations for compensation of the
executive officers of Orrstown Bank are made by the executive
committee of the Bank's Board of Directors. No compensation was
paid to the executive officers by the Company during 1998. All
compensation was paid by the Bank. As set forth previously, three
members of the executive committee are non-employee directors.
The fourth member of the committee is Mr. Shoemaker. Although Mr.
Shoemaker, the President and Chief Executive Officer of the
Company and Bank, served on the executive committee, he did not
participate in any discussions or decisions regarding his own
compensation. All recommendations of the executive committee
relating to the compensation of the Bank's executive officers are
reviewed by the full Board of Directors which makes the final
decision on this matter. As a result of regulations adopted by
the Securities and Exchange Commission designed to enhance
disclosure of the policies of the Company toward executive
compensation, the Bank's compensation policies for 1998 as they
affect Mr. Shoemaker and the other executive officers is set forth
below.
The executive committee's executive compensation policies
are designed to provide compensation to executive officers based
upon a performance evaluation of each executive officer after
analyzing each officer's completion of previously established
goals. Mr. Shoemaker does not participate in his own performance
evaluation, but does participate in the evaluation of other
executive officers. Levels of base salary paid by the Bank for
all executive officers are intended to be competitive with other
banks of similar size in the region. Comparisons of compensation
made by banks of similar size in the region is secured by the
executive committee from various sources. Such comparison is not
based on corporate performance of other banks, but only
compensation paid by comparable banks for similar job
descriptions.
Remuneration of Management
The management of the Company consists of the same
individuals as the management of the Orrstown Bank. The
management of the Company does not receive any compensation other
than that paid to it by Orrstown Bank.
Summary Compensation Table - Kenneth R. Shoemaker for Fiscal Year
Ended December 3l, l998.
Year Salary Bonus Other Annual All Other
(l) Compensation Compensation
(2) (3)
1998 $141,622.15 0.00 $5,230.25 $22,528.30
l997 l32,704.32 l0,000.00 4,072.25 22,108.82
l996 l26,269.67 4,000.00 3,9l8.25 2l,932.73
(l) Includes amounts received as compensation as member of Board
of Directors and any deferred compensation
(2) Includes perquisites ($5,230.25)
(3) Includes profit-sharing and 40l(k) contribution ($l8,353.00)
as well as Company match on 40l(k) plan ($4,l75.30)
Summary Compensation Table - Stephen C. Oldt for Fiscal Year Ended
December 3l, l998.
Year Salary Bonus Other Annual All Other
(l) Compensation Compensation
(2) (3)
1998 $90,820.11 0.00 $1,097.00 $l5,646.89
(l) Includes amount of any deferred compensation
(2) Includes perquisites ($l,097.00)
(3) Includes profit-sharing and 40l(k) contribution ($l3,006.85)
as well as Company match on 40l(k) plan ($2,640.04)
No long-term compensation including but not limited to
restricted stock awards, stock options, and long-term incentive
plans were paid to Kenneth R. Shoemaker and Stephen C. Oldt during
the last three fiscal years.
In l998 Orrstown Bank established an Officer Group Term
Replacement Plan for the benefit of Kenneth R. Shoemaker, Stephen
C. Oldt, Philip E. Fague and Bradley S. Everly. This plan
provides participating officers a benefit equal to two times
current salary with no cap. With the plan the officer receives
the same coverage as he currently receives under the Bank's group
term plan at less cost to the Bank while the officer is employed.
The officer receives continued coverage after retirement for a
very small annual charge. The post-retirement coverage will
approximate two times final salary (not to exceed the net coverage
purchased).
In January, l998, the board of directors approved a contract
with Mr. Shoemaker providing that if control of the Company were
to change at any time in the future, Mr. Shoemaker would be
guaranteed his current salary level and certain benefits as of the
date control of the Company changed for a three-year period.
Should Mr. Shoemaker secure other employment at any time during
the three-year period, his compensation from the new employment
would off-set the guaranteed salary due from the Company.
Pension and Other Benefit Plans
Orrstown Bank terminated its non-contributory defined benefit
pension plan as of July 3l, l992.
In l988 Orrstown Bank began a profit-sharing plan which
covers all employees who have attained age 2l and completed one
year of service and have worked for l,000 hours or more during the
plan year. Upon being covered by the plan, an employee is fully
vested. Contributions to the plan are based on bank performance
and are at the discretion of the bank's Board of Directors.
Substantially all of the bank's employees are covered by the plan
and the contribution charged to operations was $332,560.62 for
l998, although actual distribution took place on January 26, l999.
The maximum amount allocated to the five operating officers of
the bank was $52,956.83.
Beginning September l, l992, Orrstown Bank instituted a
40l(k) plan for its employees. The sum of $50,025.36 was
contributed by the Bank which represents a 50% match of employee
contributions to the plan up to a maximum of 6% of each employee's
base salary.
In l998 the Board of Directors adopted a salary continuation
plan for Kenneth R. Shoemaker, Stephen C. Oldt, Philip E. Fague
and Bradley S. Everly in order to provide to them supplemental
retirement income so that when it is combined with Social Security
and the Orrstown Bank sponsored 40l(K) plan, it will provide total
retirement income as a percentage of final salary of 70%. In
addition this plan serves to encourage key employees to remain
with Orrstown Bank in that vesting of benefits is determined by
the Board of Directors. In formulating this plan, salaries were
assumed to increase 5.0% per year in the projection of final
salary.
STOCK PRICE PERFORMANCE GRAPH
The following is a graph comparing the Company's cumulative
total shareholder returns with the performance of the S & P 500 (a
broad market index) and with the SNL under $500 million bank asset
size index (an industry index prepared by SNL Securities) for the
five-year period ended December 3l, l998. In that the Company's
stock is not traded on any stock exchange, the value of the stock
is based on reports to the Company by shareholders who have bought
and sold stock of the Company at various times. The Company is
not aware of the trading price of all transactions involving the
Company's stock, only those reported by shareholders who desire to
do so.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors engaged the accounting firm of Smith
Elliott Kearns and Company as independent auditors for the year
l998.
It is anticipated that Smith Elliott Kearns and Company will
be similarly engaged for the year l999. Representatives of Smith
Elliott Kearns and Company are expected to be present at the
annual meeting, will have the opportunity to make a statement if
they desire to do so and will be available to respond to
appropriate questions.
Smith Elliott Kearns and Company assisted the Company with
the preparation of its income tax returns and provided assistance
in connection with regulatory matters. These non-audit services
were approved by the Board of Directors prior to the rendering of
such services after due consideration of the effect of the
performance thereof on the independence of its auditors. The
Board of Directors reviewed the nature and expense associated with
such services and concluded that there was no effect on the
independence of the auditors.
AVAILABILITY OF ANNUAL REPORT
ON FORM l0-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM l0-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, IS AVAILABLE WITHOUT CHARGE
TO SHAREHOLDERS UPON WRITTEN REQUEST ADDRESSED TO KENNETH R.
SHOEMAKER, PRESIDENT, ORRSTOWN FINANCIAL SERVICES, INC., 3580
ORRSTOWN ROAD, ORRSTOWN, PENNSYLVANIA, 17244.
OTHER MATTERS
The Board of Directors of the Company knows of no matters
other than those discussed in this proxy statement which will be
presented at the l999 annual meeting. However, if any other
matters are properly brought before the meeting, any proxy given
pursuant to this solicitation will be voted in the discretion of
the proxies.
SHAREHOLDER PROPOSAL
Shareholder proposals intended to be presented at the 2000
annual meeting must be received at the executive offices of the
company at 77 East King Street, Shippensburg, Pennsylvania, not
later than Friday, November 9, l999, in order to be considered for
inclusion in the proxy statement and proxy form to be prepared by
the Company in connection with the 2000 annual meeting.
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