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DEF 14A 1 proxystatement2020.htm DEF 14A Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant x Filed by a Party other than the Registrant ¨

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14(a)-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to § 240.14a-12

ORRSTOWN FINANCIAL SERVICES, INC.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

No fee required

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

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(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

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Total fee paid:

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount previously paid:

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Form, Schedule or Registration Statement No.:

(3)

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Date Filed:

March 19, 2020

Dear Shareholder:

On behalf of the Board of Directors and management of Orrstown Financial Services, Inc. (the “Company”), I cordially invite you to attend our 2020 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at the H. Ric Luhrs Performing Arts Center, 1871 Old Main Drive, Shippensburg, Pennsylvania on Tuesday, April 28, 2020, at 9:00 a.m., local time. The attached Notice of Annual Meeting and Proxy Statement describe the formal business we expect to act upon at the Annual Meeting. We will also report on our results of operations. Our directors and officers, as well as representatives of Crowe LLP, our independent registered public accounting firm, will be present to respond to shareholder questions.

You will be asked to: (i) elect the Board’s three nominees for director; (ii) provide a non-binding advisory vote approving the compensation paid to our Named Executive Officers as disclosed in the attached proxy statement (“Say-on-Pay”); and (iii) ratify the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. The Board of Directors recommends a vote “FOR” the election as directors to Class A of the three nominees listed in the enclosed Proxy Statement; “FOR”, approval of the advisory vote on compensation paid to our Named Executive Officers; and “FOR” ratification of the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

Your vote is important, regardless of the number of shares you own. We encourage you to vote by proxy so that your shares will be represented and voted at the Annual Meeting even if you cannot attend. There are a number of ways shareholders can vote. You can vote by returning the enclosed Proxy Card, online, by phone or you may vote in person at the meeting if you so choose. If you do decide to attend the Annual Meeting and feel for whatever reason that you want to change your vote at that time, you will be able to do so.


Sincerely,

Thomas R. Quinn, Jr. President and Chief Executive Officer

ORRSTOWN FINANCIAL SERVICES, INC.

77 East King Street

Shippensburg, Pennsylvania 17257

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON APRIL 28, 2020

The Annual Meeting of Shareholders of Orrstown Financial Services, Inc. (the “Company”) will be held on Tuesday, April 28, 2020, at 9:00 a.m., at the H. Ric Luhrs Performing Arts Center, 1871 Old Main Drive, Shippensburg, Pennsylvania, to consider and take action on the following matters:


			1.			Elect three (3) directors to Class A for three (3) year terms expiring in 2023;

			2.			Approve a non-binding advisory vote regarding the compensation paid to our Named Executive Officers (“Say-On-Pay”);

			3.			Ratify the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020; and

			4.			Transact such other business as may properly come before the annual meeting.

Your Board of Directors recommends a vote “FOR” the election as directors to Class A of the three nominees listed in the enclosed proxy statement; “FOR” approval of the advisory vote on compensation paid to our Named Executive Officers; and “FOR” ratification of the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

This Notice of Annual Meeting of Shareholders, the proxy statement and the enclosed proxy card are being mailed on or about March 19, 2020 to shareholders of record at the close of business on March 12, 2020. A copy of the Annual Report on Form 10-K for the year ended December 31, 2019 is also enclosed.


			Sincerely,

			Robert G. Coradi
			Secretary

March 19, 2020


Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on April 28, 2020 at 9:00 a.m. The Proxy Statement and Annual Report to Shareholders are available on the Internet at http://www.cstproxy.com/orrstown/2020

Table of Contents


About Orrstown			1
Cautionary Note Regarding Forward-looking Statements			5
Annual Meeting Information			6
	Who is entitled to vote?	6
	On what am I voting?	6
	How does the Board of Directors recommend I vote?	6
	How do I vote?	6
	What is a quorum?	7
	How are abstentions and broker non-votes counted?	7
	What vote is required to elect directors?	7
	What vote is required to approve the other proposals?	7
	Who will count the vote?	7
	What is the deadline for shareholder proposals for next year’s Annual Meeting?	7
	How are proxies being solicited?	7

Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on April 28, 2020			8

Share Ownership of Certain Beneficial Owners			8

Share Ownership of Management			9

Section 16(a) Beneficial Ownership Reporting Compliance			9

Proposal 1 – Election of Directors			10
	Nomination of Directors	10
	Biographical Summaries of Nominees and Directors	11
Director Independence			12
Shareholder Communications with the Board of Directors			12
Board Structure, Committees and Meeting Attendance			13
Audit Committee Report			14
Compensation Committee Interlocks And Insider Participation			14
Transactions With Related Persons, Promoters And Certain Control Persons			14
Compensation Of Directors			15
	2019 Director Compensation Table	15
Information About Executive Officers			16
Compensation Discussion and Analysis			17
2019 Pay Ratio Disclosure			29
Methodology for Determining Median Employee Compensation			29
Potential Payments Upon Termination Or Change in Control			29
Compensation Committee Report			33
Compensation Risk Assessment			33

Proposal 2 – Advisory Vote on Compensation Paid to Named Executive Officers ("Say-On-Pay")			34
	A Non-Binding Advisory Vote to Approve the Compensation Paid to Our Named Executive Officers.	34

Proposal 3 – Ratification of The Audit Committee's Selection of Crowe LLP as the Company's Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2020			35
	Relationship with Independent Registered Public Accounting Firm	35

Involvement in Certain Legal Proceedings			36
Annual Report on Form 10-K			36

About Orrstown

Orrstown Financial Services, Inc. (NASDSAQ: ORRF) is the holding company for Orrstown Bank, which traces its roots to the year 1919 and the town of Orrstown, Pennsylvania, and Wheatland Advisors, Inc. Today, Orrstown is a trusted financial partner of more than 87,000 clients with a product offering that includes a full suite of retail and commercial banking services as well as wealth management. We operate in four distinct markets or regions. Though these markets share economic ties, there are unique economic features to each, and they remain culturally independent. As such, Orrstown operates in each region with a market president empowered to make business decisions within a strong risk management environment.

Key Performance Indicators (at 12/31/2019)

Market Cap⁽¹⁾

$253.3 million

Assets

$2.4 billion

Loans

$1.6 billion

Deposits

$1.9 billion

Net Interest Margin

3.43%

Return on Average Assets

0.76%

Return on Average Equity

8.21%

Efficiency Ratio

71.10%

⁽¹⁾ $22.62 per share closing price and 11,199,874 shares outstanding on 12/31/2019.

Orrstown Bank experienced meaningful growth and significant change over the past decade. The great recession (December 2007- June 2009) negatively impacted results for many financial institutions, including ours, although the impact was later in our markets than the national trend.

Starting in 2012, the Bank began proactively addressing credit quality issues and emerged a much stronger organization. The table below demonstrates our growth since then in terms of scale, geographic reach, and work force expansion.


($ in 000's)	12/31/2013		12/31/2019		Change		Change
Total Assets	$	1,177,812	$	2,383,274	$	1,205,462	102	%
Total Loans	$	672,973	$	1,629,675	$	956,702	142	%
Total Deposits	$	1,000,390	$	1,875,522	$	875,132	87	%
Primary Markets Served (Counties ⁽¹⁾)	5		12		7		140	%
Employees	341		469		128		38	%
⁽¹⁾ 12/31/2019 includes the City of Baltimore which is a municipality distinct from Baltimore County.

Strategic Highlights of the Past Five Years

Following the Company’s recovery from the great recession, its Board of Directors and Management determined that prudent risk management called for diversification. The Company began the process of geographic expansion while varying the exposures within the Company’s loan portfolio. The growth of the organization began in earnest in 2015 and continues through the present.

2015: Investments in customer-facing talent to take advantage of market disruption

•Reorganized under Regional Market President structure to ensure autonomy and local decision making as the Bank began to expand:

◦Hired a Lancaster County Market President and began commercial lender team acquisitions from larger, more sophisticated, financial institutions

◦Began LPO and branching efforts in Lancaster County, Pennsylvania

◦Hired an experienced Treasury Management team

2016: Continued investments in talent and support infrastructure

•14 new client-facing hires

•Continued our expansion in Lancaster County and opened a regional office and branch in greater Harrisburg area (Dauphin County)

2017: Reaped rewards of previous investments

•Continued organic expansion with double digit loan and deposit growth

•Improved efficiency ratio by 870 basis points

•Net interest margin improvement

2018: M&A activity and continued organic growth

•Announced two whole bank acquisitions, Mercersburg Financial Corporation and Hamilton Bancorp, Inc.

•Continued organic growth with three new branches in Lancaster County and LPO in York County

•Net income improvement of +40% year over year

•Closed the Mercersburg transaction in Q4

2019: Integration of acquired banks and build out of Maryland market

•Successful core conversion of Mercersburg in Q1 and exceeded 45% expense reduction goal

•Closed Hamilton transaction in Q2 and successful core conversion in Q3

•Market President for Maryland region joined in July

•Reinvested Hamilton cost saves into new commercial banking team of eight

•New Chief Financial Officer joined in July

•Announced closure of five underperforming financial centers and sale of ~50,000 square feet of excess operational capacity⁽¹⁾

⁽¹⁾ Five branches were closed effective 1/31/2020. Sale of operations center scheduled for the second quarter of 2020.

Investments in our Employees

We understand that our employees are the key to our current and future success. Our investment in human capital extends beyond hiring the best talent we can attract. We offer a full suite of competitive employee benefits. Our Learning & Development team has expanded over the past several years to train and retain best-in-class bankers. Associated with that effort, we engage in career development for our employees, helping to map each stage of their time with Orrstown to realize their potential.

Employee Benefits Include:

Choice of traditional “Blues” plan or high deductible plan with employer funded HSA

Gym in our Harrisburg Regional Office (more than 100 employees at this facility)

Dental and Vision coverage included in both program choices

Discounts on outside gym memberships, private weight loss coaching, healthy cooking classes, etc.

Family friendly organization: availability of flex hours and/or work from home (role dependent)

Discounts on stress reduction classes, acupuncture, chiropractic, yoga, pilates and tai chi

Short and Long Term Disability plans

All workspaces and campuses are non-smoking

Group life insurance

FSA/Dependent care program

Employee Assistance program (mental health counselling)

Generous paid time off program, including paid time off for part time employees

Orrstown University (conducted more than 800 learning sessions in 2019)

Promoting work/life balance is written into our strategic plan

Employee Stock Ownership Program

Tuition reimbursement program

Equally important to our growing organization is the development of a diverse work force, including an emphasis on women and minorities in positions of leadership. In 2019, Orrstown initiated a formal mentor/mentee program to encourage internal development of future leadership talent. Orrstown has an equal Employment Opportunity plan with goals for hiring and promotion. We met the goals of the plan in 2018 and 2019.

Cybersecurity Posture

Protecting Against Known Threats

Security is most effective when implemented in layers. Although no single implementation or practice is impenetrable, many layered together creates a strong weave of protection. Orrstown endeavors to employ the latest in threat intelligence automation, firewalls, intrusion prevention, and anti-malware technologies to protect the Bank against external threats. Orrstown also recognizes that insiders can do as much damage to the safety and privacy of client information as the external threats, whether accidental or malicious. To help protect against the malicious insider, Orrstown employs the principle of least privilege, meaning that access to only what is absolutely necessary to accomplish a job role is granted to the user. Additionally, Orrstown invests in controls designed to ensure that sensitive information is not accidentally or purposely lost or stolen by insiders.

Protecting Against Unknown Threats

Orrstown understands that threats evolve and as such we need to be able to detect anomalies that may indicate a new attack vector. Additionally, we recognize preventative controls cannot thwart every insider abuse. Therefore, Orrstown utilizes multiple layers of detective controls including, but not limited to, behavior monitoring and reconciliation processes.

Board Overview

The independence and skill set of the Board of Directors is crucial to the continued success of Orrstown. The Board evaluates needed skill sets through the use of a matrix which evaluates Board members and prospective Board members for specific expertise such as, but not limited to, accounting, risk management, technology, and market or regional knowledge. More than half of the directors have led companies headquartered within Orrstown’s market areas and represent significantly different industry backgrounds. Aside from sitting on the Board of Orrstown, 36% of the Board have extensive careers in financial services. Ten of eleven directors, or 91%, meet the regulatory definition of an “independent director.” For more information on the Board, go to page 10.

Executive Compensation Highlights

For the year 2019, Orrstown exceed the targeted thresholds for net income and ROAE for the incentive compensation of the Company’s Named Executive Officers (NEOs). As such, payouts were above target. Additionally, given the unusual level of effort required to successfully convert two acquired banks’ core systems and integrate the banks culturally, including but not limited to risk and sales cultures, the Compensation Committee viewed NEOs discretionary bonuses as warranted. However, the 2019 compensation plan was implemented to prior to receiving the nonbinding Say-on-Pay vote from shareholders.

The 2019 Say-on-Pay vote was 57% in favor. Subsequently, the Company began implementing a comprehensive shareholder outreach plan. As a result of shareholder engagement, the Compensation Committee determined it was appropriate to:

•Make a portion of long-term incentives performance-vesting;

•Use different performance measurement metrics for performance-vesting awards and those linked to incentive compensation tied to more backward-looking criteria; and

•Refrain from the use of discretionary bonuses in 2020.

For more information on Executive compensation, go to page 24.

Cautionary Note Regarding Forward-looking Statements:

This proxy statement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company's industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will be able to continue to successfully execute on our strategic growth plan into Dauphin, Lancaster, York and Berks counties, Pennsylvania, and the greater Baltimore market in Maryland, with newer markets continuing to be receptive to our community banking model; to take advantage of market disruption; to experience sustained growth in loans and deposits or maintain the momentum experienced to date from these actions; and to realize cost savings from our branch consolidation efforts. Factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; the integration of the Company's strategic acquisitions; the inability to fully achieve expected savings, efficiencies or synergies from mergers and acquisitions, or taking longer than estimated for such savings, efficiencies and synergies to be realized; changes in laws and regulations; interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatilities in the securities markets; deteriorating economic conditions; expenses associated with pending litigation and legal proceedings; and other risks and uncertainties, including those set forth under the heading "Risk Factors" in the Company's 2019 Annual Report on Form 10-K and subsequent filings. The foregoing list of factors is not exhaustive.

If one or more events related to these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for the Company to predict those events or how they may affect it. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this proxy statement are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on the Company's behalf may issue.

ORRSTOWN FINANCIAL SERVICES, INC.

77 East King Street

Shippensburg, Pennsylvania 17257

PROXY STATEMENT

Annual Meeting Information

This proxy statement contains information about the Annual Meeting of Shareholders (the “Annual Meeting”) of Orrstown Financial Services, Inc. (the “Company”) to be held Tuesday, April 28, 2020, beginning at 9:00 a.m., at the H. Ric Luhrs Performing Arts Center, 1871 Old Main Drive, Shippensburg, Pennsylvania, and at any adjournments or postponements of the Annual Meeting. This proxy statement was prepared at the direction of the Company’s Board of Directors to solicit your proxy for use at the Annual Meeting. This proxy statement and the enclosed form of proxy will be mailed to shareholders on or about March 19, 2020.

Who is entitled to vote?

Shareholders owning shares of the Company’s common stock, no par value per share (the “Company Common Stock”), as of the close of business on March 12, 2020 are entitled to vote at the Annual Meeting or any adjournment or postponement of the Annual Meeting. Each shareholder has one vote per share on all matters to be voted on. As of March 12, 2020, there were 11,165,802 of Company Common Stock outstanding.

On what am I voting?

You will be asked to:


			(i)			elect three (3) directors to Class A for three (3) year terms expiring in 2023;
			(ii)			approve a non-binding advisory vote regarding the compensation paid to our Named Executive Officers as disclosed in this proxy statement (“Say-On-Pay”); and
			(iii)			ratify the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

The Board of Directors is not aware of any other matters to be presented for action at the meeting. If any other matter requiring a vote of the shareholders would be presented at the Annual Meeting, the proxies will vote according to the directions of the Board of Directors.

How does the Board of Directors recommend I vote?

The Board of Directors recommends that shareholders vote:


			(i)			“FOR” the election of each of the three nominees as directors to Class A named in this proxy statement;
			(ii)			“FOR” approval of the non-binding advisory vote on the compensation paid to our Named Executive Officers as disclosed in this proxy; and
			(iii)			“FOR” ratification of the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

How do I vote?

Sign and date each proxy form you receive and return it in the postage-paid envelope provided. If you sign your proxy form, but do not mark your choices, your proxies will vote your shares represented by such proxy:


			(i)			“FOR” the three persons nominated for election as directors to Class A named in this proxy statement;
			(ii)			“FOR” approval of the non-binding advisory vote on the compensation paid to our Named Executive Officers as disclosed in this proxy statement; and
			(iii)			“FOR” ratification of the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

You may revoke your proxy at any time before it is exercised. To do so, you must give written notice of revocation to the Secretary, Orrstown Financial Services, Inc., 77 East King Street, Shippensburg, Pennsylvania 17257, submit another properly signed proxy with a more recent date, or vote in person at the Annual Meeting after giving notice to the Secretary. Please note that simply attending the Annual Meeting in person without voting will not revoke your proxy.

You are only entitled to vote at the Annual Meeting if our records show that you held shares of Company Common Stock as of the close of business on March 12, 2020. If your shares are held by a broker or other intermediary, you can only vote your shares at the Annual Meeting if you have a properly executed proxy from the broker or other intermediary which is the record holder of your shares.

What is a quorum?

A “quorum” is the presence at the meeting, in person or by proxy, of the holders of a majority of the outstanding shares. There must be a quorum for the Annual Meeting to be held.

How are abstentions and broker non-votes counted?

Abstentions are counted for purposes of determining the presence or absence of a quorum, but are not considered a vote cast under Pennsylvania law.

A broker non-vote occurs when a broker, bank or other nominee holding shares on your behalf does not receive voting instructions from you. If that happens, the broker, bank or other nominee may vote those shares only on matters deemed “routine,” such as the ratification of the appointment of the Company’s independent registered public accounting firm. On non-routine matters, such as the election of directors and Say-on-Pay, the broker, bank or other nominee cannot vote those shares unless they receive voting instructions from the beneficial owner. A “broker non-vote” occurs when a broker has not received voting instructions and either declines to exercise its discretionary authority to vote on routine matters or is barred from doing so because the matter is non-routine. Broker non-votes are counted to determine if a quorum is present, but are not considered a vote cast under Pennsylvania law.

As a result, abstentions and broker non-votes are not included in the tabulation of the voting results on issues requiring approval of a majority of the votes cast and, therefore, do not have the effect of votes in opposition in such tabulation.

What vote is required to elect directors?

Directors are elected by a plurality of votes. Votes withheld and broker non-votes will have no effect on the election of directors.

What vote is required to approve the other proposals?

A majority of the votes cast by shareholders present in person or by proxy at the Annual Meeting, assuming a quorum is present, is required to approve each of the other proposals. Abstentions and broker non-votes, if any, are not treated as votes cast and, therefore, will have no effect on whether or not a proposal is approved.

Who will count the vote?

The Judge of Election appointed by the Board of Directors will count the votes cast in person or by proxy.

What is the deadline for shareholder proposals for next year’s Annual Meeting?

Shareholders may submit proposals on matters appropriate for shareholder action at future annual meetings by following the rules of the Securities and Exchange Commission (the “SEC”) and the Company’s bylaws. Proposals intended for inclusion in next year’s proxy statement and proxy card must be received by the Company not later than November 19, 2020. In addition, in order to be considered for possible action by the shareholders at the 2021 Annual Meeting of Shareholders (the “2021 Annual Meeting”), proposals, including shareholder nominations for director, not included in the Company’s proxy statement must be submitted to the Secretary of the Company not later than November 19, 2020. All proposals should be addressed to the Secretary of the Company. In order to be considered timely under the Company’s bylaws, a shareholder nomination for director must be received by the Secretary of the Company by December 29, 2020.

How are proxies being solicited?

In addition to solicitation by mail, the officers, directors and employees of the Company may, without additional compensation, solicit proxies by telephone or personal interview. The Company will pay the cost of preparing, printing, mailing and soliciting proxies. Brokers and other custodians, nominees and fiduciaries will be requested to forward soliciting material to the beneficial owners of Company Common Stock held by such persons and will be reimbursed by the Company for their expenses.

Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on

April 28, 2020

The Notice of Annual Meeting, this proxy statement, the form of proxy and the Company’s Annual Report on Form 10-K are available at:

http://www.cstproxy.com/orrstown/2020

Share Ownership of Certain Beneficial Owners

The Company does not know of any person or group who beneficially owned more than 5% of Company Common Stock on March 12, 2020, except as shown in the following table:

Name and address of Beneficial Owner

Common Stock Beneficially Owned

Percent of Class

Black Rock, Inc. ⁽¹⁾

55 East 52nd Street

New York, NY 10055

711,495 shares

6.4%

⁽¹⁾Based on information set forth in a Schedule 13G, as amended, filed with the Securities and Exchange Commission on February 5, 2020 by Blackrock, Inc.

Share Ownership of Management

The following table shows the number of shares of Company Common Stock beneficially owned by each incumbent director, each nominee and each Named Executive Officer, and by all of the incumbent directors, nominees and executive officers of the Company as a group, as of March 12, 2020, based on information furnished by the persons named and the Company’s records. Except as otherwise indicated, sole voting power and sole investment power with respect to the shares shown in the table are held either by the individual alone or by the individual together with his or her spouse.


Name	Common Stock⁽¹⁾			Exercisable Stock Options⁽¹⁾⁽²⁾
Thomas R. Brugger	8,405		—
Robert G. Coradi	24,081		—
Robert A. DeAlmeida	24,583		—
Philip E. Fague	39,797		4,800
Cindy J. Joiner	9,178		—
Mark K. Keller	13,557		349
Thomas D. Longenecker	8,826		—
Adam L. Metz	16,919		—
Andrea Pugh	30,776		349
Thomas R. Quinn, Jr.	56,753		6,000
Michael J. Rice	10,205		—
Eric A. Segal	11,868		—
Glenn W. Snoke	22,596		349
Floyd E. Stoner	20,105		—
Joel R. Zullinger	41,006	(3)	349
Directors, nominees and executive officers as a group (22) persons including those named above)	433,409		12,196


⁽¹⁾			On March 12, 2020, none of the individuals named in the above table may be deemed to beneficially own more than 1% of the outstanding shares of Company Common Stock. On that date, all of the incumbent directors and executive officers as a group beneficially owned approximately 445,605 shares or 4.0% of the outstanding shares of Company Common Stock. Fractional shares beneficially owned by such individuals have been rounded down to the number of whole shares beneficially owned.
⁽²⁾			The amounts shown reflect the number of shares of Company Common Stock that the indicated individuals and group have the right to acquire within 60 days of March 12, 2020 through the exercise of stock options granted pursuant to the Company’s stock option plans.
⁽³⁾			Includes 220 shares held by Mr. Zullinger’s spouse.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and the beneficial owners of more than 10% of Company Common Stock to file reports of ownership and changes in ownership of their equity securities of the Company with the SEC and to furnish the Company with copies of such reports. Based solely upon a review of these reports (Forms 3, 4 and 5 and any amendments thereto) furnished to the Company, we believe that during 2019 our directors and executive officers who were subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, complied with all SEC filing requirements applicable to them. As of the date of this proxy statement, to the best of its knowledge, the Company did not have any beneficial owners of more than 10% of Company Common Stock.

PROPOSAL 1 – ELECTION OF DIRECTORS

The bylaws of the Company provide that the directors will serve in three classes, as nearly equal in number as possible, with each class of directors serving a three year term of office. At each annual meeting of shareholders, a class of approximately one-third of all of the Company’s directors is elected to hold office for a term expiring at the annual meeting held in the third year following the year of their election and until their successors have been elected and qualified. Accordingly, at the Annual Meeting, the shareholders will be asked to elect three directors to Class A to serve until the annual meeting of shareholders in 2023 or until their successors are elected and qualified.

The Board of Directors has nominated the following persons for election as directors to Class A:

Cindy J. Joiner, CPA

Eric A. Segal

Joel R. Zullinger

All nominees are presently serving as directors of the Company and the Bank.

If you return a properly signed and dated proxy form, your shares of Company Common Stock represented by your proxy will be voted FOR the election of the named nominees unless you mark the proxy form to withhold authority to vote for one or more of the nominees. If one or more of the named nominees is unable or unwilling to serve as a director, the persons named in the proxy will vote for the election of such substitute nominee, if any, as will be named by the Board of Directors. The Company has no reason to believe that any of the named nominees will be unable or unwilling to serve as a director. Each named nominee has expressed a willingness to serve if elected.

The three named nominees for election of directors to Class A receiving the highest number of votes will be elected to the Board of Directors.

The Board of Directors recommends that you vote FOR the election of each of the named nominees as directors to Class A.

Nomination of Directors

In connection with the Annual Meeting, the Nominating and Governance Committee of the Company’s Board of Directors has reviewed the qualifications of and made recommendations regarding potential candidates to be nominated by the Board of Directors for election to the Board. The nominees named above were recommended by the Nominating and Governance Committee, then submitted to, and approved by, the Board of Directors as the three nominees for election as directors to Class A.

In addition to meeting the minimum criteria to serve as a director as outlined in the Company’s bylaws, the Nominating and Governance Committee has considered a variety of factors including each candidate’s integrity, independence, qualifications, skills, experience (including experience in finance and banking and diversity of experience in relation to other members of the Board of Directors), compatibility with other members of the Board of Directors, the strategic direction of the Company and the Bank, involvement in the communities served by the Bank and such other factors as it has deemed to be in the best interest of the Company, the Bank and the Company’s shareholders, which factors may change from time to time.

The Nominating and Governance Committee will consider the incumbent directors whose terms are expiring at the forthcoming annual meeting, other candidates, if any, recommended to it by shareholders, other qualified individuals within the community, including the Bank’s regional advisory boards, and any candidates nominated by shareholders in accordance with the procedures set forth in the Company’s bylaws. The criteria for consideration of board candidates nominated by the Company’s shareholders, if nominated in a timely manner, is the same as for other board nominees.

Director Eligibility Requirements

The Company’s bylaws provide for certain director eligibility requirements for a nominee to be eligible to become a member of the Board. All directors must hold at least 5,000 shares of Company Common Stock. Directors will have one year from the date they join the Board to meet this requirement. In addition, no one may be nominated to serve as a director of the Company if such person: (a) is under indictment or has been convicted of a crime involving a breach of trust with a penalty of imprisonment for more than one year; (b) has been issued within the past 10 years a non-appealable cease and desist order by a federal or state bank regulatory agency related to conduct involving dishonesty or breach of trust; (c) has been found guilty in a final decision, either by any federal or state regulatory agency of: (i) committing a willful violation of any law governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency, or (ii) breaching a fiduciary duty involving personal profit; or (d) has been nominated by someone who is ineligible to serve as a director of the Company under requirements (a)-(c) listed above. In addition, the age of members of the Board is limited to 75 years, provided that any director who

reaches such age during his or her term of office may continue to serve on the Board until the expiration of their term with the prior approval of the Board.

No recommendations were received by the Nominating and Governance Committee in connection with this Annual Meeting from shareholders or others, nor, as of the date of this proxy statement, had any candidates been nominated by shareholders in accordance with the procedures set forth in the bylaws.

Any future nominations should be submitted in writing addressed to Orrstown Financial Services, Inc., 77 East King Street, Shippensburg, Pennsylvania 17257, Attn: Nominating and Governance Committee.

Shareholder nominations must be made in accordance with the procedures set forth in the Company’s bylaws and must include a statement setting forth the background, education and business experience of the nominee.

A copy of the Nominating and Governance Committee Charter is posted on the Company’s website at www.orrstown.com.

Biographical Summaries of Nominees and Directors

The Board of Directors believes that each of the nominees and directors possess such professional experience, recognized achievement in his or her respective field, involvement in the communities served by the Bank, ability to contribute to some aspect of the Company’s business and a willingness to make the commitment of time and effort required of a Company director. Information about the nominees for election as directors to Class A at the Annual Meeting and information about the directors in Class B and Class C demonstrating these characteristics is set forth below.

Nominees for Director:

CLASS A DIRECTORS - TERM EXPIRES IN 2020

Cindy J. Joiner, CPA - 58, has been a member of the Boards of Directors of the Company and the Bank since 2016. She is the Chief Financial Officer for The Bowman Group, LLC. The Bowman Group, LLC is a privately held corporation located in Williamsport, Maryland specializing in transportation, logistics, hospitality and real estate development. Ms. Joiner has held this position since 2007. The Board of Directors values Ms. Joiner’s accounting acumen and knowledge of multiple industries that align with the Bank’s lending businesses. In addition, the Board believes her familiarity and knowledge of the Maryland market adds significant value to the Company.

Eric A. Segal - 62, has been a member of the Boards of Directors of the Company and the Bank since 2013. Mr. Segal has been Managing Director, and head of the Banking and Financial Institutions Group at CFO Consulting Partners LLC in Princeton, New Jersey since 2008. The Board of Directors values Mr. Segal’s strong financial acumen and the knowledge and experience he has gained through his consulting experience in many banking organizations in the Mid-Atlantic and other regions.

Joel R. Zullinger - 71, is Chairman of the Boards of Directors of the Company and the Bank. Mr. Zullinger has served as a director since 1981. Mr. Zullinger is an attorney, of counsel, with Zullinger-Davis-Trinh, P.C., in Chambersburg, Pennsylvania. The Board of Directors values the knowledge, experience and perspective Mr. Zullinger has attained through his long tenure as a director of the Company and the Bank. The Board of Directors also values the leadership and communication skills manifested by Mr. Zullinger’s service as Chairman.

Continuing Directors:

CLASS C DIRECTORS - TERM EXPIRES IN 2021

Thomas D. Longenecker - 52, has been a member of the Boards of Directors of the Company and the Bank since 2016. In 2019, he was appointed the President and Chief Executive Officer - Elect of Commonwealth Charter Academy, a cyber charter school headquartered in Harrisburg Pennsylvania, having served as Chief Operating Officer since 2012. Prior to that, Mr. Longenecker was the Director of Finance for the Carlisle Area School District in Carlisle, Pennsylvania. The Board of Directors values Mr. Longenecker’s experience in technology and operations and knowledge of the market area.

Andrea Pugh - 67, has been a member of the Boards of Directors of the Company and the Bank since 1996. She is formerly the President and sole member of PharmCare Consultants LLC, a pharmacy consulting business. The Board of Directors values Ms. Pugh’s knowledge, experience and perspective as a woman who is an entrepreneur and small business owner and the insight it provides her into the financial services needs of and business issues facing many of the Bank’s small business customers, including those that are owned and operated by women.

Floyd E. Stoner - 71, has been a member of the Boards of Directors of the Company and the Bank since 2012. Since January 2012, Mr. Stoner has served as a Senior Advisor - Consultant with Alliance Partners, in Chevy Chase, Maryland. Mr. Stoner was the Executive Vice President for Congressional Relations and Public Policy at the American Bankers Association (“ABA”) until his

retirement in December 2011 and has over 26 years of experience with the ABA. At the ABA, he has been involved at the highest levels in all of the banking policy debates of recent years and he has a nearly unparalleled perspective on the issues facing the banking industry today, which the Board of Directors finds very valuable.

CLASS B DIRECTORS - TERM EXPIRES IN 2022

Mark K. Keller - 66, has been a member of the Company’s Board of Directors since 2009 and the Bank’s Board of Directors since 2008. Mr. Keller has served as a Representative to the Pennsylvania General Assembly, representing the 86^th Legislative District, since 2004. The Board of Directors values Mr. Keller’s knowledge of the Bank’s market area attained through his representation of that area in the General Assembly.

Thomas R. Quinn, Jr. - 60, has served as President and Chief Executive Officer and a director of the Company and of the Bank since 2009. Mr. Quinn joined the Bank in March 2009 as President-elect and served in that capacity until he was appointed President and Chief Executive Officer. The Pennsylvania Banking Code requires that a bank president be a member of the bank’s board of directors. The Board of Directors believes that it is important that the President, who also is the Chief Executive Officer, be a member of the Board of Directors of the Company and the Bank so that the President may interact on a peer-to-peer basis with his fellow directors. In addition, the Board of Directors believes that the knowledge, experience and perspective that Mr. Quinn possesses as a result of his service as a senior executive with Fifth Third Bancorp and Citigroup have been, and will continue to be, valuable to the Company as it continues to execute its strategic plan as a relationship-based community bank.

Michael J. Rice - 58, joined the Boards of Directors of the Company and the Bank in October, 2018, concurrent with the closing of the Company's acquisition of Mercersburg Financial Corporation ("Mercersburg"). He is the President of Mt. Parnell Fisheries, Inc., a producer and international marketer of ornamental goldfish and koi carp. Prior to his appointment to the boards of directors of the Company and the Bank, he served more than 10 years on the boards of Mercersburg and its wholly owned bank subsidiary. The Board of Directors values Mr. Rice's experience on a community banking board and his long tenure as an active participant in the business community in Franklin County.

Glenn W. Snoke - 71, has been a member of the Boards of Directors of the Company and the Bank since 1999. Mr. Snoke is the Chief Executive Officer of Snoke’s Excavating & Paving, Inc. The Board of Directors values Mr. Snoke’s knowledge, experience and perspective as an entrepreneur and owner of a small business involved in the construction industry and the insight it provides him into the financial services needs and business issues facing many of the Bank’s construction industry customers.

Robert A. DeAlmeida - 65, joined the Boards of Directors of the Company and the Bank in May, 2019, concurrent with the closing of the Company’s acquisition of Hamilton Bancorp Inc. (“Hamilton”). Mr. DeAlmeida is the former President & CEO of Hamilton and served in that role since 2005. Mr. DeAlmeida joined Hamilton in 1990 as Chief Financial Officer. The Board of Directors values Mr. DeAlmeida’s insights into the Maryland market as well as his experience as the chief executive officer of a community bank.

Director Independence

The Board of Directors of the Company has adopted the definition of “independent director” as set forth in Rule 5605(a)(2) of the NASDAQ Stock Market and has determined that each director is independent under this rule, other than Mr. Quinn due to his position as President and Chief Executive Officer of the Company. Under NASDAQ rules, employees of the Company are deemed not to be independent. In making this determination with respect to the remaining directors, the Board of Directors was aware of, and considered, the loan and deposit relationships and other transactions with directors and their related interests, which the Company or the Bank enters into in the ordinary course of business. Except as noted above and for loans, deposits, fiduciary and other similar relationships with the Company or the Bank, no director or any of his or her related interests has engaged in any transaction or series of transactions, or is involved in any relationships, as a result of which the director would not be independent under the rules of the NASDAQ Stock Market.

Shareholder Communications with the Board of Directors

The Company has a formal process by which shareholders may send communications to the Board of Directors. Our policy is to recommend that all correspondence from shareholders be addressed to the Chief Executive Officer of the Company, who shares such correspondence with the Board of Directors. As a matter of practice, shareholder communications received by the Chief Executive Officer are included under the topic “Correspondence” with the Board of Directors’ meeting materials routinely furnished by management to directors in connection with meetings of the Board of Directors. In addition, shareholder communications determined by the Chief Executive Officer, at his discretion, to require immediate attention, also are promptly furnished by him to the Chairman. When and as appropriate, the Company seeks to provide a timely response to shareholder communications it receives.

Board Structure, Committees and Meeting Attendance

During 2019, the Boards of Directors of the Company and the Bank both met 12 times. The Board of Directors of the Company has a Compensation Committee, an Audit Committee and a Nominating and Governance Committee. During 2019, all of the directors attended at least 75% of all meetings of the respective Boards and Committees on which they served.

With the exception of Mr. Quinn, all of the directors of the Company and the Bank are independent as defined in Rule 5605(a)(2) of the NASDAQ Stock Market. Leadership of the Boards of Directors of the Company and the Bank is entrusted to an independent Chairman. The Board of Directors believes that this independent leadership structure helps to provide an appropriate check and balance on the influence of the executive management team generally and the President and Chief Executive Officer more specifically, particularly in consideration of the President and Chief Executive Officer’s membership on the Boards of Directors and Executive Committee. In addition, the directors generally have at least two meetings each year in which they meet in executive session without Mr. Quinn being present. The directors also may meet in executive session at additional times as necessary.

Compensation Committee

The Compensation Committee discharges the responsibilities of the Board of Directors relating to the compensation of the Company’s Chief Executive Officer and other executive officers and of the Board of Directors. The Compensation Committee Charter is posted on the Company’s website at www.orrstown.com.

The Compensation Committee Charter provides that the Compensation Committee is to be composed of three or more members, each of whom is to be “independent” as defined in NASDAQ Rule 5605(a)(2), an “outside director” within the meaning of Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), Section 162(m) and a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. The members of the Compensation Committee are to be appointed by the Board of Directors upon the recommendation of the Nominating and Governance Committee.

The members of the Compensation Committee during 2019 were Floyd E. Stoner (Chair), Glenn W. Snoke, Joel R. Zullinger and Cindy J. Joiner, each of whom the Board of Directors has determined to be independent, an outside director and a non-employee director. Each of these members currently serves on the Compensation Committee.

The Compensation Committee Charter provides that the Compensation Committee is to meet at least two times each year and at such other times as it deems necessary to fulfill its responsibilities. The Compensation Committee met 10 times during 2019.

Nominating and Governance Committee

The Nominating and Governance Committee exercises general oversight with respect to the governance of the Board of Directors. It reviews the qualifications of and recommends to the Board of Directors proposed nominees for election to the Board. As discussed above, it also is responsible for evaluating and recommending to the Board corporate governance practices applicable to the Company and for leading the Board in its self-evaluation process.

The Nominating and Governance Committee reviews its Charter annually and recommends proposed changes for Board approval. The members of the Nominating and Governance Committee at the end of 2019 were Glenn W. Snoke (Chair), Andrea Pugh Thomas D. Longenecker, Michael Rice, and Joel R. Zullinger. Each Director serving on the Nominating and Governance Committee has been determined to be independent, an outside director and a non-employee director. The Nominating and Governance Committee Charter is posted on the Company’s website at www.orrstown.com. The Nominating and Governance Committee met 11 times in 2019.

Audit Committee

The Audit Committee provides oversight of the qualifications, independence and performance of the Company’s independent auditors; the performance of the Company’s internal audit function; and management’s implementation of a system of controls designed to safeguard the Company’s assets and income, assure the integrity of the Company’s financial statements and maintain compliance with the Company’s ethical standards, policies, plans and procedures, and with laws and regulations. The Audit Committee Charter is posted on the Company’s website at www.orrstown.com.

The Audit Committee Charter provides that the Audit Committee is to be composed of not less than three members, each of whom is to be “independent” as defined in NASDAQ Stock Market Rule 5605(a)(2) and SEC Rule 10A-3(b)(1); has not participated in the preparation of the Company’s financial statements at any time during the past three years; and is able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement, comprehensive income statement, and cash flow statement. In addition, at least one member of the Audit Committee is to have had current or past employment experience in finance or accounting, or other comparable experience or background, which results in the member’s financial sophistication as contemplated by NASDAQ Stock Market Rules.

Members of the Audit Committee for 2019 were Cindy J. Joiner, CPA (Chair), Robert A. DeAlmeida, Mark K. Keller, Thomas D. Longenecker and Andrea Pugh. Each of the directors serving on the Audit Committee has been determined to be independent.

In addition, the Board of Directors, has determined that Cindy J. Joiner, CPA, has the requisite financial sophistication required by the Audit Committee Charter to serve as the Audit Committee financial expert. Ms. Joiner has experience as a CPA and Chief Financial Officer for a multi-state logistics and real estate enterprise where all finance and accounting functions report directly to her. Ms. Joiner has had ultimate responsibility for overseeing and assessing the performance of the respective organizations in the preparation of their respective financial statements which, together with her tenure as a member of the Audit Committee, has provided her with an understanding of, and familiarity with, accounting principles generally accepted in the United States of America.

The Audit Committee Charter provides that the Audit Committee is to meet at least four times each year. The Audit Committee met 13 times during 2019.

Audit Committee Report

The Audit Committee has reviewed and discussed with management the Company’s audited financial statements for the year ended December 31, 2019. The Audit Committee also has discussed with Crowe LLP, the matters required to be discussed by the Statement on Auditing Standards, No 61, as amended (AICPA Professional Standards, Vol. 1 Section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T; received from Crowe LLP the written disclosures and letter required by applicable requirements of the Public Company Accounting Oversight Board regarding Crowe LLP’s communications with the Audit Committee concerning independence, and has discussed with Crowe LLP, that firm’s independence. In that regard, the Audit Committee has considered whether the provision by Crowe LLP of certain limited permissible non-audit services in addition to its audit services is compatible with maintaining that firm’s independence and has determined that they are independent. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission.

Submitted by the Audit Committee:


Cindy J. Joiner, CPA, Chair
Robert A. DeAlmeida
Mark K. Keller
Thomas D. Longenecker
Andrea Pugh

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such Acts.

Compensation Committee Interlocks and Insider Participation

As noted previously, members of the Compensation Committee during 2019 were Floyd E. Stoner, (Chair), Cindy J. Joiner, Glenn W. Snoke, and Joel R. Zullinger, each of whom the Board of Directors has determined to be independent, an outside director and a non-employee director. There are no interlocking relationships, as defined by SEC regulations under the Securities Exchange Act of 1934, as amended, involving members of the Compensation Committee or the overall Board of Directors of the Company.

Transactions with Related Persons, Promoters and Certain Control Persons

During 2019, some of the directors and executive officers of the Company and the Bank, members of their immediate families and some of the companies with which they are associated, had banking transactions in the ordinary course of business with the Bank and may have similar transactions in the future. These transactions were made on substantially the same terms, including interest rates, collateral requirements and repayment terms, as those prevailing at the time for comparable transactions with non-affiliated persons and did not involve more than the normal risk of collectability or present other unfavorable features to the Company.

Any business dealing, including extensions of credit, between the Company or the Bank and a director of the Company or the Bank, or with any entity controlled by such a director, other than a deposit, trust service or other product or service provided by the Bank in the ordinary course of business, is required to be reviewed and approved by a majority of the disinterested directors. In considering a proposed insider transaction, the disinterested directors are to reasonably determine whether the transaction would be in the best interest of the Company or the Bank and on terms and conditions, including price, substantially the same as those prevailing at the time for comparable transactions with non-insiders.

Extensions of credit by the Bank to a director of the Company or of the Bank, or to a related interest of such a director, are subject to Federal Reserve Board Regulation O. Although Regulation O requires the prior approval of such an extension of credit by the Bank’s disinterested directors if the aggregate amount of all extensions of credit to such director and the related interests of the director would exceed $500,000, the Company requires prior approval of all such extensions of credit. Refer to the Company's Annual Report on Form 10-K for additional information on the Company's related party transactions.

Compensation of Directors

The following table sets forth compensation received by directors of the Company in 2019, other than Thomas R. Quinn, Jr., President and Chief Executive Officer. Mr. Quinn does not receive compensation in his capacity as a director.

2019 DIRECTOR COMPENSATION TABLE


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)(1)	Option Awards ($) (2)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (3)	All Other Compensation ($)(4)	Total ($)
Robert A. DeAlmeida ⁽⁵⁾	35,333	21,020	—	—	—	—	56,353
Cindy J. Joiner	53,000	21,020	—	—	—	7,850	81,870
Mark K. Keller	53,000	21,020	—	—	18,051	—	92,071
Thomas D. Longenecker	53,000	21,020	—	—	—	5,500	79,520
Andrea Pugh	53,000	21,020	—	—	7,604	—	81,624
Michael J. Rice	53,000	21,020	—	—	—	—	74,020
Eric A. Segal	53,000	21,020	—	—	—	10,500	84,520
Glenn W. Snoke	53,000	21,020	—	—	5,509	—	79,529
Floyd E. Stoner	53,000	21,020	—	—	—	27,500	101,520
Joel R. Zullinger	66,000	31,530	—	—	15,693	—	113,223


⁽¹⁾			The grant date fair value of stock awards was calculated by multiplying the number of shares subject to the award by the fair value of Company Common Stock on the grant date ($21.02). Each director other than Mr. Zullinger received a grant of 1,000 shares of Company Common Stock. Mr. Zullinger received a grant of 1,500 shares.
⁽²⁾			The aggregate number of shares underlying unexercised but exercisable option awards at December 31, 2019 was as follows: Mr. Keller - 349; Ms. Pugh - 349; Mr. Snoke - 349; and Mr. Zullinger - 349. Mr. DeAlmeida, Ms. Joiner, Mr. Longenecker, Mr. Segal, and Mr. Stoner have not received option awards from the Company.
⁽³⁾			Represents the annual expense impact related to the value of the directors’ accumulated benefit under defined benefit and supplemental plans for the year ended December 31, 2019. This includes both the director’s retirement and “brick” plans.
⁽⁴⁾			Represents amounts contributed by the Company into the Deferred Compensation Plan.
⁽⁵⁾			Mr. DeAlmeida joined the boards of the Company and the Bank on May 1, 2019.

Director Fees

During 2019, each director of the Company and the Bank was paid an annual fee of $53,000, except for the Board Chairman who received $66,000. Mr. DeAlmeida received total payments of $35,333 in 2019, which represents his pro-rata share based on the date he joined the Boards. Fees are paid quarterly on the first business day of the months of January, April, July and October.

Restricted Stock Awards

In August 2019, non-employee Directors were granted shares of Company Common Stock as part of their 2019 compensation. An equity award of 1,000 restricted shares of Company Common Stock was granted to all Directors on August 28, 2019 with a grant date fair value of $21,020. Mr. Zullinger received 1,500 restricted shares, with a grant date fair value of $31,530, to compensate him for his role as Board Chairman. These awards were granted with a one-year vesting restriction.

Deferred Compensation Plan

In 1995, the Company and the Bank established a non-qualified deferred compensation plan for directors and executive officers. Participation in the plan is voluntary. Each participant may elect each year to defer all or a portion of his or her directors’ fees or, in the case of an executive officer, compensation. Directors deferring compensation must begin withdrawals from the plan by age 75 or termination of service as a director, whichever occurs later. Executive officers must begin withdrawals by age 65 or retirement, whichever occurs later. Payments may be made in equal monthly or annual installments over not more than ten years. Immediate distributions may be made in the event the Company would experience a hostile takeover, an acquiring bank or bank holding company would fail to approve the plan, or the Bank, or any acquiring bank or bank holding company, would experience bankruptcy. If a participant would die before payment of his or her entire account, the Company will pay the balance to his or her beneficiary in a

single lump sum payment. The amounts deferred are invested in a rabbi trust with the trust department of the Bank as trustee. The participants direct the investment of their own accounts among various publicly available mutual funds designated by the Bank’s Trust Investment Committee. Growth of each participant’s account is a result of investment performance and the public markets and is not a result of an interest factor or interest formula established by the participant or by the Company or the Bank. The Company may make contributions on behalf of directors to this rabbi trust from time to time.

The Company’s accrued benefit obligations related to this plan totaled $1.8 million at December 31, 2019.

Director Retirement Plan

The Bank has entered into director retirement agreements with Ms. Pugh, and Messrs. Keller, Snoke and Zullinger. Each director retirement agreement provides the respective director with a normal retirement benefit in a specified amount, payable in 120 consecutive monthly installments commencing the month following the director’s termination of service after having reached the normal retirement age of 65. Generally, the amount of a director’s annual normal retirement benefit is determined using his or her directors’ fees during the year in which he or she became a party to a director retirement agreement, projected to the normal retirement age of 65 with annual increases of four percent. For every complete plan year after normal retirement age and before termination of service, the amount of the annual benefit will increase by four percent. In 2018, the Board determined there would be no new director retirement benefits offered to current or future directors.

A director will forfeit his or her benefits under his or her director retirement agreement if the Bank terminates his or her service for gross negligence or gross neglect of duties, commission of a felony or gross misdemeanor involving moral turpitude or fraud, disloyalty or willful violation of any law or policy committed in connection with the director’s service resulting in an adverse effect on the Bank or if the director, after termination of service (other than following a change in control of the Bank), competes with the Bank within a 50 mile radius of its main office in Shippensburg, Pennsylvania. The Bank also would not be obligated to pay any benefit under a director retirement agreement to the extent the benefit would constitute an excess parachute payment under Section 280G of the Internal Revenue Code.

If a director is in active service of the Bank at the time of a change in control of the Bank, as defined in Section 409A of the Internal Revenue Code, the director will be entitled to begin receiving his or her normal retirement benefit following the later of the director’s termination of service or attaining normal retirement age. The director retirement agreement provides for an early termination benefit in a specified amount in the event of an early termination of service before normal retirement age, a disability benefit in the event of an early termination of service due to disability and a death benefit.

The amount of the expense associated with the Director Retirement Plan includes increases in 2019 in the net present value of the accrued benefit under the directors’ retirement agreement and is reported in the 2019 Director Compensation Table for each participating director in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. The Company's accrued benefit obligations related to this plan totaled $1.6 million at December 31, 2019.

Brick Plan

Mr. Zullinger participates in a so-called “brick plan” that provides Mr. Zullinger or his beneficiaries with a monthly cash benefit for a period of 10 years beginning at age 65. The change in the net present value of Mr. Zullinger’s accrued benefit under his brick plan during 2019 is reported in the 2019 Director Compensation Table above in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. Under the brick plan, Mr. Zullinger’s annual benefit, which became fully vested following his service as a director for the five-year period beginning August 1, 1982, would be $21,804 as of December 31, 2019.

Information About Executive Officers

In addition to Thomas R. Quinn, Jr., President and Chief Executive Officer of the Company and of the Bank, who also serves as a director of the Company and of the Bank, the other executive officers of the Company and the Bank are:

Luke Bernstein - 41, joined the Bank in 2017 as a Senior Vice President. He was named Executive Vice President and Chief Retail Officer, including marketing and corporate communications, in 2018. Prior to joining the Bank, he was a Senior Vice President with the Pennsylvania Bankers Association from 2015 to 2017 and Deputy Chief of Staff, Office of the Governor, Commonwealth of Pennsylvania from 2011 to 2015.

Barbara E. Brobst - 61, joined the Bank in 1997. She was named Executive Vice President and Chief Human Resources Officer in 2015. Previously she was Senior Vice President - Human Resources since 2011. Prior to that, she served as Senior Vice President - Wealth Services from 2000 to 2011.

Thomas R. Brugger - 53, joined the Company and the Bank in July, 2019, as Executive Vice President and Chief Financial Officer. From 2012 to 2018, he served as Executive Vice President, Chief Financial Officer at Sun Bancorp, Inc.

Robert G. Coradi - 58, joined the Company and Bank in 2012, and was named Secretary of the Company and Bank in 2018. He has been Executive Vice President and Chief Risk Officer of the Company and the Bank since April 2014. From October 2012 to April 2014, he served as Senior Vice President, Chief Credit Officer of the Bank. From 2008 to 2012, he served as a Commercial Sales Manager in the Pennsylvania Division of Susquehanna Bank.

Philip E. Fague - 60, joined the Bank in 1988. He is Executive Vice President and Assistant Secretary of the Company and Executive Vice President and Chief Trust Officer of the Bank. From August 2012 until September 2016, he was Executive Vice President - Trust and Mortgage Officer, of the Bank.

Robert J. Fignar - 54, joined the Bank in 2018 following the acquisition of Mercersburg Financial Corporation. He initially served as an Executive Vice President and Market President and has been Executive Vice President and Chief Operations and Logistics Officer since April 2019. Prior to joining the Bank, he was the President and CEO of Mercersburg Financial Corporation and First Community Bank of Mercersburg since 2008.

Jeffrey S. Gayman - 47, joined the Bank in 1996. He was appointed to an Executive Vice President and Market President position in 2018. Prior to that he was Executive Vice President - Retail Banking and Consumer Lending since February 2016. Previously, he was Senior Vice President - Retail Banking since 2012 and Chief Commercial Officer from 2009 to 2012.

Christopher Holt – 56, joined the Bank in 2019 as Executive Vice President and Market President for the Maryland region. Prior to his tenure at Orrstown, Mr. Holt spent more than 30 years in roles of increasing responsibility, including 21 years with Susquehanna Bank and its successor BB&T.

David Hornberger - 55, joined the Bank in 2015 as Executive Vice President and Market President for the Eastern region. Prior to joining the Bank, he was Executive Vice President and Market Executive for Susquehanna Bank since 2010.

Zachary Khuri – 36, joined the Bank in 2019 as Executive Vice President and Market President for the Central region. Prior to his tenure at Orrstown, Mr. Khuri held similar roles of increasing responsibility at FNB Corporation and Commerce/Metro Bank. All told, Mr. Khuri has more than 15 years of financial institution experience.

Adam L. Metz - 48, joined the Bank in 2016. He has been an Executive Vice President and Chief Revenue Officer of the Bank since February 2019 and served as Executive Vice President and Chief Lending Officer of the Bank prior to that. From 2011 to 2016, he served as Senior Vice President, Chief Lending Officer of Metro Bank, headquartered in Harrisburg, PA.

COMPENSATION DISCUSSION AND ANALYSIS

In this section we describe the objectives and elements of our compensation philosophy, policies and practices with respect to the compensation of executive officers who appear in the “Summary Compensation table for 2019” below (referred to collectively throughout this section as our “Named Executive Officers” or “NEOs”). Our NEOs for the fiscal year ended December 31, 2019, were:

Named Executive Officer

Title

Thomas R. Quinn, Jr.

President and Chief Executive Officer

Thomas R. Brugger

Executive Vice President and Chief Financial Officer

Robert G. Coradi

Executive Vice President and Chief Risk Officer

Adam L. Metz

Executive Vice President and Chief Revenue Officer

Philip E. Fague

Executive Vice President and Chief Trust Officer

David P. Boyle

Former Executive Vice President and Chief Financial Officer

EXECUTIVE SUMMARY

Our 2019 Performance

As a result of steady leadership, in 2019, the Company produced solid earnings and balance sheet growth while maintaining strong capital levels, completing one acquisition and integrating two acquisitions.

Objective

Fiscal Year 2019 Performance

Building Shareholder Value

•Generated 27.9% total return

•Increased declared dividends by 17.7% from 2018

•Increased tangible book value 5.5% from $16.73 to $17.65⁽¹⁾ despite the impact of an acquisition

•Increased net income from $12.8 million to $16.9 million

Balance Sheet Growth

From December 31, 2018 to December 31, 2019:

•Increased total assets 23.2%

•Increased loans outstanding 31.8%

•Increased deposit balances 20.3%

Managing Risk

•Net charge-off ratio of 0.02%

•Ratio of nonperforming assets to total assets of 0.46%

•Increased Leverage Ratio from 8.4% to 8.5%

•Improved funding mix by reducing exposure to wholesale borrowings, brokered deposits, and listing service deposits

⁽¹⁾

Tangible book value is a financial measure determined other than in accordance with U.S. GAAP. Refer to Supplemental Reporting of Non-GAAP Measures in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding our use of non-GAAP measures, including a reconciliation of the calculation of tangible book value (a non-GAAP measure) to book value (the most directly comparable GAAP measure).

Overall, Orrstown’s 2019 performance exceeded targeted expectations for both net income and return on average equity (“ROAE”), while successfully integrating two acquisitions, converting the Company’s trust operating system, and welcoming 144 new associates.

2019 Compensation Highlights

Our fiscal year 2019 results and compensation decisions continue to illustrate the application of our pay-for-performance philosophy, with pay being driven by performance in the following ways:

•Fiscal Year 2019 Base Salary. Except for increases in connection with promotions and new hiring, NEOs received a 3.0% increase to base pay, in-line with a cost of living increase.

•The fiscal year 2019 Annual Incentive payout was above target. The combined weighted average payout for the NEOs was 117.0% of the target amount.

•Adjusted net income ⁽¹⁾ for 2019 was $20.4 million, resulting in cash and stock awards payable under the plan at 116.6% of target with respect to this performance metric.

•Adjusted ROAE ⁽¹⁾ for the period was 11.3%, resulting in cash and stock awards payable under the plan at 117.4% of target with respect to this performance metric.


⁽¹⁾			Adjusted net income and ROAE exclude the impact of non-recurring expenses associated with 2019 acquisition and branch consolidation activity.

Response to 2019 Say-on-Pay Vote

At the 2017 Annual Meeting of Shareholders, a majority of the shareholders approved an advisory vote recommending that such Say-on-Pay vote be taken annually. The Company continues to follow this advisory vote on the annual frequency of such Say-on-Pay votes. All of the structural elements of our NEOs’ 2019 compensation program were determined prior to the 2019 advisory vote of executive compensation (“Say-on-Pay”). Though Say-on-Pay votes are nonbinding, our Board and the Compensation Committee take the opinions of our shareholders very seriously and consider feedback from the shareholders when making decisions. At the 2019 annual shareholder meeting only approximately 57% of the votes cast were in favor of our advisory Say-on-Pay proposal. While the 2019 Say-on-Pay proposal was approved by a majority of votes cast at the meeting, the 57% approval fell short of our goal and expectations, prompting us to initiate a constructive dialogue with our shareholders on the subject of executive compensation.

We offered engagement opportunities to 93 of our shareholders, representing 48.3% ownership of our outstanding shares; 60 shareholders representing 33.3% ownership, accepted our offer. The Company’s Chairman or the Chairman of the Compensation Committee attended meetings with shareholders who represented 33.0% of the outstanding shares. All meetings were attended by a member of the Board of Directors.

There were diverse views regarding pay structure provided by shareholders, generally dependent on whether the given shareholder was more interested in the dividend growth of the Company, in a position of “permanent capital” (i.e. index fund manager), or active institutional money manager. The consensus view held that there needed to be greater disclosure surrounding not only the components of compensation but also the Board’s rationale behind each component. That said, there were some majority views, and our Compensation Committee dedicated considerable time reviewing our compensation programs to design a framework that was more

directly performance-based to be implemented beginning in 2020. In order to address shareholder’s suggestions about the performance-based approach to compensation, we adopted modifications to our compensation programs, as summarized below, which are being implemented in 2020. These changes are applicable to all NEOs.

What We Heard

Modifications Beginning in 2020

Long-Term Incentive Plan (LTIP) only time vests

Half of LTIP will vest based on performance as measured at the end of a three-year period

LTIP and Short-Term Incentive Plan (STIP) use same metrics for measurement

STIP and portion of LTIP that performance vest will use different metrics for performance measurement

Some Change of Control Agreements are single triggered

Going forward, all newly awarded Change of Control Agreements will have a double trigger

Aside from asking for greater disclosure surrounding the rationale behind the use of discretionary bonuses, shareholders did not explicitly comment about the validity of discretionary bonuses. However, the Compensation Committee’s interpretation of comments surrounding performance vesting resulted in a commitment to refrain from awarding discretionary bonuses in 2020.

HOW WE SET COMPENSATION

Role of Compensation Committee in Setting Named Executive Officer Compensation

Our Compensation Committee, which is composed entirely of independent directors, is responsible for overseeing the development and approval of compensation and benefits amounts paid to our NEOs and non-employee directors, and administering our incentive plans, which includes the determination of grant amounts and vesting terms of awards under such plans. In addition, our Compensation Committee is responsible for the development and approval of employment agreements with our NEOs. Our Compensation Committee is responsible for determining whether our executive compensation policies are reasonable and appropriate, meet the stated objectives of those policies and effectively serve the best interests of the Company and our shareholders. Our Compensation Committee has discretion to approve, disapprove or modify recommendations made by our Chief Executive Officer. However, our Chief Executive Officer is not present during deliberations or voting by our Compensation Committee relating to his compensation.

Role of Compensation Consultant

Pursuant to its charter, our Compensation Committee may, at its sole discretion, retain or obtain the advice and assistance of a compensation consultant, legal counsel or other adviser. Our Compensation Committee may retain or obtain the advice of an adviser only after taking into consideration factors related to that person’s independence from management, including each of the factors it is required to take into consideration under the Corporate Governance Standards under NASDAQ Rule 5600, subject to limited exceptions. Our Compensation Committee is responsible for the appointment, compensation, and oversight of any adviser it retains. The Company is obligated to provide appropriate funding for the compensation of any such adviser.

In October 2019, at the behest of the Compensation Committee, we engaged an independent executive compensation consultant, Korn Ferry, to provide guidance on shareholder outreach efforts. A fundamental component of Korn Ferry’s engagement was to assess whether changes the Compensation Committee enacted aligned with the feedback provided in our shareholder engagements. As previously mentioned, structural changes recommended by the Compensation Committee, and subsequently approved by the Board were effective as of January 1, 2020.

2019 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Overview

Our compensation philosophy is designed to retain talent and align pay with performance of the Company. The following table lists and describes the purpose of the key elements of 2019 compensation for our NEOs:

Element of Pay

Description

Purpose

Base Salary

Fixed cash compensation

To attract and retain key executive talent by providing a stable source of compensation for services rendered during the fiscal year

Short-Term Incentive Plan (STIP)

Performance-based cash payment based on financial, operational, and strategic metrics

To motivate executive officers to achieve the Company’s annual strategic and financial goals and reward individual performance

Long-Term Incentive Plan (LTIP)

Performance-based share awards with multi-year vesting periods; award sizes are based on financial metrics

To align long-term interests of executives and shareholders and provide appropriate balance of at-risk compensation that incentivizes long-term value creation and retention

Discretionary Bonuses

Cash payments made to recognize financial, operational, and strategic success

To award NEOs for individual performance and contributions that aided the Company in achieving strong performance or were extraordinary

Supplemental Employee Retirement Plans (SERP)

Includes deferred compensation plans and salary continuation plans

To provide NEOs an economic incentive for long-term service to the Company

Limited Perquisites

Car allowances and/or club membership dues

To defray the NEOs’ expenses for recruitment or client entertainment and reduce the Company’s mileage reimbursement expense

The STIP and LTIP were earned on performance metrics measuring 2019 results and adjusted on a payout scale depending on performance relative to targeted metrics. The STIP was paid in cash in 2020 and capped at 25% of the NEO’s base salary, which is lower than the previous year. The Compensation Committee decided that any amount earned in the STIP greater than 25% of the NEO’s base salary would be awarded in restricted stock in 2020, with a three-year cliff vesting, to better align management with shareholder interests. The LTIP was paid in restricted stock in 2020 with a three-year cliff vesting.

The Company has claw-back provisions in place for losses arising from individual instances of fraud or malfeasance, including legal costs. Additionally, if the Bank were ever not to be considered “well-capitalized” as defined by U.S. banking regulations, all unvested LTIP awards are subject to automatic claw-back. The Compensation Committee has discretion over other circumstances that may trigger a claw-back provision.

Benchmarking of Compensation Levels

In making compensation decisions for 2019, the Compensation Committee reviewed market data related to base salary, annual bonus and total compensation from the most recent public information available for the peer group below. This peer group did not change from 2018 to 2019. While initial consideration was given to banks in PA, MD, NJ, NY, and VA, with assets between $1 and $5 billion, the Compensation Committee narrowed this list to a peer group of banks which met the following basic criteria:

Commercial banks:

•Having assets of approximately $1.2 billion to $4.6 billion, compared to Orrstown, which had approximately $2.4 billion in assets as of December 31, 2019;

•Domiciled in the states of PA, MD, NJ, NY and VA; and

•Having similar business models, including a commercial banking focus, wealth management and trust and/or mortgage businesses.

Applying these criteria resulted in the following 21 institutions believed to be most closely comparable to the Company:


ACNB Corporation	American National Bankshares, Inc.	Arrow Financial Corporation
BCB Bancorp, Inc.	Bryn Mawr Bank Corporation	C&F Financial Corporation
Chemung Financial Corporation	Citizens & Northern Corporation	CNB Financial Corporation
Codorus Valley Bancorp, Inc.	Evans Bancorp, Inc.	First Community Bancshares, Inc.
First United Corporation	Mid Penn Bancorp, Inc.	Old Line Bancshares, Inc.
Peapack-Gladstone Financial Corporation	Penns Woods Bancorp, Inc.	People's Financial Services Corp.
Shore Bancshares, Inc.	Southern National Bancorp of Virginia, Inc.	Univest Financial Corporation

The Compensation Committee reviewed the data from this peer group and other industry surveys. The Compensation Committee did not use a formulaic approach to benchmarking compensation for individual job positions. The Compensation Committee also considered data related to three-year average total compensation for executive officer positions, as that is a metric available through S&P Global Market Intelligence for banks in the Mid-Atlantic region with assets between $1 billion and $5 billion.

Components of Our Compensation Program

Base Salary

Base salaries for our NEOs are designed to compensate each executive for the experience, education, responsibilities and other qualifications of the executive that are essential to the specific role the executive serves within the organization. Our NEOs base salaries for 2019 were determined by pre-existing employment agreements.


	2018 Base Salary ($)	2019 Base Salary ($)	Year-Over-Year Change (%)
Thomas R. Quinn, Jr.	514,723	530,165	3.2
Thomas R. Brugger⁽¹⁾	—	143,750	—
Adam L. Metz	265,502	273,467	3
Robert G. Coradi	221,731	245,382	10.7
Philip E. Fague	236,480	242,857	2.7

⁽¹⁾ Mr. Brugger has an annual salary of $325,000. The 2019 amount above is indicated from his starting employment date.

As previously mentioned, base salaries for NEOs increased in-line with the Company’s cost of living increase for employees. The one exception was Mr. Coradi. In anticipation of the closing of the Hamilton transaction, the Compensation Committee realized the Company would be larger and more geographically diverse with a more complex and robust Enterprise Risk Management requirement. Mr. Coradi’s base salary increase was deemed commensurate with the additional responsibilities of his position and in-line with roles at companies of a similar size.

Annual Incentive Plan

The Company’s Annual Incentive Plan was created to motivate executives, promote strong corporate growth, and ultimately align executive pay with company performance. The Annual Incentive Plan provides cash and equity opportunities through the STIP and the LTIP, respectively. The Annual Incentive Plan was last approved by our shareholders at our 2018 annual meeting and made available 881,920 shares available for award.

Both the STIP and LTIP are based on achievement of financial goals as established by the Compensation Committee at the beginning of each fiscal year. For 2019, the Committee selected net income and ROAE as the operative financial metrics. The Committee also set challenging performance targets that align with the Company’s overall business strategy. If corporate results are above or below the targets, payouts for executives are adjusted based on a performance range.

For 2019, the threshold, target, and maximum award opportunities under the Annual Incentive Plan available to NEOs is described in the table below.


	Threshold Opportunity (37.5% of base salary)	Target Opportunity (50% of base salary)	Maximum Opportunity (75% of base salary)
Thomas R. Quinn, Jr.	$198,812	$265,083	$397,624
Thomas R. Brugger⁽¹⁾	53,906	71,875	107,813
Adam L. Metz	102,550	136,734	205,100
Robert G. Coradi	92,018	122,691	184,037
Philip E. Fague	91,071	121,429	182,143
⁽¹⁾ Mr. Brugger’s amounts are indicated using his starting employment date.

Any awards earned under the Annual Incentive Plan are then paid out in both cash and equity following completion of the fiscal year. For 2019, the Committee determined to cap the cash portion of the award at 25% of the NEO’s base salary. The remaining portion of the award was provided in equity and granted in the year following the performance period. For example, if the CEO earned the maximum award opportunity $397,624, $132,541 (representing 25% of the CEO’s base salary) would be paid in cash while the remaining $265,083 would be granted in time-based equity. The equity grant will cliff vest after a three-year period. Additionally, Mr. Quinn and Mr. Brugger received a discretionary restricted stock grant with a grant date fair value of $73,815 and $21,090, respectively. The awards cliff vest after three years and are subject to claw-back provisions.

In assessing the Company's performance relative to each of the performance goals for purposes of determining payouts under the plan, the Compensation Committee considered the impact of non-recurring expenses associated with 2019 acquisition and branch consolidation activities. After considering such impact, the Compensation Committee determined it to be appropriate and equitable to exclude the impact of the acquisition and branch consolidation activity on target net income and ROAE, since including such charges would only serve to penalize the plan participants for successfully executing the strategic plan articulated by the Board.

The following table represents the Net Income and ROAE targets as approved by the Compensation Committee and the corresponding payout scale as a percentage of base salary:


Performance targets set by the Compensation Committee in 2019:
	Net Income (dollars in thousands) $	Payout % of Base Salary		ROAE		Payout % of Base Salary		Maximum Bonus as % of Base Salary
	28,184	37.50	%	12.00	%	37.50	%	75.00	%
	25,622	35.00	%	13.00	%	35.00	%	70.00	%
	23,293	32.50	%	12.25	%	32.50	%	65.00	%
	21,175	30.00	%	11.50	%	30.00	%	60.00	%
	19,250	27.50	%	10.75	%	27.50	%	55.00	%
Target	17,500	25.00	%	10.00	%	25.00	%	50.00	%
	16,625	23.75	%	9.75	%	23.75	%	47.50	%
	15,794	22.50	%	9.50	%	22.50	%	45.00	%
	15,004	21.25	%	9.25	%	21.25	%	42.50	%
	14,254	20.00	%	9.00	%	20.00	%	40.00	%
	13,541	18.75	%	8.78	%	18.75	%	37.50	%


Performance Relative to Targets and Payout Calculations for 2019
	Target			2019 Results⁽¹⁾			% of Target		Weighting		Payout % of Target		Payout % of Base
Net Income, as adjusted	$	17,500		$	20,406		116.6	%	50.0	%	58.3	%	29.2	%
ROAE, as adjusted	10.00		%	11.30		%	117.4	%	50.0	%	58.7	%	29.3	%
Total									100.0	%	117.0	%	58.5	%
⁽¹⁾ Excludes the impact of non-recurring expenses associated with the 2019 acquisition and branch consolidation activity.

Based on performance, executives were eligible for awards displayed in the table below. As noted above, cash compensation paid to each executive was capped at 25% of base salary for 2019. The remainder of the Annual Incentive Award was granted as equity.


Name	Target Opportunity ($)	Payout as % of Target		Final Annual Incentive Award ($)	Cash Award (Capped at 25% of base salary) ($)	Value of Restricted Stock Award⁽¹⁾($)
Thomas R. Quinn, Jr.	267,480	145	%	386,794	133,740	253,054
Thomas R. Brugger	75,685	145	%	109,649	37,843	71,806
Adam L. Metz	137,970	117	%	161,438	68,985	92,453
Robert G. Coradi	127,502	117	%	149,190	63,751	85,439
Philip E. Fague	122,526	117	%	143,368	61,263	82,105


⁽¹⁾			Granted in February 2020. Restricted stock shares cliff vest after a three-year period. Includes a discretionary grant to Mr. Quinn totaling $73,815 and to Mr. Brugger totaling $21,090.

Equity granted in 2019

Equity granted in early 2019 was based on performance in 2018. The table below indicates the cash value of the award and the corresponding number of shares granted. In addition, the table below includes equity granted to Mr. Brugger upon attaining 90 days of employment. These grants are included in the Summary Compensation and Grants of Plan Based Awards tables. All shares granted in 2019 cliff vest after a three-year period.

2019 GRANT OF PLAN-BASED AWARDS TABLE


Name	Grant Date	All Other Stock Awards: Number of Shares of Stock or Units (#) ⁽¹⁾		Grant Date Fair Value of Stock and Option Awards ($) ⁽²⁾
Thomas R. Quinn, Jr.	1/23/2019	8,388		162,727
Thomas R. Brugger	10/15/2019	5,000		108,700
Adam L. Metz	1/23/2019	4,326		83,924
Robert G. Coradi	1/23/2019	3,613		70,092
Philip E. Fague	1/23/2019	3,842		74,535
David P. Boyle	1/23/2019	5,281	⁽³⁾	102,451


⁽¹⁾			The awarded restricted stock vests January 21, 2022.
⁽²⁾			The fair value of the award is the fair value of the Company Common Stock on the date of grant ($19.40) multiplied by the number of shares granted, except for Mr. Brugger, which had a grant date fair value of $21.74.
⁽³⁾			These stock awards were forfeited upon Mr. Boyle’s resignation on May 8, 2019.

Equity granted under the Company’s incentive compensation plan is subject to the Company’s anti-hedging and anti-pledging provisions covered in the Company’s Insider Trading Policy. Board members, executive officers, and related persons are prohibited from purchasing, selling, or making any offer to purchase or offer to sell, derivative securities relating to securities of the Company or to enter into private contracts removing the economic risk associated with owning the Company’s securities from the Board member, executive officer, or related persons. Board members, executive officers, and related persons are prohibited from pledging the Company’s securities in a loan of any kind, including, but not limited to, a margin loan or a Non-Purpose Loan as defined by Regulation U.

Discretionary Cash Bonus

In 2019, the Compensation Committee approved discretionary cash bonuses to certain NEOs. Overall, 2019 was a very successful year for the Company. The Company increased total assets by 23.2%, total loans by 31.8%, and total deposit balances by 20.3% from December 31, 2018 to December 31, 2019. The Company completed the acquisition of Hamilton and converted the Mercersburg and Hamilton core systems to the Company’s systems. This was a significant undertaking and critical to the ongoing success of the Company. Additionally, the Company upgraded its trust operating system in 2019. All of these factors, combined with solid financial performance as measured by net income, resulted in a 27.9% total return for shareholders. Discretionary cash bonuses were awarded as follows during 2019:


Name	Amount ($)	Discretionary Bonus as % of Base Salary


Adam L. Metz	5,000	1.8	%
Robert G. Coradi	5,000	2.0	%

•Mr. Metz and Mr. Coradi received a discretionary cash bonus in recognition of their work surrounding conversion related efforts for the Hamilton acquisition.

The Compensation Committee believes that discretionary cash bonuses represent the best opportunity for rewarding NEOs for their individual efforts to advance the Company’s strategic initiatives. As circumstances change throughout the year, there may arise occasions that require extraordinary effort and time to resolve. Working through these challenges can be taxing directly on the individuals involved and indirectly on their families. The Compensation Committee considers it appropriate to recognize those efforts.

The Compensation Committee has decided to refrain from awarding discretionary bonuses for NEOs in 2020.

Discretionary Restricted Stock Grants

Discretionary restricted stock grants were awarded as follows during 2019:


Name	Amount ($)	Discretionary Bonus as % of Base Salary
Thomas R. Quinn	73,815	13.8	%
Thomas R. Brugger	21,090	13.9	%

•Mr. Quinn received a discretionary restricted stock grant in recognition of his work surrounding conversion related efforts for the Hamilton and Mercersburg transactions and significant recruitment of talent to the organization.

•Mr. Brugger received a discretionary restricted stock grant in recognition of his work to provide a new business plan to improve profitability of the Company and his efforts related to operational efficiency improvement.

The Compensation Committee has decided to refrain from awarding discretionary awards for NEOs in 2020.

Other Awards and Compensation Perquisites

Messrs, Quinn, Metz, and Fague have each been provided a vehicle allowance or the personal use of a Company vehicle. Each of these positions require extensive travel across the Company’s market area, which continues to grow. In each case, an analysis was conducted to determine if reimbursement of mileage to a NEO was a less expensive alternative for the Company.

Messrs, Quinn, Metz and Fague have country club memberships provided by the Bank. Their positions require extensive client entertainment and recruitment of top-flight human capital. Initiation dues paid by the Company will be recouped by the Company when the NEO relinquishes their membership.

401(k) Plan

The Bank maintains a 401(k) plan for the benefit of eligible employees. The Bank makes annual matching contributions of up to 50% of employee contributions under the plan, up to 3% of an employee’s annual compensation.

2020 COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Overview

As will be described in further detail in the proxy statement for our 2021 Annual Meeting of Shareholders, the Compensation Committee has made significant modifications to the 2020 compensation program for our NEOs. The Company believes our new compensation program properly incorporates the commentary provided by our shareholders during the aforementioned outreach program, strengthens pay for performance, and further aligns the interests of our executives to the long-term success of the Company. The table below indicates the components of NEO compensation for 2020. Significant changes relative to 2019 include:

•Elimination of discretionary bonuses;

•50.0% of NEOs LTIP awards will now performance-vest, meaning the shares will only vest if predetermined long-term financial goals are met;

•performance-vesting LTIP awards will be in the form of restricted stock units which will not receive dividends or provide voting rights until vested; and

•metrics used for performance measurement for the STIP and time-vesting portion of the LTIP will be different than those used for the performance-vesting portion of the LTIP:

◦STIP and time-vesting portion of the LTIP will continue to use Net Income and ROAE; and

◦performance-vesting portion of LTIP will use Return on Average Assets (ROAA).


Element of Pay	Description	Purpose
Base Salary	Fixed cash compensation	To attract and retain key executive talent by providing a stable source of compensation for services rendered during the fiscal year
Short-Term Incentive Plan (STIP)	Performance-based cash payment based on financial, operational, and strategic metrics	To motivate executive officers to achieve the Company’s annual strategic and financial goals and reward individual performance
Long-Term Incentive Plan—Time-Vesting (LTIPTV)	Performance-based share awards with multi-year vesting periods; awards are based on financial metrics	To align long-term interests of executives and shareholders and provide appropriate balance of at-risk compensation that incentivizes long-term value creation and retention
Long-Term Incentive Plan—Performance-Vesting (LTIPPV)	Restricted Stock Unit (RSUs) awards with multi-year vesting periods; awards vest based on financial metrics	To align long-term interests of executives and shareholders and provide appropriate balance of at-risk compensation that incentivizes long-term value creation and retention
Supplemental Employee Retirement Plans (SERP)	Include deferred compensation plans and salary continuation plans	To provide NEOs an economic incentive for long-term service to the Company
Perquisites	Car allowances and/or club membership dues	To defray the NEOs’ expenses for recruitment or client entertainment and reduce the Company’s mileage reimbursement expense

Summary Executive Compensation

The following table sets forth information as to the compensation paid or accrued by the Company for the year ended December 31, 2019 for services rendered in all capacities by each individual who served as our principal executive officer or principal financial officer during fiscal 2019, as well as our three most highly compensated executive officers (other than our principal executive officer and principal financial officer).

2019 SUMMARY COMPENSATION TABLE


Name and Principal Position	Year	Salary ($)	Cash Bonus ($)	Stock Awards ($)⁽¹⁾	Option Awards ($)⁽¹⁾	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)⁽²⁾	All Other Compensation ($)⁽³⁾	Total ($)
Thomas R. Quinn, Jr.	2019	530,165	—	253,054	—	133,740	443,498	31,823	1,392,280
President and	2018	514,723	95,000	394,959	—	162,730	290,051	78,729	1,536,192
Chief Executive Officer	2017	499,635	70,000	111,750	—	134,954	273,200	60,059	1,149,598

Thomas R. Brugger	2019	143,750	38,923	71,806	—	37,843	—	573	292,895
Executive Vice President and	2018	—	—	—	—	—	—	—	—
Chief Financial Officer	2017	—	—	—	—	—	—	—	—

Adam L. Metz	2019	273,467	5,000	92,453	—	68,985	—	28,091	467,996
Executive Vice President and	2018	265,502	10,000	135,535	—	83,939	—	19,660	514,636
Chief Revenue Officer	2017	258,531	19,000	22,350	—	69,611	—	16,634	386,126

Robert G. Coradi	2019	245,382	5,000	85,439	—	63,751	113,418	9,600	522,590
Executive Vice President and	2018	221,731	45,000	123,761	—	70,100	91,872	8,680	561,144
Corporate Secretary	2017	215,273	23,000	44,700	—	57,563	—	8,421	348,957

Philip E. Fague	2019	242,857	—	82,105	—	61,263	45,061	20,861	452,147
Executive Vice President and	2018	236,480	—	74,543	—	74,543	42,692	27,894	456,152
Chief Trust Officer	2017	231,160	18,000	105,088	—	62,425	40,212	25,752	482,637

David P. Boyle ⁽⁴⁾	2019	144,634	—	—	—	—	72,869	12,617	230,120
Former Executive Vice	2018	324,068	65,000	159,004	—	102,455	168,269	20,512	839,308
President and CFO	2017	314,629	28,000	78,225	—	84,966	161,680	19,600	687,100


⁽¹⁾			Stock and option awards are valued based on the aggregate grant date fair value of awards granted during the year computed for financial reporting purposes pursuant to FASB ASC Topic 718. There is no assurance the value realized by an executive officer will be at or near the value estimated by ASC Topic 718. The actual value, if any, an executive officer may realize will depend upon the excess of the stock price over the exercise price on the date the option is exercised or the value of stock awards when they vest. Please see the 2019 Outstanding Equity Awards at Fiscal Year-End Table below for more information regarding stock awards and options outstanding at December 31, 2019.
⁽²⁾			Represents the aggregate increase in the present value of the officer’s accumulated benefit under the salary continuation plan.
⁽³⁾			See 2019 All Other Compensation Table below.
⁽⁴⁾			Mr. Boyle resigned effective May 8, 2018. His salary amount reflects earnings through that date.

2019 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE


	Option Awards					Restricted Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable ⁽¹⁾	Option Exercise Price ($)	Option Expiration Date	Number of shares or units of stock that have not vested (#)	Market value of shares or units of stock that have not vested ($)⁽²⁾	Equity incentive plan awards: number of unearned shares that have not vested (#)	Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)
Thomas R. Quinn, Jr	6,000	21.14	7/21/2020	48,786	1,103,539	13,786	311,839
Thomas R. Brugger	—	—	—	5,000	113,100	—	—
Adam L. Metz	—	—	—	10,610	239,998	7,110	160,828
Robert G. Coradi	—	—	—	10,438	236,108	5,938	134,318
Philip E. Fague	4,800	21.14	07/21/2020	9,939	224,820	6,339	143,388


⁽¹⁾			There were no un-exercisable options at December 31, 2019.
⁽²⁾			Calculated using the December 31, 2019 closing stock price of $22.62.

2019 OPTION EXERCISES AND STOCK VESTED TABLE


	Option Awards			Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($) ⁽¹⁾
Thomas R. Quinn, Jr.	—	—	3,000	56,880
Thomas R. Brugger	—	—	—	—
Adam L. Metz	—	—	4,500	94,435
Robert G. Coradi	—	—	13,500	302,880
Philip E. Fague	—	—	13,500	302,880
David P. Boyle	—	—	2,500	47,400


⁽¹⁾			Calculated using the closing market price of the Company's Common Stock on the date of vesting.

Supplemental Employee Retirement Plans

The Bank has established salary continuation plans for certain of its executive officers including Messrs. Quinn, Coradi, Fague, and Boyle in order to provide them with supplemental retirement income (the “Salary Continuation Agreements”). The purpose of the plans is to provide an incentive to such persons to continue in the employ of the Bank.

The Salary Continuation Agreements provide the executive officers with certain specified benefits upon a separation from service as a result of normal retirement, early termination, disability, death or a change in control. In the event of early termination by the Company other than for cause, or by the executive, unrelated to a change in control transaction and prior to reaching normal retirement age, the executive would receive the accumulated benefit described in the 2019 Pension Benefit Table.

Benefits are payable in monthly installments over a 15-year period beginning within 60 days following the executive officer’s separation from service upon or after the executive reaching normal retirement age, within 60 days following the executive officer reaching normal retirement age in the cases of early termination and change in control, or within 60 days after separation from service in the case of disability. The Salary Continuation Agreement with Mr. Quinn provides for an annual normal retirement benefit of $400,000 at age 65; Mr. Coradi of $100,000 at age 65 and Mr. Fague of $73,000 at age 65. The Company has also entered into a deferred compensation agreement with Mr. Quinn as discussed below.

The Company has purchased whole life insurance where certain NEOs are the insured and the Bank (Company) is the death beneficiary. Such policies are in place for Mr. Quinn, Mr. Coradi and Mr. Fague. During the NEOs employment, the Company earns income on the life insurance policy. In 2019, the Company earned $2.0 million on all life insurance policies, tax free.

In the event of an early separation from service or a separation from service due to disability prior to normal retirement age, the amount of the benefit under the plan will be actuarially reduced from the normal retirement benefit. In the event of a change in control, the amount of the benefit will be the amount of the normal retirement benefit. In the event an executive officer dies while in active

service, the officer’s beneficiary will be entitled to receive the normal retirement benefit payable in monthly installments over a 15-year period. In the event an executive officer dies after benefit distributions have commenced, the Bank will continue to distribute the remaining benefits to the officer’s beneficiary at the same time and in the same amounts as would have been distributed to the executive officer had he or she survived.

Benefits under the Salary Continuation Agreement will be forfeited by an executive officer who is terminated for cause, or if the executive officer commits suicide within two years after the effective date of the Salary Continuation Agreement; if an insurance company which issued a life insurance policy covering the executive officer and owned by the Bank denies coverage because of misstatements of fact made by the executive officer on an application for life insurance; if the executive officer is subject to a final removal or prohibition order issued by a federal banking agency pursuant to the Federal Deposit Insurance Act; or the executive officer becomes interested as a sole proprietor, partner, substantial shareholder, officer, director, or employee in a competitor of the Bank within a 50 mile radius of the Bank’s headquarters in Shippensburg, Pennsylvania.

2019 PENSION BENEFITS TABLE


Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)	Payments During Last Fiscal Year ($)
Thomas R. Quinn, Jr.	Salary Continuation Agreement	10	2,538,300	—


Robert G. Coradi	Salary Continuation Agreement	2	205,290	—
Philip E. Fague	Salary Continuation Agreement	30	473,199	—
David P. Boyle	Salary Continuation Agreement	4	634,112	—

In this table:

•The number of years of credited service equals the number of years of employment service.

•The present value of accumulated benefits shown in the table above has been determined using the assumptions set forth in the audited consolidated financial statements for the year ended December 31, 2019.

•No amounts were actually paid or provided to the NEOs during 2019.

•Upon his resignation, Mr. Boyle had vested in an annual benefit of $81 thousand with respect to which payments will commence in the month following Mr. Boyle attaining age 65.

A description of the Salary Continuation Agreement appears below under “Potential Payments Upon Termination or Change in Control.”

Executive Deferred Compensation Agreement

In 2019, the Bank entered into a deferred compensation agreement with Mr. Quinn.

The deferred compensation agreement is intended to provide Mr. Quinn with the potential for certain retirement benefits payable in monthly installments over a 15-year period beginning the month following the executive’s separation from service upon or after he reaches normal retirement age (age 65), the month following his reaching normal retirement age in the cases of early termination and change in control, or the month following a separation from service in the case of disability.

The agreement provides for the establishment of a deferral account into which the Bank may, but is not required to, make monthly contributions. It is anticipated that the Bank will initially make monthly contributions of $33,721 into the deferral account. The deferral account earns interest at a rate equal to the Company’s Return on Average Tangible Equity for the immediately preceding calendar year, not to exceed 15% nor less than 0% during the accumulation period and at a fixed rate of 4.00% during the distribution period. Such contributions may be increased or decreased within the sole discretion of the Bank. Assuming the Bank continues a monthly contribution of $33,721, the annual normal retirement benefit is anticipated to be approximately $200,000.

Prior to the earliest to occur of: (i) a separation from service, (ii) disability, (iii) death and (iv) the executive attaining age 70, interest will accrue on amounts credited to the deferral account at the “accumulation period crediting rate,” compounded monthly. Following any of the aforementioned events, interest will accrue at the rate of four percent, except in the event of a change in control, in which case no interest will accrue until normal retirement age and, thereafter, interest will accrue at the rate of four percent.

In order to further link the amount of the benefit to overall corporate performance, the “accumulation period crediting rate” will mirror the Company’s return on average tangible equity (computed annually as described in the agreement); provided, that in no event will the rate be less than zero nor more than fifteen percent.

The total benefit payable in the event of normal retirement, early termination or disability is equal to the deferral account balance as of such date, with interest accruing as described above.

The total benefit payable in the event of a separation from service in connection with a change in control and prior to normal retirement age is the greater of the projected deferral account balance and $2,260,638. The projected deferral account balance is the deferral account balance at the date of the separation from service, plus an additional amount equal to the average monthly contribution made by the Bank prior to the separation from service multiplied by the number of months remaining through normal retirement age. Consistent with the Salary Continuation Agreement entered into between the Bank and Mr. Quinn in 2009, in the event that any benefit distributable under the agreement would subject executive to an excise tax under the excess parachute rules of Internal Revenue Code Section 280G, the agreement provides for the payment of an additional amount equal to: the executive’s excise penalty tax amount divided by the difference between (one minus the sum of (the penalty tax rate plus the executive’s marginal income tax rate)).

The total benefit payable in the event of a separation from service due to death is the greater of the actual deferral account balance and $2,260,638.

Benefits under the agreement will be forfeited if executive is terminated for cause, or if he commits suicide within 2 years after the effective date of the agreement, or if any insurance company which issued a life insurance policy covering executive and owned by the Bank denies coverage because of misstatements of fact made by executive on an application for life insurance, or if executive is subject to a final removal or prohibition order issued by a federal banking agency pursuant to the Federal Deposit Insurance Act, or if executive becomes interested as a sole proprietor, partner, substantial shareholder, officer, director, or employee in a competitor of the Bank within a 50 mile radius of the Bank’s headquarters.

2019 Pay Ratio Disclosure


	2019
Median annual compensation of all employees, executives, CEO	56,276
Annual compensation of CEO	1,079,450
Ratio of CEO total pay to median pay of all employees	19.1	x

Methodology for Determining Median Employee Compensation

The Company, through use of payroll and other internal records, accumulated all compensation paid to all employees consistent with compensation calculated using Item 402(c)(2)(x) of SEC Regulation S-K (the "Total" column in the 2019 Summary Compensation Table). Compensation was annualized for permanent full- and part-time employees who were not employed for the entire fiscal year. The date chosen for identifying the median annual employee compensation was December 31, 2019.

Potential Payments Upon Termination or Change in Control

Executive Employment Agreements

As detailed in the “Compensation Discussion and Analysis” section, the Company previously entered into an executive employment agreement with Mr. Quinn, providing for a term continuing until 2024, and with Messrs. Coradi and Fague for terms continuing until 2021 and Messrs. Brugger and Metz continuing until 2022.

Such employment agreements provide for a term of either three or five years, plus an annual extension of such term for an additional year, unless the executive is given at least sixty days notice of non-renewal. The agreements provide that if the executive is still employed upon attaining age 65, such executive will provide notice of retirement in which event the executive will receive salary continuation for a period of six months plus payment of 150% of the premium cost to maintain the executive’s group life insurance benefit for a period of three years. Such mandatory retirement may be delayed in one-year increments upon Board approval.

In the event that the executive’s employment is terminated by the Company or the Bank during the term of the agreement without cause, or by executive for “good reason” as defined in the agreement, then the executive will be paid severance equal to his or her base salary plus the average cash bonus amount received during the past three years for a period equal to the greater of the remaining term of the agreement or six months. The executive would also be entitled to continue to participate in employee benefit plans for six months or receive a cash contribution in lieu thereof.

Termination by the executive for good reason shall include if: (i) there has occurred a material breach of the employer’s material obligations under the agreement; (ii) the employer, without executive’s prior written consent, changes or attempts to change in any material respect the authority, duties, compensation, incentive compensation, benefits or other terms or conditions of executive’s employment, or executive’s reporting structure, in a manner that is adverse to the executive; or (iii) the employer requires executive to relocate his or her principal business location 75 miles or more from the employer’s then current headquarters.

During the period of employment and for the greater of six months following such termination of employment or the period of severance payments, but not to exceed 24 months, each executive agrees not to directly or indirectly engage in business competition with the Company or the Bank with respect to its services, products, processes, customers, methods of doing business and similar matters within a 75-mile radius of Shippensburg, Pennsylvania. In addition, during this period, each executive will not solicit or attempt to solicit, divert or appeal to any employees, customers, clients or referral sources of the Company, the Bank or any of their respective subsidiaries.

The following table summarizes potential benefits for Messrs. Quinn, Brugger, Metz, Coradi and Fague, under their employment agreements, in the event of a termination of their employment unrelated to a change in control transaction, if such termination had occurred on December 31, 2019.


Name	Cash Payment Upon Involuntary Termination (without cause) ($)⁽¹⁾	Cash Payment Upon Voluntary Termination for “Good Reason”($)⁽¹⁾	General Health and Welfare Benefits ($)⁽²⁾	Total ($)
Thomas R. Quinn, Jr.	2,524,152	2,524,152	9,278	2,533,430
Thomas R. Brugger	863,885	863,885	5,233	869,118
Adam L. Metz	678,954	678,954	11,585	690,539
Robert G. Coradi	657,011	657,011	11,922	668,933
Philip E. Fague	658,883	658,883	9,670	668,553


⁽¹⁾			Assumes payment of continued salary under existing employment agreement for the remaining term of the agreement in effect as of December 31, 2019. In the event of death, in lieu of this amount, the executive’s estate would receive a payment equal to six months of the then annual base salary.
⁽²⁾			Estimated benefits contribution expense for six months post-termination.

Change in Control Benefits

The Company and the Bank entered into Change in Control Agreements, concurrent with the Employment Agreements, with Messrs. Quinn, Brugger, Metz, Coradi, and Fague. The Change in Control Agreements provide that the Company and the Bank are to pay to the executive the specified amounts of cash compensation and provide the specified health and welfare benefits in the event that the executive’s employment is terminated by the Company or Bank or any successor, without cause, within two (2) years after the occurrence of a change in control or if such termination is initiated by the Executive for any reason within six months following a change in control.

Under the Change in Control Agreement, a “change in control” shall be deemed to occur if: (1) any person or group of persons acting in concert, shall have acquired ownership of more than 50% of the total fair market value or total voting power of the stock of the Company; (2) the composition of the Board of Directors of the Company shall have changed such that, during any period of 12 consecutive months during the term of the Change in Control Agreement, the majority of such Board is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors of the Company, who were in office before the appointment or election; (iii) any person or group of persons acting in concert acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of 30% or more of the total voting power of the stock of the Company; or (iv) any person or group of persons unrelated to the Company acting in concert acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition) ownership of a portion of the Company’s assets that has a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company before the acquisition or acquisitions, with the asset values determined without regard to any liabilities associated with such assets.

The Change in Control Agreements provide that upon a termination pursuant to a change in control, the Company and the Bank are obligated to pay to the executives cash compensation in an amount equal to 2.99 times (1) annual base salary, plus (2) the highest annual cash bonus and other annual incentive cash compensation awarded over the past three years before the calendar year in which the termination of employment occurred. Payment of this cash compensation is to be made in a single lump sum within fifteen (15) days after the termination of employment.

The Change in Control Agreements further provide that upon a change in control, if the plans governing the vesting and exercise rights of stock options, shares of restricted stock and other equity-based compensation units are silent on the subject of change of control, all

such options, shares and units shall immediately become vested and exercisable as to all or part of the shares and rights covered thereby.

The Change in Control Agreements further provide that upon a termination pursuant to a change in control, the Company and the Bank are obligated to provide to the executive for a specified term the life, disability, medical/health insurance and other health and welfare benefits in effect with respect to the executive immediately prior to the termination pursuant to the change in control. For each executive, the term is two years. The executive, however, will continue to be responsible for the costs of such benefits to the same extent as other similarly situated active employees of the Bank and the executive’s spouse and/or eligible dependents will continue to be covered on the same terms that they were covered prior to the termination of employment.

For all Named Executive Officers other than Mr. Quinn, the Change in Control Agreements further provide that in the event any benefit or payment from the Company to the Executive shall be deemed to be an “Excess Parachute Payment”, as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended, then the aggregate present value of amounts or benefits payable to Executives shall be reduced to the greater of (i) the highest aggregate present value of the amount due under the agreement that can be made without causing any payments or benefits to be an Excess Parachute Payment or (ii) the largest portion of the amount due under the agreement that after taking into account all applicable state and federal taxes, including any taxes payable pursuant to Section 4999 of the Internal Revenue Code, results in a greater after-tax benefit to the Executive than the after-tax benefit to the Executive calculated under (i) above.

With respect to Mr. Quinn, in order to ensure consistency among the various compensatory agreements to which he is a party, Mr. Quinn’s Change in Control Agreement provides that, in the event that any benefit distributable under the agreement would be deemed to be an Excess Parachute Payment, Mr. Quinn shall be entitled to the payment of an additional amount equal to: his excise penalty tax amount divided by the difference between (one minus the sum of (the penalty tax rate plus his marginal income tax rate)). This provision mirrors those contained in his Salary Continuation Agreement and Deferred Compensation Agreement, described above, and is necessary to ensure that Mr. Quinn, who has served as President and Chief Executive Officer since 2009 and has guided the Company through its most transformative years, receives the full benefit of those compensatory arrangements should there be a termination of his employment following a change in control of the Company.

If the executive’s employment is terminated following a change in control, for the greater of (i) six months following termination of employment or (ii) the one-year anniversary of the change in control, each executive agrees not to directly or indirectly engage in business competition with the Company or the Bank with respect to its services, products, processes, customers, methods of doing business and similar matters within a 75-mile radius of Shippensburg, Pennsylvania. In addition, during this period, each executive will not solicit or attempt to solicit, divert or appeal to any employees, customers, clients or referral sources of the Company, the Bank or any of their respective subsidiaries.

The following table summarizes potential change in control benefits for each of the NEOs. For the purposes of this table, we assumed a change in control of the Company and a termination of employment by the surviving company without cause (or a resignation by the executive for any reason), and that both events had occurred on December 31, 2019.


Name	Cash Benefit Under Change in Control Arrangement ($) ⁽¹⁾	Cash Benefit Under Salary Continuation Agreement($)⁽¹⁾	General Health and Welfare Benefits ($)⁽²⁾	Total Benefits ($)
Thomas R. Quinn, Jr.	4,257,020	2,785,294	40,632	7,082,946
Thomas R. Brugger	1,131,193	—	14,450	1,145,643
Adam L. Metz	967,448	—	49,860	1,017,308
Robert G. Coradi	280,894	652,262	51,208	984,364
Philip E. Fague	892,065	74,749	42,199	1,009,013


⁽¹⁾			Present value as of December 31, 2019 of accumulated benefit under Salary Continuation Agreement and Deferred Compensation Agreement at normal retirement age. Benefit payable over a 15-year period upon executive officer reaching normal retirement age specified in the executive officer’s respective agreement.
⁽²⁾			Value of benefits based upon assumptions used for financial reporting purposes under accounting principles generally accepted in the Unites States of America.

The compensation represented by the amounts set forth in the “All Other Compensation” column in the 2019 Summary Compensation Table is detailed in the following table.

2019 ALL OTHER COMPENSATION TABLE


		Vehicle
		Allowance or
		Personal use	Country		Split Dollar	Company Contributions
		of Company	Club	Insurance	Life Insurance	to Retirement and
Name	Year	Vehicle ($) ⁽¹⁾	Dues ($)	Premiums ($)⁽¹⁾	Benefit ($) ⁽²⁾	401(k) Plans ($)	Total ($)
Thomas R. Quinn, Jr.	2019	6,044	8,000	3,564	10,765	3,450	31,823
	2018	3,864	—	2,322	67,383	5,160	78,729
	2017	6,724	—	2,322	46,664	4,349	60,059

Thomas R. Brugger	2019	—	—	573	—	—	573
	2018	—	—	—	—	—	—
	2017	—	—	—	—	—	—

Adam L. Metz	2019	8,400	14,779	810	—	4,102	28,091
	2018	8,400	6,467	810	—	3,983	19,660
	2017	8,400	6,073	810	—	1,351	16,634

Robert G. Coradi	2019	—	—	2,238	—	7,361	9,599
	2018	—	—	2,028	—	6,652	8,680
	2017	—	—	1,963	—	6,458	8,421

Philip E. Fague	2019	181	3,900	3,451	6,009	7,320	20,861
	2018	204	3,900	2,184	14,482	7,124	27,894
	2017	104	3,575	2,130	12,982	6,961	25,752

David P. Boyle	2019	3,274	3,843	1,161	—	4,339	12,617
	2018	3,625	6,428	1,242	—	9,217	20,512
	2017	4,768	6,136	1,242	—	7,454	19,600


⁽¹⁾			The reported insurance premiums are paid by the Bank in connection with the employee group term replacement plans as described above in the Compensation Discussion and Analysis.
⁽²⁾			Represents the aggregate increase in the present value of the officer’s split dollar benefit under the group term replacement plan described in the Compensation Discussion and Analysis.

Other Considerations

Risk Management

The Company believes its compensation programs and practices for its employees are not reasonably likely to have a material adverse effect on the Company. Annual incentive compensation is wholly subject to the discretion of the Compensation Committee and the independent directors. Similarly, not only is long-term incentive compensation in the forms of restricted stock and stock options also subject to Compensation Committee and independent director discretion, it also reflects a modest portion of total compensation at lesser levels than among the Company’s peers. With respect to those employees whose compensation may involve a variable component, such as lenders and investment counselors who are paid, in part, based upon production, the Company believes the aggregate absolute amount of such compensation is not material to the Company and that the Company’s internal controls further mitigate the risks that otherwise might be incurred as a result of such activities and compensation practices.

Tax and Accounting Considerations

The Company considers the tax and accounting implications in the design of its compensation programs. For example, in the selection of long-term incentive instruments, the Compensation Committee reviews the projected expense amounts and expense timing associated with alternative types of awards. Under current accounting rules (i.e., Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718), the Company must expense the grant-date fair value of share-based grants

such as stock option awards, restricted stock, performance shares, and stock appreciation rights settled in stock. The grant-date value is amortized and expensed over the service period or vesting period of the grant. In selecting appropriate incentive devices, the Compensation Committee reviews appropriate expense analyses and considers the related tax and accounting issues.

Section 162(m) of the Internal Revenue Code places an annual limit on the tax deduction for certain compensation paid in excess of $1 million to the Chief Executive Officer and the three most highly compensated executive officers of a corporation. All of the compensation the Company paid in 2019 to the Named Executive Officers is expected to be deductible under Section 162(m) of the Internal Revenue Code. Whether all elements of compensation paid by the Company in future years will be fully deductible is dependent upon many factors as required by Section 162(m) of the Internal Revenue Code and applicable regulations. Such factors include the aggregate level of taxable income received by an executive in each year, the structure of various compensation plans, the manner in which incentive compensation goals are established and a determination of satisfaction of those goals, and the relationship between the Company and the directors serving on the committee determining the performance goals related to incentive compensation and the satisfaction of such performance goals. The Compensation Committee retains the flexibility to pay both compensation that will be fully deductible and compensation that may not be deductible in structuring the Company’s compensation programs in its actions to promote the best interests of the Company and its shareholders.

Upon a change in control of the Company, some portion of the severance payments paid to our Executives may exceed the deductible limitations under Section 280G of the Internal Revenue Code. The Compensation Committee believes that this flexibility in structuring compensation to our Executives is in the best interest of our shareholders.

Under the executive incentive compensation program effective for 2019, there are in place forfeiture and/or claw-back provisions for the repayment of incentive compensation in the event of excessive risk impacting financial performance and restatement or adjustment of the performance measures in the future after incentive awards have been made. The Company did not utilize provisions for repayment of incentive compensation for 2019 due to restatement or adjustment of the performance measures. The Company does not currently maintain stock ownership guidelines or equity incentive retention guidelines for its NEOs (unless they also serve on the Board of Directors), but generally such officers hold personal investments in the Company’s stock. Equity granted under the Company’s incentive compensation plan is subject to the Company’s anti-hedging and anti-pledging provisions covered in the Company’s Insider Trading Policy.

Compensation Committee Report

We, the members of the Compensation Committee of the Board of Directors of Orrstown Financial Services, Inc., have reviewed and discussed the Compensation Discussion and Analysis set forth above with the management of the Company and, based on such review and discussion, have recommended to the Board of Directors of the Company inclusion of the Compensation Discussion and Analysis in this proxy statement and, through incorporation by reference from this proxy statement, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Submitted by the Compensation Committee:


Floyd E. Stoner, Chair
Cindy J. Joiner, CPA
Glenn W. Snoke
Joel R. Zullinger

Except as set forth above, this report shall not be deemed to be incorporated by reference, by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such acts.

Compensation Risk Assessment

The Compensation Committee periodically conducts a Compensation Risk Self-Assessment. The latest Compensation Risk Self-Assessment, which was conducted in December 2017, concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

PROPOSAL 2 - ADVISORY VOTE ON COMPENSATION PAID TO

NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)

A Non-Binding Advisory Vote to Approve the Compensation Paid to Our Named Executive Officers

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, requires us to hold a shareholder vote to approve, on a non-binding advisory basis, the compensation paid to our Named Executive Officers as disclosed in this proxy statement in accordance with the SEC’s rules and regulations. This vote is commonly referred to as the Say-On-Pay vote. As required by the Dodd-Frank Act, the vote sought by this proposal is advisory and is non-binding on the Board of Directors. The Company’s shareholders voted at the 2017 Annual Meeting of Shareholders to hold this vote on executive compensation annually. The vote is non-binding, however, the Compensation Committee of the Board of Directors values the opinions expressed by our shareholders and will carefully consider the outcome of the vote in connection with future compensation decisions for our Named Executive Officers.

The Compensation Committee of the Board of Directors believes that our executive compensation program achieves our intended objective to provide fair, reasonable and appropriate levels of compensation and benefits in order to recruit, motivate, reward and retain qualified executive officers and generate long term value for the Company’s shareholders. Accordingly, we ask our shareholders to vote FOR approval of the non-binding advisory vote on compensation paid to our Named Executive Officers as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the compensation tables and narrative accompanying the tables.

The Board of Directors believes the following key aspects of our executive compensation program support our recommendation to vote FOR approval of the non-binding advisory vote on compensation paid to our NEOs:

•Fair, Reasonable and Appropriate Levels of Compensation. A study conducted by the Compensation Committee found that overall cash compensation levels for our Named Executive Officers were in line with the competitive market median and long-term incentive awards were within a competitive range of the market. Furthermore, the Company provides limited benefits and perquisites to our executives.

•Pay and Performance Alignment. The Compensation Committee believes that increases in salaries, incentive bonus payouts and stock option and restricted stock awards, when made, are consistent with our performance in relation to our operating plan and the performance of our peers.

•Risk Mitigation. We strive to have a risk appropriate compensation program. We believe that our mix of pay, which is balanced, and our incentive arrangements, which are not highly leveraged, promote a risk-appropriate environment for compensating our executives.

•Long-term Incentive Strategy. The strategy of granting equity awards is to balance a mix of restricted stock and/or stock options, both of which will have multi-year vesting criteria. This reflects the Compensation Committee’s desire to increase the emphasis of our executive compensation program on achieving long-term performance, as well as to bolster the retentive effects of our stock-based compensation awards.

Additional details on our executive compensation programs and practices and the rationale for decisions made are set forth in the Compensation Discussion & Analysis section of this proxy statement, including the Summary Compensation Table and supporting tabular and narrative disclosures.

The affirmative vote of a majority of the votes cast at the Annual Meeting is necessary for the approval of the non-binding advisory vote on compensation paid to our Named Executive Officers as described in this proxy statement. Abstentions and broker non-votes, if any, will have no effect on whether or not this proposal is approved.

The Board of Directors recommends that you vote FOR approval of the non-binding advisory vote on compensation paid to our Named Executive Officers as disclosed in this proxy statement.

PROPOSAL 3 – RATIFICATION OF THE AUDIT COMMITTEE’S SELECTION OF CROWE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020

Under the Audit Committee’s Charter, the Audit Committee is responsible for selecting the Company’s independent registered public accounting firm. The Audit Committee evaluates and monitors the auditors’ qualifications, performance and independence. You can learn more about the Audit Committee’s responsibilities with respect to the independent registered public accounting firm in the Audit Committee’s charter, which is posted on our website at www.orrstown.com.

On March 10, 2020, the Audit Committee presented its conclusions regarding the independent public accounting firm to our Board of Directors. Following this presentation, the Board voted unanimously to recommend that shareholders vote to ratify the Audit Committee’s selection of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

The Audit Committee and the Board have adopted a policy that, if a majority of the votes cast at the annual meeting is against ratification, the Audit Committee will reconsider its selection of Crowe LLP. The Audit Committee, however, will be under no obligation to select a new independent public accounting firm. If the Audit Committee does select a new independent public accounting firm for 2020, the Company will not seek shareholder ratification of the Audit Committee’s new selection.

The affirmative vote of a majority of the votes cast at the annual meeting is necessary to ratify the Audit Committee’s selection of Crowe LLP, as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 Abstentions and broker non-votes, if any, will have no effect on whether or not this proposal is approved.

The Board of Directors recommends a vote FOR the ratification of the Audit Committee’s selection of Crowe LLP, as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

Relationship with Independent Registered Public Accounting Firm

Representatives of Crowe LLP, the Company’s independent registered public accounting firm for 2019, are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate shareholder questions.

Audit Fees and Non-Audit Fees

Aggregate fees billed for professional services rendered for the Company and its subsidiaries by Crowe LLP for the fiscal year ended December 31, 2019 and December 31, 2018 are set forth below:


	2019		2018
Audit fees	$	444,510	$	397,809
Audit-Related fees	—		—
Tax fees	46,750		44,668
All other fees	—		—
TOTAL	$	491,260	$	442,477

Audit fees were for professional services rendered for the audits of the consolidated financial statements of the Company, quarterly review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, consents, audit services associated with acquisitions and other assistance required to complete the year-end audit of the consolidated financial statements, assessment of the Company’s internal controls and in the review of the Company’s Annual Report on Form 10-K.

Tax fees for 2019 and 2018 were in connection with the preparation and amendments to the Company’s tax returns for 2018 and 2019, and responding to certain taxing authority inquiries and tax consulting.

There were no other fees billed by the Company’s independent registered public accounting firm for 2019 and 2018.

The Audit Committee pre-approves all audit and non-audit services provided by the independent registered public accounting firm prior to each specific engagement. The Audit Committee does not delegate pre-approval authority to any one or more of its members and in no case is pre-approval waived under the de minimus exception set forth in applicable SEC rules and regulations. In 2019, all audit and non-audit services provided by Crowe LLP were pre-approved by the Audit Committee.

Involvement in Certain Legal Proceedings

On September 27, 2016, the Company entered into a settlement agreement with the SEC resolving an investigation by the SEC of accounting and related matters at the Company for the periods ended June 30, 2010, to December 31, 2011. As part of the settlement of the SEC’s administrative proceedings, and pursuant to the cease-and-desist order, without admitting or denying the SEC’s findings, the Company agreed to pay a civil money penalty of $1 million. In the settlement agreement with the SEC, the Company also agreed to cease and desist from committing or causing any violations and any future violations of Securities Act Sections 17(a)(2) and 17(a)(3) and Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. As part of the settlement of the SEC’s administrative proceedings, and pursuant to the cease-and-desist order, without admitting or denying the SEC’s findings, Thomas R. Quinn, Jr., President and Chief Executive Officer of the Company, agreed to pay a civil money penalty to the SEC in the amount of $100,000, and to cease and desist from committing and/or causing the violations charged, as well as any future violations of these provisions.

ANNUAL REPORT ON FORM 10-K

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission, is being mailed with this Proxy Statement to all shareholders of the Company. In addition, the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, may be obtained without charge by written request to Thomas R. Brugger, Executive Vice President and Chief Financial Officer, Orrstown Financial Services, Inc., 4750 Lindle Road, Harrisburg, PA 17111. The Annual Report on Form 10-K also is available at www.orrstown.com in the investor relations section.

POTENTIAL CHANGE TO OUR ANNUAL SHAREHOLDER MEETING

AS A RESULT OF THE NOVEL CORONAVIRUS PANDEMIC

March 19, 2020

Dear Shareholders:

As of the date of this mailing, the Coronavirus is impacting our market place. Government officials and health experts are recommending the avoidance of large gatherings and social distancing to reduce the spread of the virus.

Therefore, we are working diligently to ensure a safe shareholder meeting and, in the near future, we expect to announce alternative methods of attendance, including a teleconferencing option.

Please watch for an additional written communication with further details. In the interim, we encourage you to vote your shares either online or by phone as further described on the proxy ballot card.

If you have any questions in the meantime, please contact our investor relations department directly at 717-510-7127 or by email at ir@orrstown.com.

Sincerely,

Thomas R. Quinn, Jr.

President & CEO