EXHIBIT 10.4

                                  ORRSTOWN BANK
                          DIRECTOR RETIREMENT AGREEMENT

     THIS AGREEMENT is made this 1st day of October 1998, by and between
ORRSTOWN BANK, a state commercial bank located in Orrstown, Pennsylvania (the
"Company"), and Kenneth R. Shoemaker (the "Director").

                                  INTRODUCTION

     To encourage the Director to remain a member of the Company's Board of
Directors, the Company is willing to provide retirement benefits to the
Director. The Company will pay the retirement benefits from its general assets
according to the terms of this Agreement.

                                    AGREEMENT

     The Director and the Company agree as follows:

                                   Article 1
                                  Definitions

     1.1 Definitions. Whenever used in this Agreement, the following words and
phrases shall have the meanings specified:

     1.1.1 "Change of Control" shall mean any of the following:

          (A) any person (as such term is used in Section 13(d) and 14(d)(2) of
     the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
     than the Corporation, a subsidiary of the Corporation, an employee benefit
     plan (or related trust) of the Corporation or a direct or indirect
     subsidiary of the Corporation, or affiliates of the Corporation (as defined
     in Rule 12b-2 under the Exchange Act), becomes the beneficial owner (as
     determined pursuant to Rule 13d-3 under the Exchange Act), directly or
     indirectly, of securities of the Corporation representing more than 20% of
     the combined voting power of the Corporation's then outstanding securities
     or announces a tender offer or exchange offer for securities of the
     Corporation representing more than 20% of the combined voting power of the
     Corporation's then outstanding securities; or

          (B) the liquidation or dissolution of the Corporation or the Company
     or the occurrence of, or execution of an agreement providing for, a sale of
     all or substantially all of the assets of the Corporation or the Company to
     entity which is not a direct or indirect subsidiary of the Corporation; or

          (C) the occurrence of, or execution of an agreement providing for, a
     reorganization, merger, consolidation or other similar transaction or
     connected series of transactions of the Corporation as a result of which
     either (a) the Corporation does not survive or (b) pursuant to which shares
     of the Corporation common stock ("Common Stock") would be converted into
     cash, securities or other property, unless, in case of either (a) or (b),
     the holders of Corporation Common Stock immediately prior to such
     transaction will, following the consummation of the transaction.
     beneficially own, directly or indirectly, more than 50% of the combined
     voting power of the then outstanding voting securities entitled to vote
     generally in the election of directors of the corporation surviving,
     continuing or resulting from such transaction; or

          (D) the occurrence of, or execution of an agreement providing for, a
     reorganization, merger, consolidation, or similar transaction of the
     Corporation, or before any connected series of such transactions, if, upon
     consummation of such transaction or transactions, the persons who are
     members of the Board of Directors of the Corporation immediately before
     such transaction or transactions cease or, the case of the execution of an
     agreement for such transaction or transactions, it is contemplated in such
     agreement that upon consummation such persons would cease, to constitute a
     majority of the Board of Directors of the Corporation or, in a case where
     the Corporation does not survive in such transaction, of the corporation
     surviving, continuing or resulting from such transaction or transactions;
     or

          (E) any other event which is at any time designated as a "Change of
     Control" for purposes of this Agreement by a resolution adopted by the
     Board of Directors of the Corporation with the affirmative vote of a
     majority of the non-employee directors in office at the time the resolution
     is adopted; in the event any such resolution is adopted, the Change of
     Control event specified thereby shall be deemed incorporated herein by
     reference and thereafter may not be amended, modified or revoked without
     the written agreement of Director.

          Notwithstanding anything else to the contrary set forth in this
     Agreement, if (i) an agreement is executed by the Corporation or the
     Company providing for any of the transactions or events constituting a
     Change of Control as defined herein, and the agreement subsequently expires
     or is terminated without the transaction or event being consummated, and
     (ii) Director's service did not terminate during the period after the
     agreement and prior to such expiration or termination, for purposes of this
     Agreement it shall as though such agreement was never executed and no
     Change of Control event shall be deemed to have occurred as a result of the
     execution of such agreement.

     1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.

     1.1.3 "Corporation" means 0rrstown Financial Services, Inc.

     1.1.4 "Disability" means the Director suffering a sickness, accident or
injury which, in the judgment of a physician satisfactory to the Company,
prevents the Director from performing substantially all of the Director's normal
duties for the Company. As a condition to any benefits, the Company may require
the Director to submit to such physical or mental evaluations and tests as the
Company's Board of Directors deems appropriate.

     1.1.5 "Early Termination" means the Termination of Service before Normal
Retirement Age for reasons other than death, Disability, Termination for Cause
or following a Change of Control.

     1.1.6 "Early Termination Date" means the month, day and year which Early
Termination occurs.

     1.1.7 "Normal Retirement Age" means the Director's 65th birthday.

     1.1. 8 "Normal Retirement Date" means the later of the Normal Retirement
Age or Termination of Service.

     1.1.9 "Plan Year" means a twelve-month period commencing on October 1 and
ending on September 30 of each year. The initial Plan Year shall commence on the
effective date of this Agreement.

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     1.1.10 "Termination for Cause" See Section 5.2.

     1.1.11 "Termination of Service" means that the Director ceases to be
employed by the company for any reason whatsoever other than by reason of a
leave of absence which is approved by the company. For purposes of this
Agreement, if there is a dispute over the service status of the Director or the
date of the Director's Termination of Service, the Company shall have the sole
and absolute right to decide the dispute.

                                    Article 2
                                Lifetime Benefits

     2.1 Normal Retirement Benefit. Upon Termination of Service on or after the
Normal Retirement Age for reasons other than death, the Company shall pay to the
Director the benefit described in this Section 2.1 in lieu of any other benefit
under this Agreement.

     2.1.1 Amount of Benefit. The annual Normal Retirement Benefit under this
Section 2.1 is $24,308 (twenty-four thousand three hundred eight dollars). The
Company may increase the annual benefit under this Section 2.1 at the sole and
absolute discretion of the Company's Board of Directors. Any increase in the
annual benefit shall require the recalculation of all the amounts on Schedule A
attached hereto. The annual benefit amounts on Schedule A are calculated by
amortizing the annual normal retirement benefit using the interest method of
accounting, a 7.50% discount rate, monthly compounding and monthly payments.

     2.1.2 Payment of Benefit. The Company shall pay the annual benefit to the
Director in 12 equal monthly installments payable on the first day of each month
commencing with the month following the Director's Normal Retirement Date and
continuing for 119 additional months.

     2.1.3 Benefit Increases. Commencing on the first anniversary of the first
benefit payment, and continuing on each subsequent anniversary, the Company's
Board of Directors, in its sole discretion, may increase the benefit.

     2.2 Early Termination Benefit. Upon Early Termination, the Company shall
pay to the Director the benefit described in this Section 2.2 in lieu of any
other benefit under this Agreement.

     2.2.1 Amount of Benefit. The annual benefit under this Section 2.2 is the
Early Termination Annual Benefit set forth in Schedule A for the Plan Year
ending immediately prior to the Early Termination Date.

     2.2.2 Payment of Benefit. The Company shall pay the annual benefit to the
Director in 12 equal monthly installments payable on the first day of each month
commencing with the month following the Director's Normal Retirement Age and
continuing for 119 additional months.

     2.2.3 Benefit Increases. Benefit payments may be increased as provided in
Section 2.1.3.

     2.3 Disability Benefit. If the Director terminates service due to
Disability prior to Normal Retirement Age, the Company shall pay to the Director
the benefit described in this Section 2.3 in lieu of any other benefit under
this Agreement.

     2.3.1 Amount of Benefit. The annual benefit under this Section 2.3 is the
Disability Benefit amount set forth in Schedule A for the Plan Year ending
immediately prior to the date in which Termination of Service occurs.

     2.3.2 Payment of Benefit. The Company shall pay the benefit to the Director
in 12 equal monthly installments commencing within 90 days after the date of the
Director's Termination of Service and continuing for 119 additional months.

     2.3.3 Benefit Increases. Benefit payments may be increased as provided in
Section 2.1.3.

     2.4 Change of Control Benefit. If the Director is in the active service of
the Company at the time of a Change of Control, the Company shall pay to the
Director the benefit described in this Section 2.4 in lieu of any other benefit
under this Agreement.

     2.4.1 Amount of Benefit. The annual benefit under this Section 2.4 is the
Normal Retirement Benefit described in Section 2.1.1.

     2.4.2 Payment of Benefit. The Company shall pay the annual benefit amount
to the Director in 12 equal monthly installments payable on the first day of
each month commencing with the month following the Director's Normal Retirement
Date and continuing for 119 additional months.

     2.4.3 Benefit Increases. Benefit payments may be increased provided in
Section 2.1.3

                                    Article 3
                                 Death Benefits

     3.1 Death During Active Service. If the Director dies while in the active
service of the Company, the Company shall pay to the Director's beneficiary the
benefit described this Section 3. 1. This benefit shall be paid in lieu of the
Lifetime Benefits of Article 2.

     3.1.1 Amount of Benefit. The annual benefit under this Section 3. 1 is the
Normal Retirement Benefit described in Section 2.1.1.

     3.1.2 Payment of Benefit. The Company shall pay the annual benefit to the
beneficiary in 12 equal monthly installments payable on the first day of each
month commencing with the month following the Director's death and continuing
for 119 additional months.

     3.2 Death During Benefit Period. If the Director dies after the benefit
payments have commenced under this Agreement but before receiving all such
payments, the Company shall pay the remaining benefits to the Director's
beneficiary at the same time and in the same amounts they would have been paid
to the Director had the Director survived.

     3.3 Death Following Termination of Service But Before Benefits Commence. If
the Director is entitled to benefits under this Agreement, but dies prior to
receiving said benefits, the Company shall pay to the Director's beneficiary the
same benefits, in the same manner, they would have been paid to the Director had
the Director survived; however, said benefit payments will commence upon the
Director's death.

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                                    Article 4
                                  Beneficiaries

     4.1 Beneficiary Designations. The Director shall designate a beneficiary by
filing a written designation with the Company. The Director may revoke or modify
the designation at any time by filing a new designation. However, designations
will only be effective if signed by the Director and accepted by the Company
during the Director's lifetime. The Director's beneficiary designation shall be
deemed automatically revoked if the beneficiary predeceases the Director, or if
the Director names a spouse as beneficiary and the marriage is subsequently
dissolved. If the Director dies without a valid beneficiary designation, all
payments shall be made to the Director's estate.

     4.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incapacitated, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incapacitated
person or incapable person. The Company may require proof of incapacity,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.

                                    Article 5
                               General Limitations

     Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay any benefit under this Agreement:

     5.1 Excess Parachute Payment. To the extent the benefit would be an excess
parachute payment under Section 280G of the Code.

     5.2 Termination for Cause. If the Company terminates the Director's service
for:

     5.2.1 Gross negligence or gross neglect of duties;

     5.2.2 Commission of a felony or of a gross misdemeanor involving moral
turpitude; or

     5.2.3 Fraud, disloyalty, dishonesty or willful violation of any law or
significant Company policy committed in connection with the Director's service
and resulting in an adverse effect on the Company.

     5.3 Competition After Termination of Service. If the Director, without the
prior written consent of the Company, engages in, becomes interested in,
directly or indirectly, as a sole proprietor, as a partner in a partnership, or
as a substantial shareholder in a corporation, or becomes associated with, in
the capacity of employee, director, officer, principal, agent, trustee or in any
other capacity whatsoever, any enterprise conducted in the trading area (a 50
mile radius of the main office of the Company at the comer of King and Penn
Streets), which enterpise is, or may deemed to be, competitive with any business
carried on by the Company as of the date of termination of the Director's
service or his retirement. This section shall not apply following a Change of
Control.

     5.4 Suicide or Misstatement. If the Director commits suicide within two
years after the date of this Agreement, or if the Director has made any material
misstatement of fact on any application for life insurance purchased by the
Company.

                                    Article 6
                          Claims and Review Procedures

     6.1 Claims Procedure. The Company shall notify any person or entity that
makes a claim against the Agreement (the "Claimant") in writing, within ninety
(90) days of Claimant's written application for benefits, of his or her
eligibility or noneligibility for benefits under the Agreement. If the Company
determines that the Claimant is not eligible for benefits or full benefits, the
notice shall set forth (1) the specific reasons for such denial, (2) a specific
reference to the provisions of the Agreement on which the denial is based, (3) a
description of any additional information or material necessary for the Claimant
to perfect his or her claim, and a description of why it is needed, and (4) an
explanation of the Agreement's claims review procedure and other appropriate
information as to the steps to be taken if the Claimant wishes to have the claim
reviewed. If the Company determines that there are special circumstances
requiring additional time to make a decision, the Company shall notify the
Claimant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional ninety-day
period.

     6.2 Review Procedure. If the Claimant is determined by the Company not to
be eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the Claimant
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the Claimant (and counsel, if any) an opportunity to present his or
her position to the Company orally or in writing, and the Claimant (or counsel)
shall have the right to review the pertinent documents. The Company shall notify
the Claimant of its decision in writing within the sixty-day period, stating
specifically the basis of its decision, written in a manner calculated to be
understood by the Claimant and the specific provisions of the Agreement on which
the decision is based. If, because of the need for a hearing, the sixty-day
period is not sufficient, the decision may be deferred for up to another
sixty-day period at the election of the Company, but notice of this deferral
shall be given to the Claimant.

                                    Article 7
                           Amendments and Termination

     This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Director.

                                    Article 8
                                  Miscellaneous

     8.1 Binding Effect. This Agreement shall bind the Director and the Company,
and their beneficiaries, survivors, executors, successors, administrators and
transferees.

     8.1 No Guarantee of Service. This Agreement does not give the Director the
right to remain a member of the Company's Board of Directors, nor does it
interfere with the Company's right to terminate the service of the Director. It
also does not interfere with the Director's right. to terminate his or her
service at any time.

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     8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.

     8.4 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.

     8.5 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the Commonwealth of Pennsylvania, except to the extent
preempted by the laws of the United States of America.

     8.6 Unfunded Arrangement. The Director and beneficiary are general
unsecured creditors of the Company for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Company to pay such
benefits. The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Director's life is a general
asset of the Company to which the Director and beneficiary have no preferred or
secured claim.

     8.7 Recovery of Estate Taxes. If the Director's gross estate for federal
estate tax purposes includes any amount determined by reference to and on
account of this Agreement, and if the beneficiary is other than the Director's
estate, then the Director's estate shall be entitled to recover from the
beneficiary receiving such benefit under the terms of the Agreement, an amount
by which the total estate tax due by the Director's estate, exceeds the total
estate tax which would have been payable if the value of such benefit had not
been included in the Director's gross estate. If there is more than one person
receiving such benefit, the right of recovery shall be against each such person.
In the event the beneficiary has a liability hereunder, the beneficiary may
petition the Company for a lump sum payment in an amount not to exceed the
beneficiary's liability hereunder.

     8.8 Entire Agreement. This Agreement constitutes the entire agreement
between the Company and the Director as to the subject matter hereof. No rights
are granted to the Director by virtue of this Agreement other than those
specifically set forth herein.

     8.9 Administration. The Company shall have powers which are necessary to
administer this Agreement, including but not limited to:

     8.9.1 Interpreting the provisions of the Agreement;

     8.9.2 Establishing and revising the method of accounting for the Agreement;

     8.9.3 Maintaining a record of benefit payments; and

     8.9.4 Establishing rules and prescribing any forms necessary or desirable
to administer the Agreement


     IN WITNESS WHEREOF, the Director and a duly authorized Company officer have
signed this Agreement.

DIRECTOR:                                     COMPANY:
                                              ORRSTOWN BANK

__________________________                    By ___________________________
Kenneth R. Shoemaker
                                              Title ________________________

     By execution hereof, Orrstown Financial Services, Inc. consents to and
agrees to be bound by the terms and condition of this Agreement.


ATTEST:                                       CORPORATION:
                                              ORRSTOWN FINANCIAL SERVICES, INC.

__________________________                    By ___________________________

                                              Title ________________________




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