An activist investor group has threatened to file a lawsuit against Orrstown Financial Services (ORRF) unless the Shippensburg, Pa., company makes certain changes to its bylaws.

PL Capital, which is run by Richard Lashley and John Palmer, claim in a Dec. 3 letter to Orrstown's management, that the company violated state and federal regulators' enforcement actions when it changed its bylaws to require directors maintain a permanent residence within 50 miles of Orrstown's headquarters.

The investors, which own a 6.8% stake in Orrstown, also claim that the $1.3 billion-asset company violated its regulators' orders when it barred anyone from joining the board who is an executive or director at another bank. The "intent is to frustrate our legitimate stockholder right to seek board representation, not a coincidental review of corporate governance practices," Lashley and Palmer wrote in the letter.

Lashley, who says he would likely be the board nominee, "appears to have far more relevant banking, financial, accounting and bank board experience than any current" director, the letter said.

PL Capital reported in October that it had purchased a minority stake in Orrstown. At the time, PL Capital promised to monitor the company's performance.

Orrstown reported a third-quarter loss of $21.4 million, largely because of a tax-related expense. Regulators placed Orrstown under an enforcement action in March, saying it must strengthen its credit risk-management practices.

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