Orrstown Financial Services (ORRF) reached a legal settlement with PL Capital over a requirement that the outside investor said wrongly benefited management.

PL Capital last year threatened, then filed a lawsuit against, over Orrstown over an alleged violation of enforcement actions levied against the $1.2 billion-asset company. The allegations centered on Orrstown's decision to change its bylaws to require that its directors maintain a permanent residence within 50 miles of the company's Shippensburg, Pa., headquarters.

As part of settlement, Orrstown will rescind the residence requirement and another requirement barring directors from serving as officials at other banks. Orrstown will also pay up to $125,000 of PL Capital's legal fees.

PL Capital agreed to withdraw its lawsuit and withdraw its nomination of Richard Lashley to the Orrstown board. PL Capital also agreed to hold off on engaging in a proxy contest this year.

The settlement agreement, reached last Thursday, was disclosed in a Monday filing with the Securities and Exchange Commission.

The settlement comes after Orrstown undertook a broad cost-cutting effort, pared nonperforming loans and hired executives from other banks. Orrstown reported a fourth-quarter profit, earning roughly $1 million after enduring several quarters of losses.

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