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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number: 0-12826
TOWER BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1445946
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Center Square, Greencastle, Pennsylvania 17225
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (717) 597-2137
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, no Par Value The Common Stock is not
registered on any exchange.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No
As of December 31, 1999, 1,762,601 shares of the
registrant's common stock were outstanding. The aggregate
market value of such shares held by nonaffiliates on that
date was $ 58,165,833.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year
ended December 31, 1999 are incorporated by reference into
Parts I and II. Portions of the Proxy Statement for 2000
Annual Meeting of Security Holders are incorporated by
reference in Part III of this Form 10-K.
- -1-
Item 1. Business.
History and Business
Tower Bancorp, Inc. ("Tower") is a bank holding
company registered under the Bank Holding Company Act of
1956, as amended. Tower was organized on October 12, 1983,
under the laws of the Commonwealth of Pennsylvania for the
purpose of acquiring The First National Bank of Greencastle,
Greencastle, Pennsylvania ("First") and such other banks and
bank related activities as are permitted by law and
desirable. On June 1, 1984, Tower acquired 100% ownership
of The First National Bank of Greencastle, issuing 159,753
shares of Tower's common stock to the former First
shareholders.
During 1995 Tower acquired 667 shares of its own
common stock and sold 2,931 shares of its common stock that
was held as treasury stock to First's ESOP plan and 144
shares to First's president as part of a stock option plan.
Tower also issued a 10% stock dividend on July 7, 1995 of
38,202 shares, increasing the total number of shares
outstanding at December 31, 1995 to 423,485.
During 1996 Tower acquired 6,475 shares of its own
common stock and sold 1,394 shares of its own common stock
that was held as treasury stock to First's ESOP plan, and
324 shares to First's president as part of a stock option
plan. Tower also issued a 100% stock dividend on April 15,
1996 of 424,090 shares, increasing the total number of
shares outstanding at December 31, 1996 to 840,213.
In 1997 Tower acquired 459 shares of its own
common stock and sold 5,259 shares of treasury stock to
First's ESOP plan, and 348 shares to First's president as
part of a stock option plan. On July 1, 1997 Tower also
issued a 5% stock dividend of 41,870 shares, increasing the
total number of shares outstanding at December 31, 1997 to
883,098.
- -2-
During 1998 Tower acquired 9,807 shares of its own
common stock and sold 5,005 shares of treasury stock to
First's ESOP plan, and 1,504 shares to First executive
officers and directors as part of a stock option plan. On
July 1, 1998 Tower issued a 2 for 1 stock split of 885,600
shares, increasing the total number of shares outstanding at
December 31, 1998 to 1,765,400.
During 1999 Tower acquired 9,691 shares of its own
common stock and sold 5,872 shares of treasury stock to
First's ESOP plan, and 1,020 shares to First executive
officers as part of a stock option plan.
Tower's primary activity consists of owning and
supervising its subsidiary, The First National Bank of
Greencastle, which is engaged in providing banking and bank
related services in South Central Pennsylvania, principally
Franklin County, where its five branches are located in
Quincy, Shady Grove, Waynesboro, Mercersburg and Laurich, as
well as its main office in Greencastle, Pennsylvania. The
day-to-day management of First is conducted by the
subsidiary's officers. Tower derives the majority of its
current income from First.
Tower has no employees other than its four
officers who are also employees of First, its subsidiary.
On December 31, 1999, First had 82 full-time and 20 part-
time employees.
- -3-
Tower contemplates that in the future it will
evaluate and may acquire, or may cause its subsidiaries to
acquire, other banks. Tower also may seek to enter
businesses closely related to banking or to acquire existing
companies already engaged in such activities. Any
acquisition by Tower will require prior approval of the
Board of Governors of the Federal Reserve System, the
Pennsylvania Department of Banking, and, in some instances,
other regulatory agencies and its shareholders. During 1996
Tower secured approval and purchased property for use as a
possible future branch office, in Washington County,
Maryland. During 1998 Tower secured approval and purchased
property for a branch office in Waynesboro, Pennsylvania.
Construction on this branch was started during 1998 and the
new branch opened in the first quarter of 1999.
Business of First
First was organized as a national bank in 1983 as
part of an agreement and plan of merger between Tower and
The First National Bank of Greencastle, the predecessor of
First, under which First became a wholly-owned subsidiary of
Tower. As indicated, First is the successor to The First
National Bank of Greencastle which was originally organized
in 1864.
First is engaged in commercial banking and trust
business as authorized by the National Bank Act. This
involves accepting demand, time and savings deposits and
granting loans (consumer, commercial, real estate, business)
to individuals, corporations, partnerships, associations,
municipalities and other governmental bodies.
Through its trust department, First renders
services as trustee, executor, administrator, guardian,
managing agent, custodian, investment advisor and other
fiduciary activities authorized by law.
- -4-
As of December 31, 1999, First had total assets of
approximately $ 207 million, total shareholders' equity of
approximately $ 22.1 million and total deposits of
approximately $ 159 million.
Regulation and Supervision
Tower Bancorp, Inc. (Tower) is a bank holding
company within the meaning of the Bank Holding Company Act
of 1956 (BHC Act), and is registered as such with the Board
of Governors of the Federal Reserve System (FRB). As a
registered bank holding company, the parent company is
required to file with the FRB certain reports and
information. Tower is also subject to examination by the
FRB and is restricted in its acquisitions, certain of which
are subject to approval by the FRB. In addition, the parent
company would be required to obtain the approval of the
Pennsylvania State Banking Department in order for it to
acquire certain bank and nonbank subsidiaries.
Under the BHC Act, a bank holding company is, with
limited exceptions, prohibited from (i) acquiring direct or
indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or (ii) engaging
in any activity other than managing or controlling banks.
With the prior approval of the FRB, however, a bank holding
company may own shares of a company engaged in activities
which the FRB determines to be so closely related to banking
or managing or controlling banks as to be a proper incident
thereto. In addition, federal law imposes certain
restrictions on transactions between Tower and its
subsidiary, First National Bank of Greencastle (First). As
an affiliate of First, Tower is subject, with certain
exceptions, to provisions of federal law imposing
limitations on, and requiring collateral for, extensions of
credit by First to its affiliates.
- -5-
The operations of First are subject to federal and
state statutes applicable to banks chartered under the
banking laws of the United States, to members of the Federal
Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation. Bank operations
are also subject to regulations of the Office of the
Comptroller of the Currency, the Federal Reserve Board and
the Federal Deposit Insurance Corporation.
The primary supervisory authority of First is the
Office of the Comptroller of the Currency (OCC), who
regularly examines such areas as reserves, loans,
investments, management practices and other aspects of bank
operations. These examinations are designed primarily for
the protection of the Bank depositors.
Federal and state banking laws and regulations
govern, among other things, the scope of a bank's business,
the investments a bank may make, the reserves against
deposits a bank must maintain, the loans a bank makes and
collateral it takes, the maximum interest rates a bank may
pay on deposits, the activities of a bank with respect to
mergers and consolidations, and the establishment of
branches, and management practices and other aspects of
banking operations. See Note 20 of the Notes to Financial
Statements for a discussion of the limitations on the
availability of Tower's subsidiary's undistributed earnings
for the payment of dividends due to such regulation and
other reasons.
- -6-
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989(FIRREA) provides among other things
that a financial institution insured by the Federal Deposit
Insurance Corporation(FDIC) sharing common ownership with a
failed institution can be required to indemnify the FDIC for
its losses resulting from the insolvency of the failed
institution, even if such indemnification causes the
affiliated institution also to become insolvent. Tower
currently has only one subsidiary and as a result has not
been significantly affected by the aforementioned provisions
of FIRREA.
The OCC issued guidelines which, effective
December 31, 1990, imposed upon national banks risk-based
capital and leverage standards. These capital requirements
of bank regulators, are discussed in Note 20 of the notes to
financial statements. Failure to meet applicable capital
guidelines could subject a national bank to a variety of
enforcement remedies available to the federal regulatory
authorities. Depending upon circumstances, the regulatory
agencies may require an institution to surpass minimum
capital ratios established by the OCC and the FRB.
In December 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted.
FDICIA contains provisions limiting activities and
business methods of depository institutions. FDICIA
requires the primary federal banking regulators to
promulgate regulations setting forth standards relating to,
among other things, internal controls and audit systems;
- -7-
credit underwriting and loan documentation; interest rate
exposure and other off-balance sheet assets and liabilities;
and compensation of directors and officers. FDICIA also
provides for expanded regulation of depository institutions
and their affiliates, including parent holding companies, by
such institutions' primary federal banking regulator. Each
primary federal banking regulator is required to specify, by
regulation, capital standards for measuring the capital
adequacy of the depository institutions it supervises and,
depending upon the extent to which a depository institution
does not meet such capital adequacy measures, the primary
federal banking regulator may prohibit such institution from
paying dividends or may require such institution to take
other steps to become adequately capitalized.
FDICIA establishes five capital tiers, ranging
from "well capitalized", to "critically undercapitalized".
A depository institution is well capitalized if it
significantly exceeds the minimum level required by
regulation for each relevant capital measure. Under FDICIA,
an institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering
interest rates on deposits higher than the prevailing rate
in its market; in addition, "pass through" insurance
coverage may not be available for certain employee benefit
accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital
- -8-
restoration plan to the appropriate federal bank regulatory
agency. One requisite element of such a plan is that the
institution's parent holding company must guarantee
compliance by the institution with the plan, subject to
certain limitations. In the event of the parent holding
company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to
federal bank regulators to maintain the capital of its
depository institution subsidiaries, would be assumed by the
bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital
ratios at December 31, 1999, the Bank is considered well
capitalized, based on the definitions in the regulations
issued by the Federal Reserve Board and the other federal
bank regulatory agencies setting forth the general capital
requirements mandated by FDICIA. See "Capital Funds" in
management's discussion and analysis in the corporation's
annual report as shown in Exhibit 13.
A federal depositor preference statute was enacted
in 1993 providing that deposits and certain claims for
administrative expenses and employee compensation against an
insured depository institution would be afforded a priority
over other general claims against such an institution,
including federal funds and letters of credit, in the
"liquidation or other resolution" of such an institution by
any receiver.
Federal regulations recently issued proposed
regulations to implement the privacy provisions of the
- -9-
Gramm-Leach-Bliley Act (Financial Services Modernization
Act). This new law requires banks to notify consumers about
their privacy policies and to give them an opportunity to
"opt-out" or prevent the bank from sharing "nonpublic
personal information" about them with nonaffiliated third
parties. Proposed regulations are expected to take effect
in November 2000. The corporation is in the process of
developing privacy policies and procedures to provide timely
disclosure of such policies and a convenient means for
consumers to opt out of the sharing of their information
with unaffiliated third parties.
The earnings of First, and therefore the earnings
of Tower, are affected by general economic conditions,
management policies, and the legislative and governmental
actions of various regulatory authorities including the FRB,
the OCC and the FDIC.
In addition to banking and securities laws,
regulations and regulatory agencies, the Corporation also is
subject to various other laws, regulations and regulatory
agencies throughout the United States. Furthermore, various
proposals, bills and regulations have been and are being
considered in the United States Congress, and various other
governmental regulatory and legislative bodies, which could
result in changes in the profitability and governance of the
Corporation. It cannot be predicted whether new legislation
or regulations will be adopted and, if so, how they would
affect the Corporation.
References under the caption "Supervision and
Regulation" to applicable statutes, regulations and orders
are brief summaries of portions thereof which do not purport
to be complete and which are qualified in their entirety by
reference thereto.
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for forward-looking statements
to encourage companies to provide prospective information
about their companies without fear of litigation so long as
- -10-
those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those projected in such statements. In
connection with certain statements made in this report and
those that may be made in the future by or on behalf of the
Corporation which are identified as forward-looking
statements, the Corporation notes that the following
important factors, among others, could cause actual results
to differ materially from those set forth in any such
forward-looking statements. Further, such forward-looking
statements speak only as of the date on which such statement
or statements are made, and the Corporation undertakes no
obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence
of unanticipated events.
The business and profitability of a financial
services organization such as the Corporation is influenced
by prevailing economic conditions and governmental policies.
The actions and policy directives of the Federal Reserve
Board determine to a significant degree the cost and the
availability of funds obtained from money market sources for
lending and investing. Federal Reserve Board policies and
regulations also influence, directly and indirectly, the
rates of interest paid by commercial banks on their
interest-bearing deposits and may also impact the value of
financial instruments held by the Corporation. The nature
and impact on the Corporation of future changes in economic
and market conditions and monetary and fiscal policies, both
foreign and domestic, are not predictable and are beyond the
- -11-
Corporation's control. In addition, these conditions and
policies can impact the Corporation's customers and
counterparties which may increase the risk of default on
their obligations to the Corporation and its affiliates.
They can also affect the competitive conditions in the
markets and products within which the Corporation operates,
which can have an adverse impact on the Corporation's
ability to maintain its revenue streams.
As part of its ongoing business, the Corporation
assumes financial exposures to interest rates, currencies,
equities and other financial products. In doing so, the
Corporation is subject to unforeseen events which may not
have been anticipated or which may have effects which exceed
those assumed within its risk management processes. This
risk can be accentuated by volatility and reduction in
liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions
concerned. In addition, the Corporation is dependent on its
ability to access the financial markets for its funding
needs.
As noted in "Supervision and Regulation", the
Corporation is regulated by and subject to various
regulators. The actions of these regulators can have an
impact on the profitability and governance of the
Corporation. Increases by regulatory authorities of minimum
- -12-
capital, reserve, deposit insurance and other financial
viability requirements can also affect the Corporation's
profitability.
The Corporation is subject to operational and
control risk which is the potential for loss caused by a
breakdown in communication, information, processing and
settlement systems or processes or a lack of compliance with
the procedures on which they rely either within the
Corporation or within the broader financial systems
infrastructure.
As with any financial institution, the Corporation
is also subject to the risk of litigation and to an
unexpected or adverse outcome in such litigation.
Competitive pressures in the marketplace and unfavorable or
adverse publicity and news coverage can have the effect of
lessening customer demand for the Corporation's services.
Ultimately, the Corporation's businesses and their success
are dependent on the Corporation's ability to attract and
retain high quality employees.
Competition
First's principal market area consists of the
southern portion of Franklin County, Pennsylvania, the
northeastern portion of Washington County, Maryland, and a
portion of Fulton County, Pennsylvania. It services a
substantial number of depositors in this market area, with
the greatest concentration within a limited radius of
Greencastle, Pennsylvania.
- -13-
First, like other depository institutions, has
been subjected to competition from less heavily regulated
entities such as brokerage firms, money market funds,
consumer finance and credit card companies and other
commercial banks, many of which are larger than First.
First is generally competitive with all competing financial
institutions in its service area with respect to interest
rates paid on time and savings deposits, service charges on
deposit accounts and interest rates charged on loans.
Item 2. Properties.
The First National Bank of Greencastle owns
buildings at Center Square, Greencastle, Pennsylvania (its
corporate headquarters); Shady Grove, Pennsylvania; 4136
Lincoln Way West, (Laurich Branch), Chambersburg,
Pennsylvania; Quincy, Pennsylvania and Waynesboro,
Pennsylvania. In addition, First leases approximately 1,500
square feet in a building located at 305 North Main Street,
Mercersburg, Pennsylvania. Offices of the bank are located
in each of these buildings. First also owns a building at
18233 Maugans Avenue in Washington County, Maryland which
may be used as a branch office at some point in the future.
- -14-
Item 3. Legal Proceedings.
Tower is an occasional party to legal actions
arising in the ordinary course of its business. In the
opinion of Tower's management, Tower has adequate legal
defenses and/or insurance coverage respecting any and each
of these actions and does not believe that they will
materially affect Tower's operations or financial position.
Item 4. Submission of Matters to Vote of Security Holders.
None
The following table sets forth selected
information about the principal officers of the holding
company, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the
Board.
- -15-
Held Employee Age as
Name/Office Held Since Since of 12/31/99
Kermit G. Hicks, Chairman
of the Board 1983 (1) 64
Harold C. Gayman, Vice
Chairman of the Board 1983 (1) 73
Jeff B. Shank, President
and Director 1992 1983 44
Betty J. Lehman, Director 1985 (1) 74
Robert L. Pensinger,
Director 1987 (1) 66
James H. Craig, Director 1990 (1) 66
Lois Easton, Director 1990 (1) 64
(1) These directors are not employees of the Bank.
Held Bank Employee Age as
Name/Office Held Since Since of 12/31/99
Jeff B. Shank, President 1992 1976 44
John H. McDowell,
Executive Vice President 1994 1977 50
Don Kunkle, Vice President 1987 1987 50
Donald Chlebowski, Vice
President 1991 1980 41
Darlene Niswander, Vice
President/Senior Trust
Officer 1991 1971 53
- -16-
Part II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.
Tower's common stock is not traded on a national
securities exchange, but is traded through the local and
over-the-counter local markets. At December 31, 1999, the
approximate number of shareholders of record was 1,040. The
price ranges for Tower common stock set forth below are the
approximate bid prices obtained from brokers who make a
market in the stock and don't reflect prices in actual
transactions.
Cash Dividends
Period Paid Market Price
1999 1st Quarter $ 0 $ 29.50 - $ 33.00
2nd Quarter .15 28.00 - 30.25
3rd Quarter .50 23.75 - 28.38
4th Quarter .32 23.50 - 26.75
1998 (1)1st Quarter $ 0 $ 24.00 - $ 28.75
2nd Quarter .13 28.50 - 32.00
3rd Quarter 0 30.00 - 36.00
4th Quarter .30 30.00 - 33.00
(1) Note: Cash dividends per share were based on
weighted average shares of common stock
outstanding after giving retroactive
recognition to a 100% stock
dividend issued in July 1998.
Item 6. Selected Financial Data
The selected five-year financial data on page 23
of the annual shareholders' report for the year ended
December 31, 1999 is incorporated herein by reference.
- -17-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial
condition and results of operations, including quantitative
and qualification disclosures about market risk on pages 27
through 31 of the annual shareholders report are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data,
some of which is required under Guide 3 (statistical
disclosures by bank holding companies) are shown on pages 2
through 31 of the annual shareholders report for the year
ended December 31, 1999 and are incorporated herein by
reference. Additional schedules required in addition to
those included in the annual shareholders report are
submitted herewith.
- -18-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
For additional information concerning liquidity, refer to
statistical disclosures applicable to the investment and loan portfolio.
Closely related to the management of liquidity is the
management of rate sensitivity, which focuses on maintaining stability in
the net interest margin. As illustrated in the table below the tax
equivalent net interest margin ranged from 4.0% to 4.1% of average earning
assets for the past 3 years. An asset/ liability committee monitors and
coordinates overall the asset/ liability strategy.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential Tax Equivalent Yields
Years Ended December 31
ASSETS 1999 1998
Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate
Investment securities:
Taxable interest
income $ 24,679 $ 1,924 6.5% $ 19,420 $ 1,272 6.7%
Nontaxable interest
income 12,860 667 5.2 10,988 562 5.1
Total investment
securities 37,539 2,591 5.9 30,408 1,834 6.4
Loans (net of unearned
discounts) 127,202 10,374 8.2 111,952 9,869 8.8
Other short-term
investments 24,098 683 6.2 18,598 845 6.1
Total interest
earning
assets 188,839 $ 13,648 7.6% 160,958 $ 12,548 8.1%
Allowance for loan
Losses ( 1,804) ( 1,870)
Cash and due
from banks 5,088 4,713
Bank premises and
equipment 3,061 2,560
Other assets 3,885 2,662
Total assets $ 199,069 $ 169,023
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 47,140 $ 975 2.1% $ 33,990 $ 629 1.9%
Savings deposits 32,965 1,040 3.2 31,565 1,086 3.4
Time deposits 63,410 3,111 4.9 61,269 3,258 5.3
Short-term
borrowings 18,923 953 5.1 7,694 369 4.4
Total interest
bearing
liabilities 162,438 $ 6,079 3.6% 134,518 $ 5,342 4.0%
Demand deposits 11,206 10,647
Other
liabilities 3,081 2,365
Total
liabilities 176,725 147,530
Stockholders'
equity 22,344 21,493
Total liabilities &
stockholders'
equity $ 199,069 $ 169,023
Net interest income/net
yield on average
earning assets $ 7,569 4.0% $ 7,206 4.1%
- -19-
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential Tax Equivalent Yields
Years Ended December 31
ASSETS 1997
Average
(000 omitted) Balance Interest Rate
Investment securities:
Taxable interest
income $ 22,596 $ 1,724 6.7%
Nontaxable interest
income 9,608 495 5.2
Total investment
securities 32,204 2,219 6.4
Loans (net of unearned
discounts) 102,439 9,221 9.0
Other short-term
investments 14,319 537 7.1
Total interest
earning assets 148,962 $ 11,977 8.2%
Allowance for loan
losses ( 1,931)
Cash and due from banks 3,450
Bank premises and
equipment 2,262
Other assets 2,521
Total assets $ 155,264
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 31,820 $ 638 2.1%
Savings deposits 27,647 905 3.3
Time deposits 62,592 3,503 5.5
Short-term borrowings 2,288 121 5.9
Total interest
bearing liabilities 124,347 $ 5,167 4.1%
Demand deposits 8,835
Other liabilities 3,013
Total liabilities 136,195
Stockholders' equity 19,069
Total liabilities &
stockholders'
equity $ 155,264
Net interest income/net
yield on average
earning assets $ 6,810 4.1%
For purposes of calculating loan yields, the average loan
volume includes nonaccrual loans. For purposes of calculating yields on
nontaxable interest income, the taxable equivalent adjustment is made to
equate nontaxable interest on the same basis as taxable interest. The
marginal tax rate was 34% for 1999, 1998 and 1997.
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CHANGES IN NET INTEREST INCOME
TAX EQUIVALENT YIELDS
1999 Versus 1998
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned
discounts) $ 1,342 ($ 837) $ 505
Taxable investment securities 352 300 652
Nontaxable investment securities 95 10 105
Other short-term investments 335 ( 497) ( 162)
Total interest income 2,124 ( 1,024) 1,100
Interest Expense
Interest bearing demand 250 96 346
Savings deposits 48 ( 94) ( 46)
Time deposits 113 ( 260) ( 147)
Other short-term borrowings 494 90 584
Total interest expense 905 ( 168) 737
Net interest income $ 363
Changes which are attributed in part to volume and in
part to rate are allocated in proportion to their
relationships to the amounts of changes.
- -20-
1998 Versus 1997
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned
discounts) $ 856 ($ 208) $ 648
Taxable investment
securities ( 213) ( 239) ( 452)
Nontaxable investment securities 72 ( 5) 67
Other short-term investments 304 4 308
Total interest income 1,019 ( 448) 571
Interest Expense
Interest bearing demand 46 ( 55) ( 9)
Savings deposits 129 52 181
Time deposits ( 73) ( 172) ( 245)
Other short-term borrowings 319 ( 71) 248
Total interest expense 421 ( 246) 175
Net interest income $ 396
Changes which are attributed in part to volume and in
part to rate are allocated in proportion to their
relationships to the amounts of changes.
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following table shows the maturities of investment
securities at book value as of December 31, 1999, and
weighted average yields of such securities. Yields are
shown on a tax equivalent basis, assuming a 34% federal
income tax rate.
After 1 year After 5 years
Within but within but within
1 year 5 years 10 years
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 200 $ 0 $ 0
Yield 7.16%
U. S. Government
agencies/mortgage-
backed securities
Book value $ 7,437 $ 10,711 $ 2,585
Yield 6.55 6.26 6.77
State and municipal
Book value $ 780 $ 2,080 $ 12,618
Yield 7.97 7.51 7.63
Other
Book value $ 533 $ 3,318 $ 2,719
Yield 6.67 5.98 5.09
Total book value $ 8,950 $ 16,109 $ 17,922
Yield
- -21-
After
10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 0 $ 200
Yield 7.16%
U. S. Government
agencies/mortgage-
backed securities
Book value $ 250 $ 20,983
Yield 7.00% 6.44%
State and municipal
Book value $ 0 $ 15,478
Yield 7.63%
Other
Book value $ 94 $ 6,664
Yield 6.58% 6.17%
Total book value $ 344 $ 43,325
Yield
Equity Securities:
Total Equity Securities $ 10,835
Yield 2.40%
Total Investment Securities $ 54,160
Yield 5.94%
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOAN PORTFOLIO
The following table presents the loan portfolio at
the end of each of the last five years:
1999 1998 1997 1996 1995
(000 omitted)
Commercial, financial
& agricultural $ 15,047 $ 15,164 $ 10,699 $ 10,009 $ 8,736
Real estate -
Construction 4,146 2,378 1,486 2,326 1,494
Real estate -
Mortgage 93,340 87,350 80,597 78,990 76,624
Installment & other
personal loans
(net of unearned
income) 19,227 18,798 11,556 9,716 8,996
Total loans $ 131,760 $ 123,690 $ 104,338 $ 101,041 $ 95,850
Presented below are the approximate maturities of the
loan portfolio (excluding real estate mortgage and
installments) at December 31, 1999:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial &
agricultural $ 10,533 $ 2,257 $ 2,257 $ 15,047
Real estate -
Construction 4,146 0 0 4,146
Total $ 14,679 $ 2,257 $ 2,257 $ 19,193
The following table presents the approximate amount of
fixed rate loans and variable rate loans due as of
December 31, 1999:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 16,171 $ 11,172
Due after one but within
five years 32,570 11,050
Due after five years 33,094 27,703
Total $ 81,835 $ 49,925
- -22-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
1999 1998 1997 1996 1995
(000 omitted)
Average total loans
outstanding (net of
unearned
income) $ 127,202 $ 111,952 $ 102,439 $ 99,046 $ 95,088
Allowance for loan
losses, beginning
of period 1,890 1,850 1,947 1,945 1,856
Additions to provision
for loan losses
charged to
operations 0 0 0 0 0
Loans charged off
during the year
Commercial 8 0 58 5 0
Real estate
mortgage 29 1 0 0 7
Instal-
lment 179 46 57 9 13
Total charge-
off's 216 47 115 14 20
Recoveries of loans
previously charged off:
Commercial 4 43 11 6 75
Installment 35 20 7 9 27
Mortgage 6 24 0 1 7
Total
recov-
eries 45 87 18 16 109
Net loans charged off
(recovered) 171 ( 40) 97 ( 2)( 89)
Allowance for loan
losses, end of
period 1,719 1,890 1,850 1,947 1,945
Ratio of net loans
charged off (recovered)
to average loans
outstanding .13% ( .04%) .09% ( .003)% ( .09)%
The provision is based on an evaluation of the
adequacy of the allowance for possible loan losses. The
evaluation includes, but is not limited to, review of net
loan losses for the year, the present and prospective
financial condition of the borrowers and evaluation of
current and projected economic conditions.
- -23-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOANS
The following table sets forth the outstanding
balances of those loans on a nonaccrual status and those on
accrual status which are contractually past due as to
principal or interest payments for 60 days and 90 days or
more at December 31.
1999 1998 1997 1996 1995
(000 omitted)
Nonaccrual loans $ 460 $ 488 $ 477 $ 77 $ 135
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
60 - 89 days past due 379 417 315 216 252
90 days or more past
due 27 0 1 87 115
Total accrual
loans $ 406 $ 417 $ 316 $ 303 $ 367
See Note 8 of the Notes to Consolidated Financial
Statements for details of income recognized and foregone
revenue on nonaccrual loans for the past three years, and
disclosures of impaired loans.
Management has not identified any significant
problem loans in the accrual loan categories shown above.
- -24-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following is an allocation by loan categories
of the allowance for loan losses at December 31 for the last
five years. In retrospect the specific allocation in any
particular category may prove excessive or inadequate and
consequently may be reallocated in the future to reflect the
then current conditions. Accordingly, the entire allowance
is available to absorb losses in any category:
Years Ended December 31
1999 1998
Percentage of Percentage of
Loans in Each Loans in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and
agricultural $ 812 11.2% $ 815 12.5%
Real estate -
Construction 0 3.1 0 2.0
Real estate -
Mortgage 630 70.8 653 70.2
Installment 0 14.9 0 15.3
Unallocated 277 N/A 422 N/A
Total $ 1,719 100.0 $ 1,890 100.0
Years Ended December 31
1997 1996
Percentage of Percentage of
Loans in Each Loans in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and
agricultural $ 772 10.3% $ 819 9.9%
Real estate -
Construction 0 1.4 0 2.3
Real estate -
Mortgage 630 77.2 630 78.2
Installment 0 11.1 48 9.6
Unallocated 448 N/A 450 N/A
Total $ 1,850 100.0 $ 1,947 100.0%
- -25-
Years Ended December 31
1995
Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 818 9.1%
Real estate -
Construction 0 1.6
Real estate -
Mortgage 629 79.9
Installment 48 9.4
Unallocated 450 N/A
Total $ 1,945 100.0%
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized
below:
Years Ended December 31
1999 1998 1997
(000 omitted)
Demand deposits $ 11,206 $ 10,647 $ 8,835
Interest bearing demand
deposits 47,140 33,990 31,820
Savings deposits 32,965 31,565 27,647
Time deposits 63,410 61,269 62,592
Total deposits $ 154,721 $ 137,471 $ 130,894
The following is a breakdown of maturities of time
deposits of $ 100,000 or more as of December 31, 1999:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 2,579
Over three months through twelve
months 8,754
Over twelve months 3,091
$ 14,424
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE
BALANCES)
The following table presents a summary of significant
earnings and capital ratios:
1999 1998 1997
Assets $ 206,874 $ 187,335 $ 159,935
Net income $ 3,203 $ 2,909 $ 2,694
Equity $ 22,136 $ 22,552 $ 20,433
Cash dividends paid $ 1,711 $ 751 $ 675
Return on assets 1.63% 1.72% 1.74%
Return on equity 14.09% 13.54% 14.17%
Dividend payout ratio 53.42% 25.82% 25.06%
Equity to asset ratio 11.42% 12.72% 12.25%
- -26-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
1999 1998 1997 1996 1995
(000 omitted)
Interest income $ 13,648 $ 12,548 $ 11,977 $ 11,156 $ 11,002
Interest
expense 6,079 5,342 5,167 4,811 4,703
Net interest
income 7,569 7,206 6,810 6,345 6,299
Provision for loan
losses 0 0 0 0 0
Net interest income
after provision
for loan
losses 7,569 7,206 6,810 6,345 6,299
Other income:
Trust 492 391 293 252 200
Service charges -
deposits 291 281 288 277 288
Other service charges,
collection and exchange,
charges, commission
fees 388 212 181 159 102
Other operating
income 1,651 1,198 628 302 129
Total other
income 2,822 2,082 1,390 990 719
Income before
operating
expense 10,391 9,288 8,200 7,335 7,018
Operating expenses:
Salaries and employees
benefits 2,922 2,483 2,179 1,995 1,917
Occupancy and equipment
expense 1,252 1,220 964 952 898
Other operating
expenses 1,767 1,430 1,253 1,108 1,106
Total operating
expenses 5,941 5,133 4,396 4,055 3,921
Income before income
Taxes 4,450 4,155 3,804 3,280 3,097
Income tax 1,247 1,246 1,110 944 812
Net income applicable
to common
stock $ 3,203 $ 2,909 $ 2,694 $ 2,336 $ 2,285
Per share data:
Earnings per common
share $ 1.82 $ 1.68 $ 1.53 $ 1.32 $ 1.29
Cash dividend -
Common $ .97 $ .43 $ .38 $ .31 $ .28
Average number of
common
shares 1,763,548 1,732,479 1,765,056 1,775,069 1,771,728
- -27-
Item 9. Disagreements on Accounting and Financial
Disclosures.
Not applicable.
- -28-
PART III
The information required by Items 10, 11, 12 and
13 is incorporated by reference from Tower Bancorp, Inc.'s
definitive proxy statement for the 2000 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
- -29-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports of Form 8-K.
(a) (1) - List of Financial Statements
The following consolidated financial statements of
Tower Bancorp and its subsidiary, included in the
annual report of the registrant to its
shareholders for the year ended December 31, 1999,
are incorporated by reference in Item 8:
Consolidated balance sheets - December 31,
1999 and 1998
Consolidated statements of income - Years
ended December 31, 1999, 1998 and 1997
Consolidated statements of stockholders'
equity - Years ended December 31, 1999, 1998,
and 1997
Consolidated statements of cash flows - Years
ended December 31, 1999, 1998, and 1997
Notes to consolidated financial statements -
December 31, 1999
(2) List of Financial Statement Schedules
Schedule I - Distribution of assets,
liabilities and stockholders' equity, interest
rate and interest differential and changes in
net interest income
Schedule II - Investment portfolio
Schedule III - Loan portfolio
- -30-
Schedule IV - Summary of loan loss experience,
nonaccrual loans and allocation of allowance
for loan losses
Schedule V - Deposits
Schedule VI - Return on equity and assets
Schedule VII - Consolidated summary of
operations
All other schedules for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3) (i) Articles of incorporation
Exhibit (3) (ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (10) Material contracts
Exhibit (13) Annual report to security
holders
Exhibit (21) Subsidiaries of the registrant
Exhibit (23.1) Consent of independent auditors
Exhibit (27) Financial data schedule
All other exhibits for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
- -31-
(b) Reports on Form 8-K filed
None
(c) Exhibits
(3)(i) Articles of incorporation. Incorporated
by reference to Form 8-K dated May 26,
1998.
(ii) By-laws. Incorporated by reference
to Exhibit D to the Registrant's
Registration Statement on Form S-14,
Registration No. 2-89573.
(4) Instruments defining the rights of
security holders including indentures.
The rights of the holders of Registrant's
common stock are contained in:
(i) Articles of Incorporation of Tower
Bancorp, Inc., incorporated by
reference to Form 8-K dated May 26,
1998.
(ii) By-laws of Tower Bancorp, Inc., filed
as Exhibit D to the Registrant's
Registration Statement on Form S-14
(Registration No. 2-89573).
(10)(i) Change of control agreements,
Incorporated by reference to the
registrant's Form 10K filing dated
March 22, 1999 Exhibit 10-1 and 10-2
for the year ended December 31, 1998.
- -32-
(ii) Non-Qualified stock option plan;
stock option plan for outside
directors and amended and restated
employee stock ownership plan filed
as Exhibit 99.1 to the Registrant's
Statement on Form S-8 (Registration
No. 333-40661).
(13) Annual report to security holders - filed
herewith
(21) Subsidiaries of the registrant - filed
herewith
(23.1) Consent of independent auditors - filed
herewith
(27) Financial data schedule - filed herewith
(d) Financial statement schedules
The following financial statement schedules
required under Article 9 Industry Guide 3 have
been included on pages 18 to 27 under Item 8
of this report:
Schedule I - Distribution of assets,
liabilities and stockholders' equity, interest
rates and interest differential and changes in
net interest income
Schedule II - Investment portfolio
Schedule III - Loan portfolio
- -33-
Schedule IV - Summary of loan loss experience,
nonaccrual loans, and allocation of allowance
for loan losses
Schedule V - Deposits
Schedule VI - Return on equity and assets
Schedule VII - Consolidated summary of
operations
- -34-
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TOWER BANCORP, INC.
(Registrant)
By /s/ Jeff B. Shank
Jeff B. Shank, President
(Principal Executive
Officer and
Principal Financial
Officer)
By /s/ Donald F. Chlebowski
Donald F. Chlebowski, Jr.,
Treasurer (Principal
Accounting Officer)
Dated: March 15, 2000
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Jeff B. Shank President & March 15, 2000
Jeff B. Shank Director
/s/ Betty J. Lehman Director March 15, 2000
Betty J. Lehman
/s/ Kermit G. Hicks Chairman of the March 15, 2000
Kermit G. Hicks Board & Director
/s/Robert L. Pensinger Director March 15, 2000
Robert L. Pensinger
/s/ Harold C. Gayman Vice Chairman of March 15, 2000
Harold C. Gayman the Board & Director
/s/James H. Craig, Jr. Director March 15, 2000
James H. Craig, Jr.
/s/ Lois Easton ____ Director March 15, 2000
Lois Easton
- -35-
Exhibit Index
Exhibit No. Sequentially numbered
pages
13 Annual report to security holders
21 Subsidiaries of the Registrant
23.1 Consent of independent auditors
27 Financial data schedule
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. The First National Bank of Greencastle, Center Square,
Greencastle, Pennsylvania; a National Bank organized
under the National Bank Act.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tower Bancorp, Inc.
We consent to the incorporation by reference in the
registration statements (Form S-14 No. 2-89573 and Form S-8 No.
333-40661) of our report dated January 28, 2000, with respect to
the consolidated balance sheets of Tower Bancorp, Inc. and
subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity and cash
flows for the three year period ended December 31, 1999, which
report is incorporated by reference in the December 31, 1999
annual report to stockholders on Form 10-K of Tower Bancorp, Inc.
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, PA
March 15, 2000