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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, 1995
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, Par Value $ 2.50 The Common Stock is not
Per Share 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, 1995, 423,485 shares of the registrant's common
stock were outstanding. The aggregate market value of such shares
held by nonaffiliates on that date was $ 19,056,825.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December31, 1995 are incorporated by reference into Parts I and
II. Portions of the Proxy Statement for 1996 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 October12, 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 June1,
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 1990 Tower acquired 2,125 of its common stock that is held
as Treasury Stock at December31, 1990, decreasing the total number of
outstanding shares at year-end to 349,101. In April of 1991, Tower sold
335 shares of its common stock that were held as Treasury Stock increasing
the total number of outstanding shares at December31, 1991 to 349,436.
During 1992 Tower acquired 2,512 shares of its common stock and sold 1,850
shares of its common stock that was held as Treasury Stock to First's ESOP
plan, decreasing the total number of shares outstanding at December31,
1992 to 348,774. During 1993 Tower acquired 2,400 shares of its common
stock and sold 1,662 shares of its common stock that was held as treasury
stock to First's ESOP plan, decreasing the total number of shares
outstanding at December 31, 1993 to 348,036. During 1994 Tower acquired
1,634 shares of its own common stock and sold 1,841 shares of its common
stock that was held as treasury stock to First's ESOP plan. Tower also
issued a 10% stock dividend on July 15, 1994 of 34,662 shares, increasing
the total number of shares outstanding at December 31, 1994 to 382,875.
- -2-
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.
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 four branches are located in Quincy,
Shady Grove, 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 December31, 1995, First had 56
full-time and 19 part-time employees.
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. Tower currently
is in the process of securing approval for the purchase of property, to be
used as a branch office, in Washington County, Maryland.
- -3-
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.
As of December31, 1995, First had total assets of approximately
$137 million, total shareholders' equity of approximately $14 million and
total deposits of approximately $120 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). Tower is subject to examination by the FRB and is restricted
in its acquisitions, certain of which are prohibited and certain of which
are subject to approval by the FRB. The FRB generally is prohibited from
approving any application by a bank holding company to acquire voting
shares of any bank in another state unless such acquisition is
specifically authorized by the laws of such state or unless, under certain
circumstances, such bank is a failing bank.
- -4-
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.
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
- -5-
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 14 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.
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 December31, 1990,
imposed upon national banks new risk-based capital and leverage standards.
These new capital requirements of bank regulators, are discussed on page 42
under "Capital Funds". 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.
- -6-
In December1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA
provides increased funding for the Bank Insurance Fund of the FDIC by
granting authority for special assessments against insured deposits through
a general risk-based assessment systems. The FDICIA also 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; credit underwriting and loan
documentation; interest rate exposure and other off-balance sheet assets
and liabilities; and compensation of directors and officers. FDICIA also
contains provisions limiting the acceptance of brokered deposits by certain
depository institutions, placing restrictions on the terms of "bank
investment contracts" that may be offered by depository institutions and
provisions requiring the FDIC to study the current rules applicable to the
aggregation of accounts of depositors at an institution that are entitled
to FDIC insurance. Finally, FDICIA 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.
- -7-
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 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
subisidaries, would be assumed by the bankruptcy trustee and entitled to
priority in payment.
Based on their respective regulatory capital ratios at
December 31, 1995, 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" on page 42
for information regarding the Bank's regulatory capital ratios.
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
- -8-
including the FRB, the OCC and the FDIC. In addition, there are numerous
governmental requirements and regulations that affect the activities of
Tower.
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.
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; and in Quincy, 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.
- -9-
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
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 inactively through the local and over-the-counter
local markets. At December 31, 1995, the approximate number of
shareholders of record was 865. 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
1995 (1)1st Quarter $ 0 $ 45.00 - $
46.00
2nd Quarter .39 48.00 -
48.00
3rd Quarter 0 45.00 -
48.00
4th Quarter .83 45.00 -
45.00
1994 1st Quarter $ 0 $ 36.00 - $
36.00
2nd Quarter .33 41.00 -
45.90
3rd Quarter 0 45.00 -
45.90
4th Quarter .75 45.00 -
45.00
(1) Note: Market prices and cash dividends per share for
1994 were based on weighted average shares of
common stock outstanding in 1994 after giving
retroactive recognition to a 10% stock dividend
in July 1995.
- -10-
Item 6. Selected Financial Data.
1995 1994 1993 1992 1991
Income (000 omitted)
Interest income $ 11,002 $ 9,666 $ 9,034 $ 9,676 $ 10,148
Interest expense 4,703 3,661 3,585 4,393 5,685
Provision for
loan losses 0 13 235 290 240
Net interest
income after
provision for
loan losses 6,299 5,992 5,214 4,993 4,223
Other operating
income 719 697 735 809 426
Other operating
expenses 3,921 3,824 3,576 3,836 3,209
Income before
income taxes 3,097 2,865 2,373 1,966 1,440
Applicable income
tax(benefit) 812 748 684 473
248
Net income $ 2,285 $ 2,117 $ 1,689 $ 1,493 $ 1,192
Per share amounts are based on the following weighted average shares
outstanding after giving retroactive recognition to a 10% stock dividend
issued in July 1995 and 1994:
1995 - 402,690 1993 - 385,582 1991 - 384,083
1994 - 383,423 1992 - 385,314
1995 1994 1993 1992 1991
Income (000 omitted)
Net income $ 5.67 $ 5.52 $ 4.37 $ 3.87 $
3.10
Cash dividend
paid 1.22 1.08 .95 .87 .80
Book value 40.10 34.80 31.92 28.62 25.77
Year-End Balance Sheet Figures
(000 omitted)
Total assets $ 139,182 $ 135,378 $ 125,495 $ 120,435
$ 111,012
Net loans 93,905 93,282 84,750 77,04871,802
Total
investment
securities 33,733 30,841 29,687 30,03027,654
Deposits-
noninterest
bearing 8,201 7,308 7,542 6,306
4,898
Deposits-
interest
bearing 111,559 106,906 101,742 100,58793,966
Total deposits 119,760 114,214 109,284 106,89398,864
Total stock-
holders'
equity 16,148 13,343 12,319 11,0299,902
- -11-
1995 1994 1993 1992 1991
Ratios
Average equity/
average assets 11.60 9.84 9.62 9.108.61
Return on
average equity 14.90 16.50 14.46 14.2612.67
Return on
average assets 1.64 1.62 1.39 1.291.09
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 on pages 38 through 43 of this report for the year
ended December31, 1995 are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The report of independent auditors and the following consolidated
financial statements and schedules of Tower are submitted herewith:
Page
Independent Auditor's Report 13
Consolidated balance sheets December 31, 1995 and 1994 14
Consolidated statements of income for the years ended
December 31, 1995, 1994 and 1993 15
Consolidated statements of changes in stockholders'
equity for the years ended December 31, 1995, 1994 and 1993 16
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994 and 1993 17
and 18
Notes to consolidated financial statements 19
- - 34
Summary of quarterly financial data (unaudited) 35
- -12-
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Tower Bancorp Inc.
Greencastle, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Tower Bancorp Inc. and its wholly-owned subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity and statements of cash flows for each of the three
years ended December 31, 1995. These consolidated financial statements are
the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Tower Bancorp Inc. and its wholly-owned subsidiary as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each
of the three years ended December 31, 1995 in conformity with generally
accepted accounting principles.
SMITH ELLIOTT KEARNS & COMPANY
Chambersburg, Pennsylvania
January 26, 1996
- -13-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
(000 omitted)
Cash and due from banks $ 3,622 $
4,327
Interest bearing deposits with banks 3,435 2,134
Investment Securities
Available for sale 23,285
20,749
Held to maturity, fair value of
$ 8,218 - 1995; $ 8,087 - 1994 8,011 8,231
Other bank stock 2,437 1,861
Loans
Commercial, financial and agricultural 8,736 8,506
Real estate - Mortgages (net of deferred
loan origination fees $ 201 - 1995;
$ 204 - 1994) 76,624
76,655
Real estate - Construction and land
development 1,494 1,004
Consumer 8,996
8,973
95,850
95,138
Less: Allowance for loan losses 1,945
1,856
Total loans 93,905
93,282
Premises, equipment, furniture and fixtures 1,830 1,972
Real estate owned other than premises 319 325
Prepaid federal taxes 107 0
Accrued interest receivable 891 816
Deferred income tax charges 612 1,094
Other assets 728
587
Total assets $ 139,182 $
135,378
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -14-
LIABILITIES
1995 1994
(000 omitted)
Deposits in domestic offices
Demand, noninterest bearing $ 8,201 $
7,308
Savings 51,312
52,507
Time 60,247
54,399
Total deposits 119,760
114,214
Accrued interest payable 389 269
Federal funds purchased 486 0
Liabilities for borrowed money 1,222 6,353
Accrued federal income taxes 0 57
Other liabilities 1,177
1,142
Total liabilities 123,034
122,035
STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock: par value $ 2.50; authorized
1,000,000 shares, issued 424,090
shares - 1995; 385,888 shares - 1994 1,060 965
Additional paid-in capital 5,354 3,749
Retained earnings 9,508 9,415
Unrealized holding gain (loss) on
securities available for sale - net of tax -
$ 131 - 1995 and $ 341 - 1994 254 (
663)
16,176
13,466
Less: Cost of Treasury stock, 605
shares - 1995; 3,013 shares - 1994 ( 28) (
123)
Total stockholders' equity 16,148
13,343
Total liabilities and stockholders'
equity $ 139,182 $
135,378
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
(000 omitted)
Interest and Dividend Income
Interest and fees on loans $ 8,809 $ 7,634 $
6,884
Interest and dividends on investment
securities
Taxable 1,587 1,443 1,529
Federal tax exempt 449 449 442
Interest on federal funds sold 57 3 23
Interest on deposits with banks 100 137
156
Total interest income 11,002 9,666
9,034
Interest Expense
Interest on time certificates of
deposit of $ 100,000 or more 588 474 357
Interest on other deposits 3,901 3,055 3,195
Interest on borrowed money 214 132
33
Total interest expense 4,703 3,661
3,585
Net interest income 6,299 6,005 5,449
Provision for loan losses 0 13
235
Net interest income after
provision for loan losses 6,299 5,992
5,214
Other Income
Trust department income 200 190 166
Service charges on deposit accounts 288 269 272
Other service charges, collection and
exchange charges, commissions and fees 102 103 84
Investment securities gains 118 135 131
Gain on sale of other real estate 0 0 82
Gain on sale of property, equipment,
furniture and fixtures 11 0
0
719 697
735
Other Expenses
Salaries, wages and other employee
benefits 1,917 1,836 1,705
Occupancy expense 258 254 233
Furniture and equipment expenses 640 617 518
FDIC insurance premiums 134 251 240
Other operating expenses 972 866
880
3,921 3,824
3,576
Income before income taxes 3,097 2,865 2,373
Applicable income tax expense 812 748
684
Net income $ 2,285 $ 2,117 $
1,689
Earnings per share of common stock
Net income $ 5.67 $ 5.52 $ 4.37
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -15-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
Unrealized
Holding Gain
(Loss) on
Additional Available
Common Paid-In Retained for Sale Treasury
Stock Capital Earnings Securities Stock
(000 omitted)
Balance at December 31,
1992 $ 878 $ 2,328 $ 7,898 $ 0 ($
75)
Net income 0 0 1,689 0 0
Cash dividends declared
on common stock
($ .95 per share) 0 0 ( 366) 0
0
Purchase of treasury
stock (2,400 shares) 0 0 0 0 (
84)
Sale of treasury stock
(1,662 shares) 0 0 0 0
51
Balance at December 31,
1993 878 2,328 9,221 0 (
108)
Net income 0 0 2,117 0 0
Cash dividends declared
on common stock
($ 1.08 per share) 0 0 ( 415) 0
0
Net unrealized loss on
available for sale
securities 0 0 0 ( 663) 0
Purchase of treasury
stock (1,634 shares) 0 0 0 0 (
73)
Sale of treasury stock
(1,811 shares) 0 0 0 0 58
Stock dividend issued 87 1,421 ( 1,508)
0 0
Balance at December 31,
1994 965 3,749 9,415 ( 663) (
123)
Net income 0 0 2,285 0 0
Cash dividends declared
on common stock ($ 1.22
per share) 0 0 ( 492) 0
0
Purchase of treasury
stock (667 shares) 0 0 0 0 (
31)
Sale of treasury stock
(3,075 shares) 0 0 0
0 126
Net unrealized gain on
available for sale
securities 0 0 0 917 0
Stock dividend issued 95 1,605 ( 1,700)
0 0
Balance at December 31,
1995 $ 1,060 $ 5,354 $ 9,508 $ 254 ($
28)
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -16-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
(000 omitted)
Cash flows from operating activities:
Net income $ 2,285 $ 2,117 $
1,689
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 244 234 193
Provision for loan losses 0 13 235
(Gain) loss on sale of investment
securities ( 118) ( 135) (
131)
(Gain) loss on disposal of property,
equipment, furniture and fixtures ( 11) ( 1) 1
(Gain) loss on sale of other real
estate 0 0 (
82)
Provision for deferred taxes 11 ( 14) (
42)
(Increase) decrease in:
Other assets ( 166) ( 60) (
136)
Interest receivable ( 75) ( 119) 69
Prepaid income taxes ( 107) 0 0
Increase (decrease) in:
Interest payable 120 17 (
43)
Accrued income taxes ( 70) ( 22) 60
Other liabilities 48 ( 167)
296
Net cash provided by operating
activities 2,161 1,863
2,109
Cash flows from investing activities:
Net (increase) decrease in loans ( 623) ( 8,545) (
8,454)
Purchases of bank premises, equipment,
furniture and fixtures ( 140) ( 249) (
113)
Proceeds from sale of property,
equipment, furniture and fixtures 55 1 0
Proceeds from sales of other real estate 0 0 711
Net (increase) decrease in interest
bearing deposits with banks ( 1,301) 828 (
26)
Maturities of investment securities 0 0 6,897
Sales of investment securities 0 0 2,583
Purchases of investment securities 0 0 (
9,006)
Maturity/sales of available for sale
securities 5,072 4,110 0
Maturities of held to maturity securities 935 920 0
Purchases of available for sale
securities ( 6,630) ( 5,505) 0
Purchases of held to maturity
securities ( 701) ( 1,480) 0
Purchase of Federal Home Loan Bank stock ( 37) ( 53)
0
Net cash (used) by investing activities ( 3,370) ( 9,973) (
7,408)
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -17-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
(000 omitted)
Cash flows from financing activities:
Net increase in deposits $ 5,546 $ 4,930 $
2,391
Net increase (decrease) in debt 0 0 (
449)
Net increase in short-term borrowings ( 4,645) 4,101 1,515
Purchase of treasury stock ( 31) ( 73) (
84)
Proceeds from sale of treasury stock 126 58 51
Cash dividends paid ( 492) ( 415) (
366)
Net cash provided by financing activities 504 8,601
3,058
Net increase (decrease) in cash and cash
equivalents ( 705) 491 (
2,241)
Cash and cash equivalents at beginning
of year 4,327 3,836
6,077
Cash and cash equivalents at end of year $ 3,622 $ 4,327 $
3,836
Supplemental disclosure of cash flows information:
Cash paid during the year for:
Interest $ 4,583 $ 3,664 $
3,628
Income taxes 901 705 656
Supplemental schedule of noncash investing
and financing activities:
Unrealized gain (loss) on securities
available for sale (net of tax
effects) $ 254 ($ 663) $
0
Other real estate acquired in settlement
of loans $ 0 $ 0 $
517
The Notes to Consolidated Financial Statements are an integral part of
these statements.
- -18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Operations
Tower Bancorp'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. Its five offices are located
in Greencastle, Quincy, Shady Grove, Laurich and Mercersburg,
Pennsylvania.
Principles of Consolidation
The consolidated financial statements include the accounts
of the corporation and its wholly-owned subsidiary, The
First National Bank of Greencastle. All significant
intercompany transactions and accounts have been
eliminated.
During 1990 Antrim-Tower Development Corporation was
formed to be a wholly-owned subsidiary of Tower Bancorp
for the purpose of developing and/or selling real estate
that from time to time may be conveyed to the Bank as
settlement for outstanding delinquent loans. Antrim-
Tower Development Corporation has not had any development
activity and to date has been an inactive corporation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the
allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the
determination of the allowances for losses on loans
and foreclosed real estate, management obtains independent
appraisals for significant properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, future
additions to the allowances may be necessary based on
changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's
- -19-
Note 1. Summary of Significant Accounting Policies (Continued)
Use of Estimates (Continued)
allowances for losses on loans and foreclosed real estate.
Such agencies may require the Corporation to recognize
additions to the allowances based on their judgments
about information available to them at the time of their
examination. Because of these factors, management's
estimate of credit losses inherent in the loan portfolio
and the related allowance may change in the near term.
Investment Securities
The Corporation's investments in securities are classified
in three categories and accounted for as follows:
^
Trading Securities. Securities held principally for
resale in the near term are classified as trading
securities and recorded at their fair values.
Unrealized gains and losses on trading securities are
included in other income.
^
Securities to be Held to Maturity. Bonds and notes for
which the Corporation has the positive intent and
ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of
discounts which are recognized in interest income using
the interest method over the period to maturity.
^
Securities Available for Sale. Securities available
for sale consist of bonds and notes not classified as
trading securities nor as securities to be held to
maturity. These are securities that management intends
to use as a part of its asset and liability management
strategy and may be sold in response to changes in
interest rates, resultant prepayment risk and other
related factors.
Unrealized holding gains and losses, net of tax, on
securities available for sale are reported as a net
amount in a separate component of shareholders' equity
until realized.
Gains and losses on the sale of securities available for
sale are determined using the specific- identification
method.
Fair values for investment securities are based on quoted
market prices.
The Corporation had no trading securities in 1995 and
1994.
- -20-
Note 1. Summary of Significant Accounting Policies (Continued)
Premises, Equipment, Furniture and Fixtures and
Depreciation
Premises, equipment, and furniture and fixtures are
carried at cost less accumulated depreciation.
Depreciation has been provided generally on the straight-
line method and is computed over the estimated useful
lives of the various assets as follows:
Years
Premises 15-30
Equipment, furniture and fixtures 3-15
Repairs and maintenance are charged to operations as
incurred.
Other Real Estate Owned
Other real estate owned includes foreclosed properties for
which the institution has taken physical possession in
connection with loan foreclosure proceedings.
At the time of foreclosure, the real estate is recorded at
the lower of the Bank's cost (loan balance) or the
asset's fair value, less estimated costs to sell, which
becomes the property's new basis. Any write-downs
based on the asset's fair value at date of acquisition are
charged to the allowance for loan losses. Costs incurred
in maintaining foreclosed real estate and subsequent
write-downs to reflect declines in the fair value of the
property are included in income (loss) on other real
estate owned.
Retirement Plan
The Bank has a target-benefit pension plan which covers
all full-time employees who have attained the age of
twenty (20) and have completed a minimum of one year of
continuous service with the Bank. The Bank's policy is
to fund pension costs accrued.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal,
reduced by unearned discount, deferred loan origination
fees, and an allowance for loan losses. Unearned discount
on installment loans is recognized as income over the
terms of the loans by the interest method. Interest on
other loans is calculated by using the simple interest
method on daily balances of the principal amount
outstanding.
- -21-
Note 1. Summary of Significant Accounting Policies (Continued)
Loans and Allowance for Loan Losses (Continued)
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans
are charged against the allowance for loan losses when
management believes that the collectibility of the
principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay.
In accordance with SFAS No. 91 loan origination fees and
certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of
the related loan's yield. The Corporation is amortizing
these amounts over the contractual life of the related
loans.
Nonaccrual Loans
The accrual of interest income on loans ceases when
principal or interest is past due 90 days or more and
collateral is inadequate to cover principal and interest
or immediately if, in the opinion of management, full
collection is unlikely. Interest accrued but not
collected as of the date of placement on nonaccrual status
is reversed and charged against current income unless
fully collateralized. Subsequent payments received are
either applied to the outstanding principal balance or
recorded as interest income, depending on management's
assessment of the ultimate collectibility of principal.
Earnings per Share of Common Stock
Earnings per share of common stock were computed based on
weighted averages of 402,690, 383,423 and 385,582 shares
outstanding in 1995, 1994 and 1993, respectively, after
giving retroactive recognition to a 10% stock dividend
issued in July 1995 and 1994.
Federal Income Taxes
For financial reporting purposes, the provision for loan
losses charged to operating expense is based on
management's judgment, whereas for federal income tax
purposes, the amount allowable under present tax law is
deducted. Additionally, deferred compensation is charged
to operating expense in the period the liability is
- -22-
Note 1. Summary of Significant Accounting Policies (Continued)
Federal Income Taxes (Continued)
incurred for financial reporting purposes, whereas, for
federal income tax purposes, these expenses are deducted
when paid. There are also differences between the amount
of depreciation expensed for tax and financial reporting
purposes. There also exists an income tax effect caused
by the adjustment to fair value for available for sale
securities. As a result of these timing differences,
deferred income taxes are provided in the financial
statements. See Note 13 for further details.
Cash Flows
For purposes of the Statements of Cash Flows, the company
has defined cash and cash equivalents as highly liquid
debt instruments with maturities of three months or less.
They are included in the balance sheet captions "cash and
due from banks" and "federal funds sold". As permitted by
Statement of Financial Accounting Standards No. 104, the
company has elected to present the net increase or
decrease in deposits in banks, loans and time deposits in
the Statement of Cash Flows.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about
financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are
not available, fair values are based on estimates using
present value or other valuation techniques. Those
techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be
realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of
the corporation.
The following methods and assumptions were used by the
corporation in estimating fair values of financial
instruments as disclosed herein:
Cash and Cash Equivalents. The carrying amounts of cash
and short-term instruments approximate their fair value.
- -23-
Note 1. Summary of Significant Accounting Policies (Continued)
Interest Bearing Balances with Banks
Interest bearing balances with banks having a maturity
greater than one year have estimated fair values using
discounted cash flows based on current market interest
rates.
Securities to be Held to Maturity and Securities Available
for Sale. Fair values for investment securities are based
on quoted market prices.
Loans Receivable. For variable-rate loans that reprice
frequently and have no significant change in credit risk,
fair values are based on carrying values. Fair values for
fixed rate loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit Liabilities. The fair values disclosed for demand
deposits are, by definition, equal to the amount payable
on demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed-
term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair
values for fixed-rate certificates of deposits and IRA's
are estimated using a discounted cash flow calculation
that applies interest rates currently being offered to a
schedule of aggregated expected monthly maturities on time
deposits.
Short-Term Borrowings. The carrying amounts of federal
funds purchased, borrowings under repurchase agreements,
and other short-term borrowings maturing within 90 days
approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted cash
flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing
arrangements.
Accrued Interest. The carrying amounts of accrued
interest approximate their fair values.
Off-Balance-Sheet Instruments. The Bank generally does
not charge commitment fees. Fees for standby letters of
credit and their off-balance-sheet instruments are not
significant.
Note 2. Investment Securities
The investment securities portfolio is comprised of
securities classified as available for sale and held to
maturity, in conjunction with the adoption of SFAS 115,
- -24-
Note 2. Investment Securities (Continued)
resulting in investment securities available for sale
being carried at fair value and investment securities
held to maturity being carried at cost, adjusted for
amortization of premiums and accretions of discounts.
The amortized cost and fair value of investment securities
available for sale at December 31 were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(000 omitted)
1995
U.S. Treasury securities $ 1,098 $ 31 $ 1 $
1,128
Obligations of other U.S.
government agencies 13,216 178 115 13,279
Mortgage-backed securities 7,008 44 71 6,981
Corporate bonds 820 41 1 860
Equities 760 289 12 1,037
$ 22,902 $ 583 $ 200 $ 23,285
1994
U.S. Treasury securities $ 1,610 $ 3 $ 48 $ 1,565
Obligations of other U.S.
government agencies 12,607 14 696 11,925
Mortgage-backed securities 6,395 3 462 5,936
Corporate bonds 617 19 0 636
Equities 524 189 26 687
$ 21,753 $ 228 $ 1,232 $ 20,749
The amortized cost and fair values of investment securities held
to maturity at December 31 were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(000 omitted)
1995
Obligations of state and
political subdivisions $ 8,011 $ 225 $ 18 $ 8,218
1994
Obligations of state and
political subdivisions $ 8,231 $ 67 $ 211 $ 8,087
The amortized cost and fair values of investment
securities available for sale and held to maturity at
December 31, 1995, by expected maturity are shown below.
Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
- -25-
Securities Available Securities Held
for Sale to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(000 omitted) (000 omitted)
Due in one year or less $ 1,700 $ 1,696 $ 515 $ 523
Due after one year
through five years 5,494 5,485 2,772 2,835
Due after five years
through ten years 7,640 7,784 3,447 3,535
Due after ten years 300 302 1,277 1,325
15,134 15,267 8,011 8,218
Mortgage-backed securities 7,008 6,981 0 0
Equity securities 760 1,037 0 0
$ 22,902 $ 23,285 $ 8,011 $ 8,218
Proceeds from sales and maturities of investment
securities available for sale during 1995 and 1994 were
$ 5,072,590 and $ 4,110,460, respectively. Gross gains
and losses on those sales and maturities were $ 130,833
and $ 12,834 for 1995 and $ 145,724 and $ 10,625 for 1994,
respectively. Included in shareholders' equity at
December 31, 1995 and 1994 is $ 254,000 of net unrealized
gains and $ 663,000 of net unrealized losses on securities
available for sale, respectively, net of related tax
effects.
Proceeds from sales and maturities of investment
securities during 1993 were $ 9,480,170. Gains of
$ 131,122 and no losses were realized on 1993 sales.
Securities carried at $ 14,638,701 and $ 13,600,000 at
December 31, 1995 and 1994, respectively, were pledged to
secure public funds and for other purposes as required or
permitted by law.
Other bank stock on the balance sheet includes:
1995 1994
Federal Reserve Bank stock $ 77 $ 77
Federal Home Loan Bank stock 590 553
Federal Home Mortgage Bank stock 250 250
Atlantic Central Bankers Bank 45 45
Other bank stock with no readily
determinable market value 1,475 936
$ 2,437 $ 1,861
- -26-
Note 3. Allowance for Loan Losses
Activity in the allowance for loan losses is summarized as
follows:
1995 1994 1993
(000 omitted)
Balance at beginning of period $ 1,856 $ 1,560 $
1,397
Recoveries 109 301 226
Provision for possible loan losses
charged to income 0 13
235
Total 1,965 1,874 1,858
Losses 20 18
298
Balance at end of period $ 1,945 $ 1,856 $
1,560
Impairment of loans during 1995 consisted of one loan with a
carrying value of $ 54,000 at December 31, 1995 which has
been recognized in conformity with FASB Statement No. 114,
Accounting by Creditors for Impairment of Loans. Interest
income of $ 1,500 was recognized on cash payments received
on
this loan in 1995. The total allowance for credit losses
related to this loan was $ 20,000 at December 31, 1995.
This
loan was more than 180 days delinquent and the Bank
intends to foreclose on the loan's collateral.
The corporation had no impairment of loans in 1994.
Note 4. Premises, Equipment, Furniture and Fixtures
Accumulated Depreciated
Cost Depreciation Cost
(000 omitted)
Premises (including land $ 287,000) $ 2,536 $ 1,134 $ 1,402
Equipment, furniture and fixtures 1,517 1,089 428
Totals, December 31, 1995 $ 4,053 $ 2,223 $ 1,830
Premises (including land $ 287,000) $ 2,567 $ 1,046 $ 1,521
Equipment, furniture and fixtures 1,416 965 451
Totals, December 31, 1994 $ 3,983 $ 2,011 $ 1,972
Depreciation expense amounted to $ 244,000 in 1995, $ 234,000
in 1994, and $ 193,000 in 1993.
Note 5. Real Estate Owned Other Than Premises
Included in real estate owned other than premises are certain
properties which are located adjacent to the main office.
The Bank intends to hold these properties for future
expansion purposes in order to protect its competitive
position, but are renting these properties until such time as
the Bank decides they are needed. The depreciated cost of
these properties was $ 81,000 and $ 87,000 at December 31,
1995 and 1994, respectively.
- -27-
Note 6. Loans to Related Parties
The company's subsidiary has granted loans to the officers
and directors of the company and its subsidiary and to
their associates. Related party loans are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve
more than normal risk of collectibility. The aggregate
dollar amount of these loans was $ 679,778 and $ 806,405
at December 31, 1995 and 1994, respectively. During 1995,
$ 627,445 of new loans were made and repayments totalled
$ 754,072. During 1994, $ 209,640 of new loans were made
and repayments totalled $ 254,293.
Outstanding loans to bank employees totalled $ 1,641,412
and $ 1,929,603 at December 31, 1995 and 1994,
respectively.
Note 7. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to
meet the financial needs of its customers and to reduce
its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve,
to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance
sheets. The contract amounts of those instruments reflect
the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is
represented by the contractual amount of those
instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does
for on balance sheet instruments.
Contract or Notional Amount
1995 1994
Financial instruments whose contract
amounts represent credit risk at
December 31:
Commitments to extend credit $ 11,525,604 $
8,828,027
Standby letters of credit and
financial guarantees written 1,311,920
1,014,984
$ 12,837,524 $
9,843,011
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
- -28-
Note 7. Financial Instruments With Off-Balance-Sheet Risk (Continued)
fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the
commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on
management's credit evaluation of the customer.
Collateral held varies, but may include accounts
receivable, inventory, real estate, equipment, and income-
producing commercial properties.
Standby letters of credit and financial guarantees written
are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers.
The Bank holds collateral supporting those commitments
when deemed necessary by management.
Note 8. Nonaccrual Loans
The following table shows the principal balances of
nonaccrual loans as of December 31:
1995 1994 1993
Nonaccrual loans $ 135,000 $ 79,000 $ 619,000
Interest income that would have
been accrued at original
contract rates $ 11,583 $ 9,336 $ 75,953
Amount recognized as interest
income 0 0 4,651
Foregone revenue $ 11,583 $ 9,336 $ 71,302
Note 9. Retirement Plan
The Bank maintains a target benefit retirement plan for
those employees who meet the eligibility requirements set
forth in the plan. Substantially all of the Bank's
employees are covered by the plan. The Bank's funding
policy is to contribute annually an amount, as determined
under plan provisions, necessary to meet target benefits
established by the plan. Contributions charged to
operations were $ 32,000 for 1995, $ 39,000 for 1994, and
$ 33,000 for 1993.
Note 10. Employee Benefit Plans
The Bank maintains a profit-sharing plan for those
employees who meet the eligibility requirements set forth
in the plan. Contributions to the plan are based on Bank
- -29-
Note 10. Employee Benefit Plans (Continued)
performance and are at the discretion of the Bank's Board
of Directors. Substantially all of the Bank's
employees are covered by the plan and the contribution
charged to operations was $ 64,000, $ 59,000 and $ 111,000
for 1995, 1994 and 1993, respectively.
The Bank maintains a deferred compensation plan for
certain key executives and directors, which provides
supplemental retirement and life insurance benefits. The
plan is partially funded by life insurance on the
participants, which lists the bank as beneficiary. The
estimated present value of future benefits to be paid,
which are included in other liabilities amounted to
$ 931,598 and $ 898,199 at December 31, 1995 and 1994,
respectively. Annual expense of $ 120,895, $ 119,272, and
$ 117,094 was charged to operations for 1995, 1994 and
1993, respectively.
The Bank maintains an employee stock option plan that
generally covers all employees who have completed one year
of service and attained the age of twenty. Contributions
to the plan are determined annually by the Board of
Directors as a percentage of the participants total
earnings. The payments of benefits to participants are
made at death, disability, termination or retirement.
Contributions to the plan for all employees charged to
operations amounted to $ 126,000, $ 117,000 and $ 55,000
for 1995, 1994 and 1993, respectively.
Note 11. Deposits
Included in savings deposits at December 31 are NOW and
Money Market Account balances totalling $ 27,104,000 and
$ 28,176,000 for 1995 and 1994, respectively.
Time deposits of $ 100,000 and over, aggregated
$ 11,469,000 and $ 10,124,000 at December 31, 1995 and
1994, respectively.
The bank accepts deposits of the officers, directors, and
employees of the corporation and its subsidiary on the
same terms, including interest rates, as those prevailing
at the time for comparable transactions with unrelated
persons. The aggregate dollar amount of deposits of
officers and directors totaled $ 1,544,533 and $ 741,852
at December 31, 1995 and 1994, respectively.
Note 12. Liabilities for Borrowed Money
At December 31, 1995 and 1994, $ 669,000 and $ 303,000,
respectively of the balance of liabilities for borrowed
money represents the outstanding balance on lines of
credit at other area banks. Total amount of the lines at
December 31, 1995 was $ 1,500,000. Interest on these
lines ranged from 8.75% to 9% for 1995 and 1994.
- -30-
Note 12. Liabilities for Borrowed Money (Continued)
During 1989, the Bank purchased a property adjacent to the
Greencastle office for $ 265,000 by paying $ 65,000 in
cash and issuing a note payable to the sellers for
$ 200,000. The note, which bears interest at 9% per year,
is due on demand or January 31, 1999, whichever is
earlier.
In addition, $ 353,000 and $ 445,000 of the balance of
liabilities for borrowed money at December 31, 1995 and
1994, respectively, represents the balance of the Treasury
Tax and Loan Investment Program. The Bank elected to
enter into this program in accordance with federal
regulations. This program permits the Bank to borrow
these Treasury Tax and Loan funds by executing an open-
ended interest bearing note to the Federal Reserve Bank.
Interest is payable monthly and is computed at 1/4% below
the Federal Funds interest rate. The note is secured by
U.S. Government obligations with a par value of $ 900,000
at December 31, 1995 and 1994.
The Bank also has available a line of credit totalling
$ 13,170,800 with The Federal Home Loan Bank of
Pittsburgh. There have been no borrowings against the
line and the entire amount was available at December 31,
1995. Collateral for the line consists of all bank
assets, with a book value of approximately $ 139,000,000.
Note 13. Income Taxes
The components of federal income tax expense are
summarized as follows:
1995 1994 1993
(000 omitted)
Current year provision net of tax refunds
and credits $ 762 $ 716 $ 681
Deferred income taxes (benefit) 10 ( 14) ( 42)
Applicable income taxes 772 702 639
Add: Income tax effect of securities gains 40 46 45
Net income tax expense $ 812 $ 748 $ 684
Federal income taxes were computed after reducing pretax
accounting income for non-taxable income in the amount
of $ 742,135, $ 748,050, and $ 530,000 for 1995, 1994 and
1993, respectively.
A reconciliation of the effective applicable income tax
rate to the federal statutory rate is as follows:
1995 1994 1993
Federal income tax rate 34.0% 34.0% 34.0%
Reduction resulting from:
Nontaxable interest income and
other timing differences 7.8 7.9 5.2
Effective income tax rate 26.2% 26.1% 28.8%
- -31-
Note 13. Income Taxes (Continued)
Deferred tax assets have been provided for deductible
temporary differences in allowance for loan loss,
deferred compensation, interest on nonaccrual loans, and
unrealized losses on securities available for sale.
Deferred tax liabilities have been provided for taxable
temporary differences related to depreciation and
unrealized gains on securities available for sale. The
net deferred tax assets included in other assets in the
accompanying balance sheets at December 31 are as
follows:
1995 1994
Total deferred tax assets $ 755 $ 1,102
Total deferred tax liabilities ( 143) ( 8)
Net deferred tax assets $ 612 $ 1,094
The company has not recorded a valuation allowance for the
deferred tax assets as they feel that it is more likely
than not that they will be ultimately realized.
Note 14. Tower Bancorp Inc. (Parent Company Only) Financial
Information
The following are the condensed balance sheets, income
statements, and statements of cash flows for the parent
company:
Balance Sheets
December 31
Assets 1995 1994
(000 omitted)
Cash $ 2 $ 4
Securities available for sale 1,036 687
Other bank stock 1,475 936
Investment in The First National Bank of
Greencastle 14,414 12,083
Total assets $ 16,927 $ 13,710
Liabilities
Other liabilities $ 110 $ 64
Notes payable 669 303
Total liabilities 779 367
Stockholders' Equity
Capital stock, par value $ 2.50; authorized
1,000,000 shares, issued 424,090 shares -
1995; 385,888 shares - 1994 1,060 965
Additional paid-in capital 5,354 3,749
Retained earnings 9,508 9,415
Unrealized gain (loss) on investment
securities 254 (
663)
16,176
13,466
Less: Cost of Treasury stock, 605 shares -
1995; 3,013 shares - 1994 ( 28) (
123)
Total stockholders' equity 16,148 13,343
Total liabilities and stockholders'
equity $ 16,927 $ 13,710
- -32-
Note 14. Tower Bancorp Inc. (Parent Company Only) Financial
Information (Continued)
Statements of Income
Years Ended December 31
1995 1994 1993
(000 omitted)
Income
Dividends $ 65 $ 42 $ 39
Net gain on sale of securities 129 134 59
Cash dividends from wholly-owned
subsidiary 727 490 470
921 666 568
Expenses
Interest 35 11 1
Commissions 11 10 4
Taxes 12 8 1
Postage and printing 11 8 6
Meetings 2 2 2
Management fees 35 35 35
Legal fees 0 1 0
Professional fees 19 3 3
125 78 52
Income before equity in
undistributed income 796 588 516
Equity in undistributed income of
subsidiary 1,489 1,529 1,173
Net income $ 2,285 $ 2,117 $ 1,689
Statements of Cash Flows
Years Ended December 31
Cash flows from operating activities:
Net income $ 2,285 $ 2,117 $ 1,689
Adjustments to reconcile net income
to cash provided by operating
activities:
Net gain on sale of investment
securities ( 129) ( 134) (
59)
Equity in undistributed income
of subsidiary ( 1,489) ( 1,529) (
1,173)
(Decrease) in accrued expenses 9 8 0
Net cash provided by operating
activities 676 462 457
Cash flows from investing activities:
Purchase of investment securities ( 976) ( 650) (
398)
Sales of investment securities 329 347 365
Net cash (used) by investing
activities ( 647) ( 303) (
33)
- -33-
Note 14. Tower Bancorp Inc. (Parent Company Only) Financial
Information (Continued)
Statements of Cash Flows
Years Ended December 31
1995 1994 1993
(000 omitted)
Cash flows from financing activities:
Purchase of treasury stock ($ 31) ($ 73) ($ 84)
Proceeds from sale of treasury stock 126 58 51
Dividends paid ( 492) ( 415) ( 366)
Net proceeds from short-term borrowing 366 265
0
Repayment of short-term debt 0 0 ( 32)
Net cash (used) by financing activities ( 31) ( 165) ( 431)
Net (decrease) in cash ( 2) ( 6) ( 7)
Cash, beginning 4 10 17
Cash, ending $ 2 $ 4 $ 10
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 35 $ 11 $ 1
Income taxes 12 1 1
Dividends paid by Tower Bancorp Inc. are provided from the
Bank's dividends to Tower. The Bank, as a national bank, is
subject to the dividend restrictions set forth by the
Comptroller of the Currency. Under such restrictions, the Bank
may not, without prior approval of the Comptroller of the
Currency, declare dividends in excess of the sum of the current
year's earnings (as defined) plus retained earnings (as
defined) from the prior two years. The dividends as of
December 31 that the Bank could declare without approval of the
Comptroller of the Currency, amounted to approximately
$ 2,071,000 and $ 2,870,000 for 1995 and 1994,
respectively.
Note 15. Compensating Balance Arrangements
Included in cash and due from banks are required deposit
balances at the Federal Reserve of $ 100,000 at both
December 31, 1995 and 1994 and required deposit balances at
Atlantic Central Banker's Bank of $ 500,000 and $ 300,000 at
December 31, 1995 and 1994, respectively. These are maintained
to cover processing costs and service charges.
Note 16. Concentration of Credit Risk
The Bank grants agribusiness, commercial and residential loans
to customers throughout the Cumberland Valley area. Although
the Bank has a diversified loan portfolio, a substantial
portion of its customers' ability to honor their contracts is
dependent upon the agribusiness economic sector.
- -34-
Note 16. Concentration of Credit Risk (Continued)
The following is a summary of the loans to the agribusiness
sector at December 31, 1995:
Loans to finance agricultural production
and loans to farmers ($ 6,156,464
secured by real estate) $ 6,731,082
The Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon the extension of credit is based on
management's credit evaluation of the customer. Collateral
held varies, but generally includes equipment and real
estate.
Note 17. Operating Lease Commitment
The corporation leases its facilities in Mercersburg under a
noncancelable operating lease that expires in 2002. Total rent
expense charged to operations was $ 15,000 for both 1995 and
1994.
The corporation also leases a site for an Automatic Teller
Machine under a noncancelable operating lease that expires in
2003 with the right to negotiate an extended lease of two
additional five year terms. Total rent expense charged to
operations was $ 9,000 for 1995 and 1994. The lease rental
for
the second five years of the initial term is subject to
negotiation.
Following is a schedule, by years, of future minimum rentals
under the lease agreements as of December 31, 1995:
Year Ending
1996 $ 24,000
1997 24,250
1998 25,500
1999 25,500
2000 25,500
Thereafter 51,250
$ 176,000
Note 18. Fair Value of Financial Instruments
Statement on Financial Accounting Standards (SFAS) No. 107,
Disclosure About Fair Value of Financial Instruments, became
effective for the Corporation's 1995 financial statements. The
estimated fair values of the Corporation's financial
instruments were as follows at December31, 1995:
- -35-
Note 18. Fair Value of Financial Instruments (Continued)
Carrying Amount Fair Value
FINANCIAL ASSETS
Cash and due from banks $ 3,622 $ 3,622
Interest bearing deposits
with banks 3,435 3,499
Securities available for sale 22,902 23,285
Securities to be held to maturity 8,011 8,218
Loans receivable 95,850 95,774
Accrued interest receivable 891 891
Other bank stock 2,437 2,437
FINANCIAL LIABILITIES
Time certificates 60,247 61,002
Other deposits 59,513 59,513
Short-term borrowed funds 1,708 1,708
Accrued interest payable 389 389
- -36-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
SUMMARY OF QUARTERLY FINANCIAL DATA
The unaudited quarterly results of operations for the years
ended December 31, 1995 and 1994 are as follows:
1995
($ 000 omitted - - - - - -Quarter Ended- - - - - - -
except per share) Mar. 31 June 30 Sept. 30 Dec. 31
Interest income $ 2,625 $ 2,755 $ 2,770 $
2,852
Interest expense 1,083 1,179 1,210
1,231
Net interest income 1,542 1,576 1,560 1,621
Provision for loan
losses 0 0 0
0
Net interest
income after
provision for
loan losses 1,542 1,576 1,560 1,621
Other income 182 143 204 190
Other expenses 1,013 1,010 919
979
Operating income
before income
taxes 711 709 845 832
Applicable income
taxes 183 207 247
175
Net income $ 528 $ 502 $ 598 $
657
Net income applicable
to common stock
Per share data:
Net income $ 1.31 $ 1.25 $ 1.48 $ 1.63
- -37-
1994
($ 000 omitted - - - - - - -Quarter Ended- - - - - -
except per share) Mar. 31 June 30 Sept. 30 Dec. 31
Interest income $ 2,292 $ 2,351 $ 2,445 $
2,578
Interest expense 841 887 947
986
Net interest income 1,451 1,464 1,498 1,592
Provision for loan
losses 13 0 0
0
Net interest
income after
provision for
loan losses 1,438 1,464 1,498 1,592
Other income 173 210 159 155
Other expenses 942 945 947
990
Operating income
before income
taxes 669 729 710 757
Applicable income
taxes 169 246 177
156
Net income $ 500 $ 483 $ 533 $
601
Net income applicable
to common stock
Per share data:
Net income $ 1.31 $ 1.26 $ 1.39 $ 1.57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the selected supplementary financial information
presented in this report.
OPERATING RESULTS
The results of operations and financial condition are
explained through an analysis of fluctuations in net interest
income and other noninterest income and expense items.
Net interest income is the difference between total
interest income and total interest expense. Interest income is
generated through earning assets which include loans, deposits with
other banks and investments. The amount of interest income is
dependent on many factors including the volume of earning assets,
the level of and changes in interest rates, and volumes of
nonperforming loans. The cost of funds varies with the volume of
funds necessary to support earning assets, the rates paid to
maintain deposits, rates paid on borrowed funds and the level of
interest-free deposits.
Net income was $ 2,285,000 in 1995, compared to
$ 2,117,000 in 1994 and $ 1,689,000 in 1993. Net income on an
adjusted per share basis for 1995 was $ 5.67, up $ .15 from $ 5.52
realized during 1994.
Total interest income increased for the second straight
year $ 1,336,000 from 1994 to 1995 and $ 632,000 from 1993 to
1994. These increases were due to both an increase in interest
rates and average earning assets. The loan demand leveled off in
1995. However, average loans outstanding during 1995 were 4.5%
higher than 1994, which accounted for a significant portion of the
5.5% growth in average earning assets. Net interest earnings
increased 5.4% and 10.2% in 1995 and 1994, respectively as the
result of increasing rates on the loan portfolio and volume
increases in the investment portfolio. The significant increase in
1994 was due to the sizeable increase in the loan volume. As the
loan demand remains relatively flat, management expects further
improvement in the net interest margin to be more at 1995 levels as
they continue to monitor rates and maintain appropriate interest
rate spreads during periods of moderate growth.
Interest from loans accounted for 80% of total interest
income for 1995, as compared to 78% and 76% for 1994 and 1993
respectively. Interest and dividends on investments amounted to
$ 2,036,000 or 18% of interest income for 1995, as compared to
$ 1,892,000 or 20% in 1994 and $ 1,971,000 or 22% in 1993. The
weighted average yield on the investment portfolio increased to
7.65% at year end 1995 from 6.72% at 1994 year end.
- -38-
Total interest expense was $ 4,703,000 for 1995, an
increase of $ 1,042,000 over the $ 3,661,000 for 1994. The
increase in total deposits was 3.9% in 1995 compared to 6.5% in
1994. While overall growth is small there has been a shift in the
type of deposits held by the bank. Interest bearing demand and
savings deposits have decreased 4.5% and time deposits have
increased 12.1%. While this shift gives rate sensitive liabilities
a longer maturity period for liquidity purposes, it also increases
the cost of deposits, and will decrease the overall interest spread
which was 4.2% for 1995, down from 4.8% in 1994.
The Bank's net charge-offs have historically been higher
than peer group performance. This trend has improved as certain
loan workout situations have materialized resulting in net
recoveries for the second straight year of $ 89,000 for 1995 and
$ 300,932 for 1994 compared to net charge-offs of $ 72,000 for
1993. These net recoveries as well as an improving loan portfolio
has allowed the bank to have a current year provision of $ 0
compared to $ 13,000 in 1994 and $ 235,000 in 1993. The provisions
were based on management's evaluation of the adequacy of the
reserve balance and represent amounts considered necessary to
maintain the reserve at the appropriate level based on the quality
of the loan portfolio and other economic conditions.
Management has significantly expanded its detailed review
of the loan portfolio which is performed quarterly, in an effort to
identify and act more readily on loans with deteriorating trends.
As a result, nonaccrual loans decreased, and were $ 135,000 and
$ 79,000 at year-end 1995 and 1994, respectively. Management is
not aware of any other problem loans that are indicative of trends,
events, or uncertainties that would significantly impact future
operations, liquidity or capital. Management also recognizes the
need to maintain an adequate reserve to meet the constant risks
associated with a growing loan portfolio and an expanding customer
base and intends to continue to maintain the reserve at appropriate
levels based on ongoing evaluations of the loan portfolio.
Other income represents service charges on deposit
accounts, commissions and fees received for the sale of travelers'
checks, money orders and savings bonds, fees for trust services,
securities gains and losses and other income, such as safe deposit
box rents. Other income increased $ 22,000 or 3.2% for 1995 over
1994, compared to a decrease of $ 38,000 or 5.2% for 1994 over
1993. The increase in 1995 was largely due to an increase in
service charges on deposit accounts of $ 19,000.
The noninterest expenses are classified into five main
categories: salaries and employee benefits; occupancy expenses,
which include depreciation, maintenance, utilities, taxes and
insurance; equipment expenses, which include depreciation, rents
and maintenance; FDIC insurance premiums; and other operating
expenses, which include all other expenses incurred in operating
the Bank and the parent company.
- -39-
Personnel related expenses increased $ 81,000 or 4.4% in
1995 over 1994, compared to an increase of $ 131,000 or 7.6% in
1994 over 1993. Occupancy and equipment expense increased by 3.1%
from 1994 to 1995 compared to 16% from 1993 to 1994. The Bank
expects noninterest expenses to continue to increase as their plans
to expand into Washington County, Maryland and additional branches
are opened. The most significant change in noninterest expenses
was for FDIC insurance premiums which decreased by $ 117,000 or
46.6% in 1995 due to the lowering of this cost to all banks. The
FDIC premiums had increased in previous years by 4.5% in 1994 and
5.2% in 1993. Total noninterest expenses increased 2.5% in 1995,
compared to 6.8% and 7.0% in 1994 and 1993, respectively.
Applicable income taxes changed between 1993, 1994 and
1995 as a result of changes in pre-tax accounting income and
taxable income. As described in Note 1 of the Notes to
Consolidated Financial Statements, deferred income taxes have been
provided for timing differences in the recognition of certain
expenses between financial reporting and tax purposes. Deferred
income taxes have been provided at prevailing tax rates for such
items as depreciation, provision for loan losses, deferred
compensation, interest income on nonaccrual loans and unrealized
gains and losses on investment securities available for sale as
accounted for under SFAS 115. The marginal tax rate at which
deferred taxes were provided during 1995 and 1994 is 34%. At
December 31, 1995 and 1994, deferred taxes amounted to $ 612,000
and $ 1,149,102, respectively. If all timing differences reversed
in 1995, the actual income taxes saved by the recognition of the
aforementioned expenses would not be significantly different from
the deferred income taxes recognized for financial reporting
purposes.
The current level of nontaxable investment and loan
income is such that the Bank is not affected by the alternative
minimum tax rules.
Future Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board has recently
issued two statements of Financial Accounting Standards. SFAS No.
121 Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of applies to such assets as property,
plant and equipment; capital leases; certain intangibles and
related goodwill. This statement provides measurement standards
when such assets are deemed to be "impaired".
SFAS No. 122 Accounting for Mortgage Servicing Rights
amends SFAS No. 65 and provides expanded requirements for the
accounting and measurement of servicing rights for both purchased
and originated mortgages.
Both statements are effective for fiscal years beginning
after December 15, 1995.
Management does not anticipate that either of these
statements will impact future operations since they will not be
applicable given the nature of the Corporation's current
operations.
- -40-
LIQUIDITY
Liquidity and interest rate sensitivity are related but
distinctly different from one another.
Liquidity involves the Bank's ability to meet cash
withdrawal needs of customers and their credit needs in the form of
loans. Liquidity is provided by cash on hand and transaction
balances held at correspondent banks. Liquidity available to meet
credit demands and/or adverse deposit flows is also made available
from sales or maturities of short-term assets. Additional sources
providing funds to meet credit needs is provided by access to the
marketplace to obtain interest-bearing deposits and other
borrowings.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to
be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing
or repricing within that time period. A gap is considered positive
when the amount of interest-earning assets maturing or repricing
exceeds the amount of interest-bearing liabilities maturing or
repricing within the same period. A gap is considered negative
when the amount of interest-bearing liabilities maturing or
repricing exceeds the amount of interest-earning assets maturing or
repricing within the same period. Accordingly, in a rising interest
rate environment, an institution with a positive gap would be in a
better position to invest in higher yielding assets which would
result in the yield on its assets increasing at a pace closer to
the cost of its interest-bearing liabilities, than would be the
case if it had a negative gap. During a period of falling interest
rates, an institution with a positive gap would tend to have its
assets repricing at a faster rate than one with a negative gap,
which would tend to restrain the growth of its net interest income.
The Bank closely monitors its interest rate risk as such
risk relates to its operational strategies. The Bank's Board of
Directors has established an Asset/Liability Committee responsible
for reviewing its asset/liability policies and interest rate risk
position, which generally meets monthly and reports to the Board on
interest rate risk and trends on a quarterly basis.
The following table sets forth the amounts of interest-
earning assets and interest-bearing liabilities outstanding at
December 31, 1995 which are anticipated by the Bank, based upon
certain assumptions described below, to reprice or mature in each
of the future time periods shown. Adjustable-rate assets and
liabilities are included in the table in the period in which their
interest rates can next be adjusted.
- -41-
Money market NOW and savings accounts have been included
in both rate sensitive liabilities of "O - 90 days" and "91 - 360"
due to these funds being subject to immediate withdrawal.
Due 0 - 90 Due 91 - Due After
Days 360 Days 1 Year Total
Rate sensitive assets
Interest bearing
Deposits with banks $ 400 $ 484 $ 2,551
$ 3,435
Investment securities 3,670 3,386 24,240
31,296
Real estate, commercial
and consumer loans 20,184 35,535 40,131
95,850
$ 24,254 $ 39,405 $ 66,922 $
130,581
Rate sensitive liabilities
Certificates of deposit
over $ 100,000 $ 2,379 $ 4,784 $ 4,306 $
11,469
Other certificates of
deposit 9,373 15,892
23,513 48,778
Money market deposit
accounts 5,086 2,543 0 7,629
NOW accounts and other
savings deposits 30,785 12,898 0
43,683
$ 47,623 $ 36,117 $ 27,819 $
111,559
Cumulative interest
sensitive GAP ($ 23,369) ($ 20,081) $ 19,022
Cumulative interest
sensitive ratio .51 .76 1.17
CAPITAL FUNDS
Internal capital generation has been the primary method
utilized by Tower Bancorp Inc. to increase its capital.
Stockholders' equity, which exceeded $ 16.1 million at December 31,
1995 has steadily increased. Regulatory authorities have
established capital guidelines in the form of the "leverage ratio"
and "risk-based capital ratios." The leverage ratio compares
capital to total balance sheet assets, while the risk-based ratios
compare capital to risk-weighted assets and off-balance-sheet
activity in order to make capital levels more sensitive to risk
profiles of individual banks. A comparison of Tower Bancorp's
capital ratios to regulatory minimums at December 31 is as follows:
Regulatory Minimum
Tower Bancorp Requirements
1995 1994
Leverage ratio 10.50% 9.9% 4%
Risk-based capital ratio
Tier I (core capital) 16.34% 13.87% 4%
Combined Tier I and Tier II
(core capital plus allowance
for loan losses) 18.28% 15.8% 8%
- -42-
Tower Bancorp, Inc. has traditionally been well above
required levels and expects equity capital to continue to exceed
regulatory guidelines. Certain ratios are useful in measuring the
ability of a company to generate capital internally.
The following chart indicates the growth in equity
capital for the past three years.
1995 1994 1993
Equity capital at December 31
($ 000 omitted) $ 16,148 $ 13,343 $
12,319
Equity capital as a percent of
assets at December 31 11.60% 9.86% 9.82%
Return on average assets 1.67% 1.62% 1.39%
Return on average equity 14.90% 16.50% 14.46%
Cash dividend payout ratio 21.53% 19.53% 21.82%
STOCK MARKET ANALYSIS AND DIVIDENDS
The corporation's common stock is traded inactively in
the over-the-counter market. As of December 31, 1995 the
approximate number of shareholders of record was 865.
Market Cash
1995 Price Dividend
First Quarter $ 45.00 - 46.00 $ 0
Second Quarter 48.00 - 48.00 .39
Third Quarter 45.00 - 48.00 0
Fourth Quarter 45.00 - 45.00 .83
1994 (1)
First Quarter $ 36.00 - 36.00 $ 0
Second Quarter 41.00 - 45.90 .33
Third Quarter 45.00 - 45.90 0
Fourth Quarter 45.00 - 45.00 .75
(1) Note: Cash dividends per share for 1994 were based
on weighted average shares of common
stock outstanding in 1994 after giving
retroactive recognition to a 10% stock
dividend in July 1995.
- -43-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
CHANGES IN INCOME AND EXPENSE - 1995 AND 1994
The schedule below reflects comparative changes in income and
expense included in the Consolidated Statements of Income for 1995 and
1994 together with changes in asset and liability volumes associated
with these income and expense items.
1995 Compared to 1994
Average Volumes Income/Expense
($ 000 omitted) $ % $ %
Loans 4,099 4.5 1,175 15.4
Investment securities 696 2.2 144 9.9
Other short-term investments 1,726 82.8 17 12.1
Total 6,521 5.5
1,336 13.8
Interest bearing demand
deposits ( 577) ( 2.8) (
16) ( 3.9)
Savings deposits ( 1,843) ( 5.5) 38
4.1
Time deposits 6,298 12.1 937 42.5
Short-term borrowings 749 28.5 83 62.1
Total 4,627 3.9 1,042 28.4
Net interest income 294 5.4
Provision for loan losses ( 13)
(100.0)
Net interest income after
provision for loan losses 307 5.6
Security transactions ( 17) (
12.6)
Other operating income 39 6.9
Income before operating expense 329 4.9
Salaries & employee benefits 81 4.4
Occupancy & equipment expense 27 3.1
FDIC insurance premiums ( 117) (
46.6)
Other operating expenses 106 12.2
Total operating expenses 97 2.5
Income before income taxes 232 8.1
Applicable income tax expense 64 8.6
Net income 168 7.9
- -44-
1994 Compared to 1993
Average Volumes Income/Expense
($ 000 omitted) $ % $ %
Loans 9,316 11.4 750 10.9
Investment securities 1,207 4.0 ( 79) (
4.0)
Other short-term investments ( 1,170) ( 36.0) ( 39) (
21.8)
Total 9,353 8.1 632 7.0
Interest bearing demand
deposits 9,392 49.4 (118) (
16.2)
Savings deposits (10,352) ( 28.9) ( 31) (
4.2)
Time deposits 5,821 12.6 126 6.1
Short-term borrowings 1,794 217.2 99 291.2
Total 6,655 6.5 76 2.1
Net interest income 556 10.2
Provision for loan losses (222) (
94.5)
Net interest income after
provision for loan losses 778 14.9
Security transactions 4 3.1
Other operating income ( 42) (
6.9)
Income before operating expense 740 12.4
Salaries & employee benefits 131 7.7
Occupancy & equipment expense 120 16.0
FDIC insurance premiums 11 4.6
Other operating expenses ( 14) 1.6
Total operating expenses 248 7.7
Income before income taxes 492 20.7
Applicable income tax expense 64 9.4
Net income 428 25.3
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 4.7% to 4.8% 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 1995 1994
Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate
Investment securities:
Taxable interest
income $ 23,898 $ 1,587 6.3% $ 23,359
$ 1,443 6.2%
Nontaxable interest
income 8,157 449 5.5 8,000
449 5.6
Total investment
securities 32,055 2,036 6.2 31,359
1,892 6.0
Loans (net of unearned
discounts) 95,088 8,809 9.2 90,989
7,634 8.4
Other short-term
investments 3,809 157 5.6 2,083
140 6.7
Total interest
earning assets 130,952 $ 11,002 8.5% 124,431
$ 9,666 7.8%
Allowance for loan
losses ( 1,905) (
1,752)
Cash and due from banks 3,511 3,670
Bank premises and
equipment 1,993 2,077
Other assets 2,653 2,007
Total assets $ 137,204 $ 130,433
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 19,729 $ 390 1.9% $ 20,306
$ 406 2.0%
Savings deposits 31,705 957 3.0 33,548
919 2.7
Time deposits 58,271 3,142 5.4 51,973
2,204 4.2
Short-term borrowings 3,369 214 6.2 2,620
132 5.0
Total interest
bearing liabilities 113,074 $ 4,703 4.3% 108,447
$ 3,661 3.4%
Demand deposits 7,613 7,083
Other liabilities 1,598 3,945
Total liabilities 122,285 119,475
Stockholders' equity 14,919 10,958
Total liabilities &
stockholders'
equity $ 137,204 $ 130,433
Net interest income/net
yield on average
earning assets $ 6,299 4.8% $
6,005 4.8%
- -45-
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential Tax Equivalent Yields
Years Ended December 31
ASSETS 1993
Average
(000 omitted) Balance Interest Rate
Investment securities:
Taxable interest income $ 22,946 $
1,529 6.8%
Nontaxable interest income 7,206 442 6.1
Total investment securities 30,152 1,971 6.6
Loans (net of unearned discounts) 81,673 6,884 8.4
Other short-term investments 3,253 179 5.5
Total interest earning assets 115,078 $ 9,034 7.9%
Allowance for loan losses ( 1,455)
Cash and due from banks 3,352
Bank premises and equipment 2,054
Other assets 2,296
Total assets $ 121,325
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 19,011 $ 439 2.3%
Savings deposits 35,804 1,035 2.9
Time deposits 46,152 2,078 4.5
Short-term borrowings 826 33 4.0
Total interest
bearing liabilities 101,793 $ 3,585 3.5%
Demand deposits 6,277
Other liabilities 1,477
Total liabilities 109,547
Stockholders' equity 11,778
Total liabilities &
stockholders' equity $ 121,325
Net interest income/net
yield on average
earning assets $ 5,449 4.7%
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 1995, 1994 and 1993.
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CHANGES IN NET INTEREST INCOME
TAX EQUIVALENT YIELDS
1994 Versus 1995
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned discounts) $ 344 $ 831 $ 1,175
Taxable investment securities
115 29 144
Nontaxable investment securities 8 ( 8) 0
Other short-term investments 48 ( 31) 17
Total interest income 515 821 1,336
Interest Expense
Interest bearing demand ( 11) ( 5) ( 16)
Savings deposits ( 50) 88 38
Time deposits 265 672 937
Other short-term borrowings 37 46 83
Total interest expense 241 801 1,042
Net interest income $ 294
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.
- -46-
1994 Versus 1993
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned discounts) $ 750 $ 0 $ 750
Taxable investment securities 14 ( 100) ( 86)
Nontaxable investment securities 48 ( 41) 7
Other short-term investments ( 64) 25 ( 39)
Total interest income 748 ( 116) 632
Interest Expense
Interest bearing demand 26 ( 60) ( 34)
Savings deposits ( 61) ( 54) ( 115)
Time deposits 245 ( 119) 126
Other short-term borrowings 88 11 99
Total interest expense 298 ( 222) 76
Net interest income $ 556
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 carrying value as of December31, 1995, 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 $ 399 $ 500 $ 199
Yield 6.25% 6.36% 7.20%
U. S. Government
agencies/mortgage-
backed securities
Book value $ 1,844 $ 8,066 $ 9,363
Yield 5.86% 5.96% 6.89%
State and municipal
Book value $ 515 $ 2,772 $ 3,447
Yield 8.92% 7.38% 8.10%
Other
Book value $ 0 $ 619 $ 101
Yield 0.0% 8.42% 5.90%
Total book value $ 2,758 $ 11,957 $ 13,110
Yield 6.49% 6.43% 7.21%
- -47-
After
10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 0 $ 1,098
Yield 0.0% 6.47%
U. S. Government
agencies/mortgage-
backed securities
Book value $ 951 $ 20,224
Yield 5.64% 6.36%
State and municipal
Book value $ 1,277 $ 8,011
Yield 9.19% 8.16%
Other
Book value $ 100 $ 820
Yield 7.0% 7.95%
Total book value $ 2,328 $ 30,153
Yield 7.65% 8.00%
Equity Securities:
Total Equity Securities $ 2,235
Yield 2.91%
Total Investment Securities $ 32,388
Yield 7.65%
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:
1995 1994 1993 1992 1991
(000 omitted)
Commercial, financial
and agricultural $ 8,736 $ 8,506 $ 5,897 $ 5,249 $
7,253
Real estate -
Construction 1,494 1,004 809 1,085
1,786
Real estate - Mortgage 76,624 76,655 72,862 65,769
56,953
Installment and other
personal loans (net of
unearned income) 8,996 8,973 6,742 6,342
7,167
Total loans $ 95,850 $ 95,138 $ 86,310 $ 78,445 $
73,159
Presented below are the approximate maturities of the loan portfolio
(excluding real estate mortgage and installments) at December 31, 1995:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial and
agricultural $ 6,989 $ 787 $ 960 $
8,736
Real estate - Construction 1,494 0 0
1,494
Total $ 8,483 $ 787 $ 960 $
10,230
The following table presents the approximate amount of fixed rate
loans and variable rate loans due as of December 31, 1995:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 3,861 $ 53,819
Due after one but within
five years 10,272 0
Due after five years 27,898 0
Total $ 42,031 $ 53,819
- -48-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December31
1995 1994 1993 1992 1991
(000 omitted)
Average total loans
outstanding (net of
unearned income) $ 95,088 $ 90,989 $ 81,673 $ 76,053 $
74,401
Allowance for loan
losses, beginning of
period 1,856 1,560 1,397 1,357
1,204
Additions to provision
for loan losses
charged to operations 0 13 235 290 240
Loans charged off
during the year
Commercial 0 0 272 257 80
Real estate mortgage 7 0 0 209 63
Installment 13 18 26 50
24
Total charge-
off's 20 31 298 516
167
Recoveries of loans
previously charged off:
Commercial 75 261 160 38 44
Installment 27 39 19 23 33
Mortgage 7 1 47 205
3
Total
recoveries 109 301 226 266
80
Net loans charged off
(recovered) ( 89) ( 270) 72
250 87
Allowance for loan
losses, end of period 1,945 1,856 1,560 1,397
1,357
Ratio of net loans
charged off (recovered)
to average loans
outstanding ( .09)%( .29%)
.09%
.32% .12%
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.
- -49-
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 December31.
1995 1994 1993 1992 1991
(000 omitted)
Nonaccrual loans $ 135 $ 79 $ 619 $ 1,624 $
2,169
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $
0
60 - 89 days past due 252 14 470 65 333
90 days or more past due 115 1 46 15
142
Total accrual loans $ 367 $ 15 $ 516 $ 80 $
475
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.
Management has not identified any significant problem loans in
the accrual loan categories shown above.
- -50-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following is an allocation by loan categories of the
allowance for loan losses at December31 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
1995 1994
Percentage of Percentage of
Allowance Loans to Allowance Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 818 9.1% $ 743 8.9%
Real estate -
Construction 0 1.6 0 1.1
Real estate -
Mortgage 629 79.9 629 80.5
Installment 48 9.4 33 9.5
Unallocated 450 N/A
451 N/A
Total $ 1,945 100.0% $ 1,856 100.0
Years Ended December 31
1993 1992
Percentage of Percentage of
Allowance Loans to Allowance Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 482 6.8% $ 370
6.7%
Real estate -
Construction 0 1.0 10 1.3
Real estate -
Mortgage 628 84.4 675 83.8
Installment 29 7.8 22 8.2
Unallocated 421 N/A 320
N/A
Total $ 1,560 100.0% $ 1,397
100.0%
- -51-
Years Ended December 31
1991
Percentage of
Allowance Loans to
Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 712 9.9%
Real estate -
Construction 0 2.4
Real estate -
Mortgage 427 77.7
Installment 109 10.0
Unallocated 109 N/A
Total $ 1,357 100.0%
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December31
1995 1994 1993
(000 omitted)
Demand deposits $ 7,613 $ 7,083 $
6,277
Interest bearing demand
deposits 19,729 20,308
19,011
Savings deposits 31,705 33,548
35,804
Time deposits 58,271 51,973
46,152
Total deposits $ 117,318 $ 112,911 $
107,244
The following is a breakdown of maturities of time deposits of
$ 100,000 or more as of December31, 1995:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 2,379
Over three months through twelve months 4,784
Over twelve months 4,306
$ 11,469
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant earnings and
capital ratios:
1995 1994 1993
Assets $ 139,182 $ 135,378 $
125,495
Income $ 2,285 $ 2,117 $
1,689
Equity $ 16,148 $ 13,343 $
12,319
Cash dividends paid $ 492 $ 415 $
366
Return on assets 1.67% 1.62% 1.39%
Return on equity 14.90% 16.50% 14.46%
Dividend payout ratio 21.53% 19.53% 21.82%
Equity to asset ratio 11.60% 9.84% 9.62%
- -52-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
1995 1994 1993 1992 1991
(000 omitted)
Interest income $ 11,002 $ 9,666 $ 9,034 $
9,676 $ 10,148
Interest expense 4,703 3,661 3,585
4,393 5,685
Net interest income 6,299 6,005 5,449 5,283
4,463
Provision for loan
losses 0 13 235
290 240
Net interest income
after provision
for loan losses 6,299 5,992 5,214 4,993
4,223
Other income:
Trust 200 190 166 127 120
Service charges -
deposits 288 269 272 254 196
Other service charges,
collection and exchange,
charges, commission
fees 102 103 84 69 67
Other operating income 129 135 213
359 43
Total other income 719
697 735 809 426
Income before operating
expense 7,018 6,689 5,949 5,802
4,649
Operating expenses:
Salaries and employees
benefits 1,917 1,836 1,705 1,725
1,587
Occupancy and equipment
expense 898 871 751 767 655
Other operating
expenses 1,106 1,117 1,120
1,344 967
Total operating
expenses 3,921 3,824 3,576
3,836 3,209
Income before income
taxes 3,097 2,865 2,373 1,966
1,440
Income tax (benefits) 812 748 684
473 248
Net income
applicable to
common stock $ 2,285 $ 2,117 $ 1,689 $
1,493 $ 1,192
Per share data:
Earnings per common
share $ 5.67 $ 5.52 $ 4.37 $ 3.87 $
3.10
Cash dividend -
Common $ 1.22 $ 1.08 $ .95 $ .87 $
.80
Average number of
common shares 402,690 383,423 385,982 385,314
384,083
- -53-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
STATEMENTS OF AVERAGE BALANCES AND AVERAGE RATES
1995 1994 1993 1992 1991
($ 000 omitted)
LOANS
Commercial $ 11,848 $ 10,395 $ 8,985 $ 10,496 $
12,885
Mortgage 66,699 66,570 61,737 58,384
55,649
Consumer 16,541 14,024 10,951 7,173
5,867
Total loans 95,088 90,989 81,673 76,053
74,401
INVESTMENT SECURITIES
U.S. Government 1,460 1,640 1,302 998 702
U.S. Government
agencies 18,854 17,855 18,228 18,816
13,644
State & municipal 8,157 8,000 7,206 5,743
4,682
Other 3,584 3,864 3,416 3,948
5,283
Total investment
securities 32,055 31,359 30,152 29,505
24,311
OTHER SHORT-TERM INVESTMENTS
Federal funds sold 990 86 784 1,562
2,167
Certificates of
deposit 2,819 1,997 2,469 2,642
3,498
Total other short-term
investments 3,809 2,083 3,253 4,204
5,665
Total earning
assets 130,952 124,431 115,078 109,762
104,377
Total assets $ 137,204 $ 130,433 $ 121,325 $ 115,391 $
109,293
Percent increase 5.2% 7.5% 5.1% 5.6% 5.0%
DEPOSITS
Demand $ 7,613 $ 7,083 $ 6,277 $ 5,993 $
5,061
Interest-bearing demand 19,729 20,308 19,011 16,937
15,749
Savings 31,705 33,548 35,804 32,258
24,715
Time 58,271 51,973 46,152 47,578
52,447
Total deposits 117,318 112,911 107,244 102,766
97,972
Short-term borrowings 3,369 2,620 826 548
564
AVERAGE RATES EARNED (TAXABLE
EQUIVALENT BASIS) % % % % %
Loans
Commercial 10.2 8.5 8.1 9.2 10.0
Mortgage 8.9 8.0 8.3 9.3 10.1
Consumer 9.1 8.8 9.6 11.4 12.8
Total 9.2 8.4 8.4 9.5 10.3
Investment Securities
U. S. Government 6.8 6.6 6.9 7.3 8.3
U.S. Government agencies 6.4 6.0 6.7 7.9 8.3
State & municipal 5.5 5.6 6.1 6.8 7.3
Other 7.3 8.0 8.8 9.0 9.3
Total 6.2 6.0 6.6 7.7 8.3
Total other short-term
investments 5.6 6.4 5.5 5.5 7.4
Total earning assets 8.5 7.8 7.9 8.9 9.7
AVERAGE RATES PAID
Time & savings deposits 4.1 3.3 3.5 4.5 6.1
Short-term borrowings 6.2 4.3 4.0 4.9 5.9
- -54-
Item 9. Disagreements on Accounting and Financial Disclosures.
Not applicable.
- -55-
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 1996 Annual Meeting of Shareholders filed pursuant to
Regulation 14A.
- -56-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K.
Financial Statement Schedules and Exhibits
(1) Financial statements. See Item 8 of this report for the
index to financial statements.
(2) Financial statement schedules. Not applicable.
(3) Exhibits.
Exhibit Numbers
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession. Not applicable.
(3)(a) Articles of incorporation. Incorporated by
reference to Exhibit C to the Registrant's
Registration Statement on Form S-14, Registration
No. 2-89573.
(b) 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.,
filed as Exhibit C to Registrant's Registration
Statement on Form S-14 (Registration No. 2-89573).
(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).
(9) Voting trust agreement. Not applicable.
- -57-
(10) Material contracts. None.
(11) Statement re: computation of per share earnings. Not
applicable.
(12) Statements re: computation of ratios. Not applicable.
(13) Annual report to security holders. Form 10-Q or
quarterly report to security holders. Not applicable.
(16) Letter re: change in accounting principles. Not
applicable.
(21) Subsidiaries of the registrant. Filed herewith.
(22) Published report regarding matters submitted to vote of
security holders. Not applicable.
(23) Consents of experts and counsel. Not applicable.
(24) Power of attorney. Not applicable.
(27) Financial data schedule.
(78) Information from reports furnished to state insurance
regulatory authorities. Not applicable.
(99) Additional exhibits. Not applicable.
(b) Reports on Form 8-K.
None
- -58-
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
Jeff B. Shank, President
(Principal Executive Officer and
Principal Financial Officer)
By
Donald F. Chlebowski, Jr., Treasurer
(Principal Accounting Officer)
Dated: March , 1996
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
President and March , 1996
Jeff B. Shank Director
Director March , 1996
Betty J. Lehman
Chairman of the Board March , 1996
Kermit G. Hicks and Director
Director
March , 1996
Robert L. Pensinger
Director
March , 1996
Nelson M. Elliott
Vice Chairman of the
March , 1996
Harold C. Gayman Board and Director
Director
March , 1996
James H. Craig, Jr.
_______________________ Director March _________, 1996
Lois Easton
- -59-
Exhibit Index
Exhibit No. Sequentially numbered pages
21 Subsidiaries of the Registrant 61
27 Financial data schedule 62 and 63
- -60-
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.