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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, 1997
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, 1997, 883,098 shares of the registrant's
common stock were outstanding. The aggregate market value
of such shares held by nonaffiliates on that date was
$ 40,180,959.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year
ended December 31, 1997 are incorporated by reference into
Parts I and II. Portions of the Proxy Statement for 1998
Annual Meeting of Security Holders are incorporated by
reference in Part III of this Form 10-K.
- -1-
Item 1. Business.
History and Business
Tower Bancorp, Inc. ("Tower") is a bank holding
company registered under the Bank Holding Company Act of
1956, as amended. Tower was organized on October 12, 1983,
under the laws of the Commonwealth of Pennsylvania for the
purpose of acquiring The First National Bank of Greencastle,
Greencastle, Pennsylvania ("First") and such other banks and
bank related activities as are permitted by law and
desirable. On June 1, 1984, Tower acquired 100% ownership
of The First National Bank of Greencastle, issuing 159,753
shares of Tower's common stock to the former First
shareholders.
During 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.
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.
- -2-
During 1996 Tower acquired 6,475 shares of its own
common stock and sold 1,394 shares of its own common stock
that was held as treasury stock to First's ESOP plan, and
324 shares to First's president as part of a stock option
plan. Tower also issued a 100% stock dividend on April 15,
1996 of 424,090 shares, increasing the total number of
shares outstanding at December 31, 1996 to 840,213.
In 1997 Tower acquired 459 shares of its own
common stock and sold 5,259 shares of treasury stock to
First's ESOP plan, and 348 shares to First's president as
part of a stock option plan. On July 1, 1997 Tower also
issued a 5% stock dividend of 41,870 shares, increasing the
total number of shares outstanding at December 31, 1997 to
883,098.
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 December 31, 1997, First had 65 full-time and 15 part-
time employees.
- -3-
Tower contemplates that in the future it will
evaluate and may acquire, or may cause its subsidiaries to
acquire, other banks. Tower also may seek to enter
businesses closely related to banking or to acquire existing
companies already engaged in such activities. Any
acquisition by Tower will require prior approval of the
Board of Governors of the Federal Reserve System, the
Pennsylvania Department of Banking, and, in some instances,
other regulatory agencies and its shareholders. During 1996
Tower secured approval and purchased property for use as a
possible future branch office, in Washington County,
Maryland.
Business of First
First was organized as a national bank in 1983 as
part of an agreement and plan of merger between Tower and
The First National Bank of Greencastle, the predecessor of
First, under which First became a wholly-owned subsidiary of
Tower. As indicated, First is the successor to The First
National Bank of Greencastle which was originally organized
in 1864.
First is engaged in commercial banking and trust
business as authorized by the National Bank Act. This
involves accepting demand, time and savings deposits and
granting loans (consumer, commercial, real estate, business)
to individuals, corporations, partnerships, associations,
municipalities and other governmental bodies.
Through its trust department, First renders
services as trustee, executor, administrator, guardian,
managing agent, custodian, investment advisor and other
fiduciary activities authorized by law.
- -4-
As of December 31, 1997, First had total assets of
approximately $ 160 million, total shareholders' equity of
approximately $ 20 million and total deposits of
approximately $ 133 million.
Regulation and Supervision
Tower Bancorp, Inc. (Tower) is a bank holding
company within the meaning of the Bank Holding Company Act
of 1956 (BHC Act), and is registered as such with the Board
of Governors of the Federal Reserve System (FRB). As a
registered bank holding company, the parent company is
required to file with the FRB certain reports and
information. Tower is also subject to examination by the
FRB and is restricted in its acquisitions, certain of which
are subject to approval by the FRB. In addition, the parent
company would be required to obtain the approval of the
Pennsylvania State Banking Department in order for it to
acquire certain bank and nonbank subsidiaries.
Under the BHC Act, a bank holding company is, with
limited exceptions, prohibited from (i) acquiring direct or
indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or (ii) engaging
in any activity other than managing or controlling banks.
With the prior approval of the FRB, however, a bank holding
company may own shares of a company engaged in activities
which the FRB determines to be so closely related to banking
or managing or controlling banks as to be a proper incident
thereto. In addition, federal law imposes certain
restrictions on transactions between Tower and its
subsidiary, First National Bank of Greencastle (First). As
an affiliate of First, Tower is subject, with certain
exceptions, to provisions of federal law imposing
limitations on, and requiring collateral for, extensions of
credit by First to its affiliates.
- -5-
The operations of First are subject to federal and
state statutes applicable to banks chartered under the
banking laws of the United States, to members of the Federal
Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation. Bank operations
are also subject to regulations of the Office of the
Comptroller of the Currency, the Federal Reserve Board and
the Federal Deposit Insurance Corporation.
The primary supervisory authority of First is the
Office of the Comptroller of the Currency (OCC), who
regularly examines such areas as reserves, loans,
investments, management practices and other aspects of bank
operations. These examinations are designed primarily for
the protection of the Bank depositors.
Federal and state banking laws and regulations
govern, among other things, the scope of a bank's business,
the investments a bank may make, the reserves against
deposits a bank must maintain, the loans a bank makes and
collateral it takes, the maximum interest rates a bank may
pay on deposits, the activities of a bank with respect to
mergers and consolidations, and the establishment of
branches, and management practices and other aspects of
banking operations. See Note 20 of the Notes to Financial
Statements for a discussion of the limitations on the
availability of Tower's subsidiary's undistributed earnings
for the payment of dividends due to such regulation and
other reasons.
- -6-
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989(FIRREA) provides among other things
that a financial institution insured by the Federal Deposit
Insurance Corporation(FDIC) sharing common ownership with a
failed institution can be required to indemnify the FDIC for
its losses resulting from the insolvency of the failed
institution, even if such indemnification causes the
affiliated institution also to become insolvent. Tower
currently has only one subsidiary and as a result has not
been significantly affected by the aforementioned provisions
of FIRREA.
The OCC issued guidelines which, effective
December 31, 1990, imposed upon national banks risk-based
capital and leverage standards. These new capital
requirements of bank regulators, are discussed in Note 20 of
the notes to financial statements. Failure to meet
applicable capital guidelines could subject a national bank
to a variety of enforcement remedies available to the
federal regulatory authorities. Depending upon
circumstances, the regulatory agencies may require an
institution to surpass minimum capital ratios established by
the OCC and the FRB.
In December 1991, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted.
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
- -7-
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.
- -8-
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 subsidiaries, would be assumed by the
bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital
ratios at December 31, 1997, the Bank is considered well
capitalized, based on the definitions in the regulations
issued by the Federal Reserve Board and the other federal
bank regulatory agencies setting forth the general capital
requirements mandated by FDICIA. See "Capital Funds" in
management's discussion and analysis in the corporation's
annual report as shown in Exhibit 13.
- -9-
The earnings of First, and therefore the earnings
of Tower, are affected by general economic conditions,
management policies, and the legislative and governmental
actions of various regulatory authorities
including the FRB, the OCC and the FDIC. In addition, 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.
- -10-
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.
First also owns a building at 18233 Maugans Avenue in
Washington County, Maryland which may be used as a branch
office at some point in the future.
Item 3. Legal Proceedings.
Tower is an occasional party to legal actions
arising in the ordinary course of its business. In the
opinion of Tower's management, Tower has adequate legal
defenses and/or insurance coverage respecting any and each
of these actions and does not believe that they will
materially affect Tower's operations or financial position.
Item 4. Submission of Matters to Vote of Security Holders.
None
The following table sets forth selected
information about the principal officers of the holding
company, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the
Board.
- -11-
Held Bank Employee Age as
Name/Office Held Since Since of 12/31/97
Kermit G. Hicks, Chairman
of the Board 1983 (1) 62
Harold C. Gayman, Vice
Chairman of the Board 1983 (1) 71
Jeff B. Shank, President
and Director 1992 42
Betty J. Lehman, Director 1985 (1) 72
Robert L. Pensinger,
Director 1987 (1) 64
James H. Craig, Director 1990 (1) 64
Lois Easton, Director 1990 (1) 62
(1) These directors are not employees of the Bank.
Held Bank Employee Age as
Name/Office Held Since Since of 12/31/97
Jeff B. Shank, President 1992 1976 42
John H. McDowell,
Executive Vice President 1994 1977 48
Don Kunkle, Vice President 1987 1987 48
Donald Chlebowski, Vice
President 1991 1980 39
Darlene Niswander, Vice
President/Senior Trust
Officer 1991 1971 51
- -12-
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,
1997, the approximate number of shareholders of record was
961. 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
1997 (1)1st Quarter $ 0 $ 35.00 - $ 35.00
2nd Quarter .23 34.25 - 36.00
3rd Quarter 0 35.00 - 41.00
4th Quarter .53 36.00 - 45.50
1996 (1)1st Quarter $ 0 $ 25.50 - $ 26.50
2nd Quarter .19 26.00 - 28.00
3rd Quarter 0 33.50 - 36.00
4th Quarter .43 34.25 - 34.75
(1) Note: Cash dividends per share were based on
weighted average shares of common stock
outstanding after giving retroactive
recognition to a 5% stock dividend
issued in July 1997 and a 100% stock
dividend issued in April 1996.
Item 6. Selected Financial Data
The selected five-year financial data on page 22
of the annual shareholders' report for the year ended
December 31, 1997 is incorporated herein by reference.
- -13-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial
condition and results of operations, including quantitative
and qualification disclosures about market risk on pages 26
through 30 of the annual shareholders report are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data,
some of which is required under Guide 3 (statistical
disclosures by bank holding companies) are shown on pages 2
through 25 of the annual shareholders report for the year
ended December 31, 1997 and are incorporated herein by
reference. Additional schedules required in addition to
those included in the annual shareholders report are
submitted herewith.
- -14-
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 4.1% to 4.6% 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 1997 1996
Average Average
(000 omitted) Balance Interest Rate Balance Interest Rate
Investment securities:
Taxable interest
income $ 22,596 $ 1,724 6.7% $ 26,174 $ 1,701 6.5%
Nontaxable interest
income 9,608 495 5.2 8,413 447 5.3
Total investment
securities 32,204 2,219 6.4 34,587 2,148 6.2
Loans (net of unearned
discounts) 102,439 9,221 9.0 99,046 8,809 8.9
Other short-term
investments 14,319 537 7.1 4,391 199 4.5
Total interest
earning
assets 148,962 $ 11,977 8.2% 138,024 $ 11,156 8.1%
Allowance for loan
losses ( 1,931) ( 1,946)
Cash and due
from banks 3,450 3,510
Bank premises and
equipment 2,262 2,295
Other assets 2,521 2,621
Total assets $ 155,264 $ 144,504
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 31,820 $ 638 2.1% $ 21,091 $ 597 2.8%
Savings deposits 27,647 905 3.3 33,265 770 2.3
Time deposits 62,592 3,503 5.5 61,609 3,379 5.5
Short-term
borrowings 2,288 121 5.9 1,984 65 3.3
Total interest
bearing
liabilities 124,347 $ 5,167 4.1% 117,949 $ 4,811 4.1%
Demand deposits 8,835 8,222
Other
liabilities 3,013 1,779
Total
liabilities 136,195 127,950
Stockholders'
equity 19,069 16,554
Total liabilities &
stockholders'
equity $ 155,264 $ 144,504
Net interest income/net
yield on average
earning assets $ 6,810 4.1% $ 6,345 4.6%
- -15-
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential Tax Equivalent Yields
Years Ended December 31
ASSETS 1995
Average
(000 omitted) Balance Interest Rate
Investment securities:
Taxable interest
income $ 23,898 $ 1,587 6.3%
Nontaxable interest
income 8,157 449 5.5
Total investment
securities 32,055 2,036 6.2
Loans (net of unearned
discounts) 95,088 8,809 9.2
Other short-term
investments 3,809 157 5.6
Total interest
earning assets 130,952 $ 11,002 8.5%
Allowance for loan
losses ( 1,905)
Cash and due from banks 3,511
Bank premises and
equipment 1,993
Other assets 2,653
Total assets $ 137,204
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand
deposits $ 19,729 $ 390 1.9%
Savings deposits 31,705 957 3.0
Time deposits 58,271 3,142 5.4
Short-term borrowings 3,369 214 6.2
Total interest
bearing liabilities 113,074 $ 4,703 4.3%
Demand deposits 7,613
Other liabilities 1,598
Total liabilities 122,285
Stockholders' equity 14,919
Total liabilities &
stockholders'
equity $ 137,204
Net interest income/net
yield on average
earning assets $ 6,299 4.2%
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 1997, 1996 and 1995.
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CHANGES IN NET INTEREST INCOME
TAX EQUIVALENT YIELDS
1997 Versus 1996
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned
discounts) $ 302 $ 110 $ 412
Taxable investment securities ( 233) 256 23
Nontaxable investment securities 63 ( 15) 48
Other short-term investments 447 ( 109) 338
Total interest income 579 242 821
Interest Expense
Interest bearing demand 300 ( 259) 41
Savings deposits ( 129) 264 135
Time deposits 54 70 124
Other short-term borrowings 10 46 56
Total interest expense 235 121 356
Net interest income $ 465
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.
- -16-
1995 Versus 1996
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned
discounts) $ 364 ($ 364) $ 0
Taxable investment securities 143 ( 29) 114
Nontaxable investment securities 14 ( 16) ( 2)
Other short-term investments 33 9 42
Total interest income 554 ( 400) 154
Interest Expense
Interest bearing demand 26 181 207
Savings deposits 47 ( 234) ( 187)
Time deposits 180 57 237
Other short-term borrowings ( 86) ( 63) ( 149)
Total interest expense 167 ( 59) 108
Net interest income $ 46
Changes which are attributed in part to volume and in
part to rate are allocated in proportion to their
relationships to the amounts of changes.
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following table shows the maturities of investment
securities at book value as of December 31, 1997, 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 $ 100 $ 399 $ 0
Yield (1)
U. S. Government
agencies/mortgage-
backed securities
Book value $ 867 $ 3,684 $ 13,427
Yield (1)
State and municipal
Book value $ 425 $ 2,639 $ 3,133
Yield (1)
Other
Book value $ 0 $ 618 $ 100
Yield (1)
Total book value $ 1,392 $ 7,340 $ 16,660
Yield
(1) Average yields by maturity on investments were not
available.
- -17-
After
10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 0 $ 499
Yield 6.79%
U. S. Government
agencies/mortgage-
backed securities
Book value $ 3,920 $ 21,898
Yield 6.79%
State and municipal
Book value $ 4,063 $ 10,260
Yield 7.73%
Other
Book value $ 0 $ 718
Yield 7.95%
Total book value $ 7,983 $ 33,375
Yield
Equity Securities:
Total Equity Securities $ 5,869
Yield 2.48%
Total Investment Securities $ 39,244
Yield 6.41%
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:
1997 1996 1995 1994 1993
(000 omitted)
Commercial, financial
& agricultural $ 10,699 $ 10,009 $ 8,736 $ 8,506 $ 5,897
Real estate -
Construction 1,486 2,326 1,494 1,004 809
Real estate -
Mortgage 80,597 78,990 76,624 76,655 72,862
Installment & other
personal loans
(net of unearned
income) 11,556 9,716 8,996 8,973 6,742
Total loans $ 104,338 $ 101,041 $ 95,850 $ 95,138 $ 86,310
Presented below are the approximate maturities of the
loan portfolio (excluding real estate mortgage and
installments) at December 31, 1997:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial &
agricultural $ 8,320 $ 1,618 $ 1,618 $ 11,556
Real estate -
Construction 1,486 0 0 1,486
Total $ 9,806 $ 1,618 $ 1,618 $ 13,042
The following table presents the approximate amount of
fixed rate loans and variable rate loans due as of
December 31, 1997:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 6,980 $ 18,110
Due after one but within
five years 20,821 8,211
Due after five years 18,928 31,288
Total $ 46,729 $ 57,609
- -18-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
1997 1996 1995 1994 1993
(000 omitted)
Average total loans
outstanding (net of
unearned
income) $ 102,439 $ 99,046 $ 95,088 $ 90,989 $ 81,673
Allowance for loan
losses, beginning
of period 1,947 1,945 1,856 1,560 1,397
Additions to provision
for loan losses
charged to
operations 0 0 0 13 235
Loans charged off
during the year
Commercial 58 5 0 0 272
Real estate
mortgage 0 0 7 0 0
Instal-
lment 57 9 13 18 26
Total charge-
off's 115 14 20 31 298
Recoveries of loans
previously charged off:
Commercial 11 6 75 261 160
Installment 7 9 27 39 19
Mortgage 0 1 7 1 47
Total
recov-
eries 18 16 109 301 226
Net loans charged off
(recovered) 97 ( 2) ( 89) ( 270) 72
Allowance for loan
losses, end of
period 1,850 1,947 1,945 1,856 1,560
Ratio of net loans
charged off (recovered)
to average loans
outstanding .09% ( .003)% ( .09)% ( .29%) .09%
The provision is based on an evaluation of the
adequacy of the allowance for possible loan losses. The
evaluation includes, but is not limited to, review of net
loan losses for the year, the present and prospective
financial condition of the borrowers and evaluation of
current and projected economic conditions.
- -19-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOANS
The following table sets forth the outstanding
balances of those loans on a nonaccrual status and those on
accrual status which are contractually past due as to
principal or interest payments for 60 days and 90 days or
more at December 31.
1997 1996 1995 1994 1993
(000 omitted)
Nonaccrual loans $ 477 $ 77 $ 135 $ 79 $ 619
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
60 - 89 days past due 315 216 252 14 470
90 days or more past
due 1 87 115 1 46
Total accrual
loans $ 316 $ 303 $ 367 $ 15 $ 516
See Note 8 of the Notes to Consolidated Financial
Statements for details of income recognized and foregone
revenue on nonaccrual loans for the past three years, and
disclosures of impaired loans.
Management has not identified any significant
problem loans in the accrual loan categories shown above.
- -20-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following is an allocation by loan categories
of the allowance for loan losses at December 31 for the last
five years. In retrospect the specific allocation in any
particular category may prove excessive or inadequate and
consequently may be reallocated in the future to reflect the
then current conditions. Accordingly, the entire allowance
is available to absorb losses in any category:
Years Ended December 31
1997 1996
Percentage of Percentage of
Loans in Each Loans in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and
agricultural $ 772 10.3% $ 819 9.9%
Real estate -
Construction 0 1.4 0 2.3
Real estate -
Mortgage 630 77.2 630 78.2
Installment 0 11.1 48 9.6
Unallocated 448 N/A 450 N/A
Total $ 1,850 100.0% $ 1,947 100.0
Years Ended December 31
1995 1994
Percentage of Percentage of
Loans in Each Loans in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and
agricultural $ 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%
- -21-
Years Ended December 31
1993
Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 482 6.8%
Real estate -
Construction 0 1.0
Real estate -
Mortgage 628 84.4
Installment 29 7.8
Unallocated 421 N/A
Total $ 1,560 100.0%
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized
below:
Years Ended December 31
1997 1996 1995
(000 omitted)
Demand deposits $ 8,835 $ 8,222 $ 7,613
Interest bearing demand
deposits 31,820 21,091 19,729
Savings deposits 27,647 33,265 31,705
Time deposits 62,592 61,609 58,271
Total deposits $ 130,894 $ 124,187 $ 117,318
The following is a breakdown of maturities of time
deposits of $ 100,000 or more as of December 31, 1997:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 3,860
Over three months through twelve
months 9,245
Over twelve months 1,361
$ 14,466
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE
BALANCES)
The following table presents a summary of significant
earnings and capital ratios:
1997 1996 1995
Assets $ 159,935 $ 148,673 $ 139,182
Net income $ 2,694 $ 2,336 $ 2,285
Equity $ 20,433 $ 17,704 $ 16,148
Cash dividends paid $ 675 $ 547 $ 492
Return on assets 1.74% 1.62% 1.67%
Return on equity 14.17% 13.80% 15.49%
Dividend payout ratio 25.06% 23.42% 21.53%
Equity to asset ratio 12.25% 11.76% 11.60%
- -22-
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
1997 1996 1995 1994 1993
(000 omitted)
Interest
income $ 11,977 $ 11,156 $ 11,002 $ 9,666 $ 9,034
Interest
expense 5,167 4,811 4,703 3,661 3,585
Net interest
income 6,810 6,345 6,299 6,005 5,449
Provision for loan
losses 0 0 0 13 235
Net interest income
after provision
for loan
losses 6,810 6,345 6,299 5,992 5,214
Other income:
Trust 293 252 200 190 166
Service charges -
deposits 288 277 288 269 272
Other service charges,
collection and exchange,
charges, commission
fees 181 159 102 103 84
Other operating
income 628 302 129 135 213
Total other
income 1,390 990 719 697 735
Income before
operating
expense 8,200 7,335 7,018 6,689 5,949
Operating expenses:
Salaries and employees
benefits 2,179 1,995 1,917 1,836 1,705
Occupancy and equipment
expense 964 952 898 871 751
Other operating
expenses 1,253 1,108 1,106 1,117 1,120
Total operating
expenses 4,396 4,055 3,921 3,824 3,576
Income before income
taxes 3,804 3,280 3,097 2,865 2,373
Income tax 1,110 944 812 748 684
Net income applicable
to common
stock $ 2,694 $ 2,336 $ 2,285 $ 2,117 $ 1,689
Per share data:
Earnings per common
share $ 3.05 $ 2.64 $ 2.58 $ 2.40 $ 1.90
Cash dividend -
Common $ .76 $ .62 $ .55 $ .47 $ .41
Average number of
common
shares 883,833 885,750 887,288 885,978 888,539
- -23-
Item 9. Disagreements on Accounting and Financial
Disclosures.
Not applicable.
- -24-
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 1998 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
- -25-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports of Form 8-K.
(a) (1) - List of Financial Statements
The following consolidated financial statements of
Tower Bancorp and its subsidiary, included in the
annual report of the registrant to its
shareholders for the year ended December 31, 1997,
are incorporated by reference in Item 8:
Consolidated balance sheets - December 31,
1997 and 1996
Consolidated statements of income - Years
ended December 31, 1997, 1996 and 1995
Consolidated statements of stockholders'
equity - Years ended December 31, 1997, 1996,
and 1995
Consolidated statements of cash flows - Years
ended December 31, 1997, 1996, and 1995
Notes to consolidated financial statements -
December 31, 1997
(2) List of Financial Statement Schedules
Schedule I - Distribution of assets,
liabilities and stockholders' equity, interest
rate and interest differential and changes in
net interest income
Schedule II - Investment portfolio
Schedule III - Loan portfolio
- -26-
Schedule IV - Summary of loan loss experience
and allocation of allowance for loan losses
Schedule V - Deposits
Schedule VI - Return on equity and assets
All other schedules for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3) (i) Articles of incorporation
Exhibit (3) (ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (13) Annual report to security
holders
Exhibit (21) Subsidiaries of the registrant
Exhibit (27) Financial data schedule
All other exhibits for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Reports on Form 8-K filed
None.
- -27-
(c) Exhibits
(3)(i) Articles of incorporation. Incorporated
by reference to Exhibit C to the
Registrant's Registration Statement on
Form S-14, Registration No. 2-89573.
(ii) By-laws. Incorporated by reference
to Exhibit D to the Registrant's
Registration Statement on Form S-14,
Registration No. 2-89573.
(4) Instruments defining the rights of
security holders including indentures.
The rights of the holders of Registrant's
common stock are contained in:
(i) Articles of Incorporation of Tower
Bancorp, Inc., 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).
(13) Annual report to security holders - filed
herewith
(21) Subsidiaries of the registrant - filed
herewith
(27) Financial data schedule - filed herewith
- -28-
(d) Financial statement schedules
The following financial statement schedules
required under Article 9 Industry Guide 3 have
been included on pages 15 to 23 under Item 8
of this report:
Schedule I - Distribution of assets,
liabilities and stockholders' equity, interest
rates and interest differential and changes in
net interest income
Schedule II - Investment portfolio
Schedule III - Loan portfolio
Schedule IV - Summary of loan loss experience
and allocation of allowance for loan losses
Schedule V - Deposits
Schedule VI - Return on equity and assets
- -29-
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 , 1998
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 & March , 1998
Jeff B. Shank Director
Director March , 1998
Betty J. Lehman
Chairman of the March , 1998
Kermit G. Hicks Board & Director
Director March , 1998
Robert L. Pensinger
Vice Chairman of March , 1998
Harold C. Gayman the Board & Director
Director March , 1998
James H. Craig, Jr.
_______________________ Director March ____, 1998
Lois Easton
- -30-
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.
- -31-
Exhibit Index
Exhibit No. Sequentially numbered
pages
13 Annual report to security holders 32-62
21 Subsidiaries of the Registrant 31
27 Financial data schedule