FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
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Commission file number: 2-89573
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TOWER BANCORP INC
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Commonwealth of 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
-----------------
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 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
---------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
1,732,763 shares of common stock
TOWER BANCORP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - September 30, 2002
and December 31, 2001 4
Condensed consolidated statements of income - three months
ended September 30, 2002 and 2001 5
Condensed consolidated statements of income - nine months
ended September 30, 2002 and 2001 6
Condensed consolidated statements of comprehensive income -
nine months ended September 30, 2002 and 2001 7
Condensed consolidated statements of cash flows - nine
months ended September 30, 2002 and 2001 8
Notes to condensed consolidated financial statements 9
Management's discussion and analysis of financial
condition and results of operations 10 and 11
PART II - OTHER INFORMATION 12
Item 6 - Index to Exhibits and Reports on Form 8-K 13 and 14
Signatures 15
Certifications of Principal Executive Officer and
Principal Financial Officer 16 - 19
Exhibits
PART I - FINANCIAL INFORMATION
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001*
(Unaudited) (Audited)
(000 Omitted)
ASSETS
Cash and due from banks $ 7,953 $ 8,080
Interest bearing balances with banks 1,841 2,717
Investment securities available for sale 53,308 55,601
Restricted bank stock 3,114 3,404
Loans 188,199 167,677
Less: reserve for possible loan losses ( 1,596) ( 1,577)
Bank premises, equipment, furniture and 3,574 2,973
fixtures
Accrued interest receivable 1,093 1,196
Cash surrender value of life insurance 5,088 4,047
Other assets 1,720 1,456
----------- ----------
Total assets $ 264,294 $ 245,574
=========== ==========
LIABILITIES AND CAPITAL
Deposits in domestic offices:
Demand $ 14,233 $ 13,328
Savings 105,887 87,204
Time 67,919 77,067
Liabilities for borrowed money 40,667 37,341
Accrued interest payable 295 429
Other liabilities 3,005 1,687
----------- ----------
Total liabilities 232,006 217,056
----------- ----------
EQUITY CAPITAL
Capital stock, common, authorized 5,000,000
shares; 1,780,100 shares issued 2,225 2,225
Additional paid-in capital 6,712 6,707
Retained earnings 22,189 19,604
Accumulated other comprehensive income 2,424 863
Less: cost of treasury stock ( 1,262) ( 881)
Total equity capital 32,288 28,518
----------- ----------
Total liabilities and capital $ 264,294 $ 245,574
=========== ==========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
condensed financial statements.
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2002 and 2001
(UNAUDITED)
2002 2001
(000 Omitted)
Interest Income
Interest & fees on loans $ 3,341 $ 3,421
Interest on investment securities
available for sale 595 731
Interest on federal funds sold 0 24
Interest on deposits with banks 35 49
---------- ----------
Total interest & dividend income 3,971 4,225
---------- ----------
Interest Expense
Interest on deposits 932 1,473
Interest on borrowed money 381 312
---------- ----------
Total interest expense 1,313 1,785
---------- ----------
Net interest income 2,658 2,440
Provision for loan losses 90 30
---------- ----------
Net interest income after provision
for loan losses 2,568 2,410
---------- ----------
Other Income
Investment services income 32 15
Service charges on deposit accounts 152 63
Other service charges 10 17
Other operating income 212 231
Investment securities gains (losses) 314 733
---------- ----------
Total other income 720 1,059
---------- ----------
Other Expense
Salaries, wages and other benefits 875 810
Occupancy expense of bank premises 93 82
Furniture and fixture expense 149 141
Other operating expenses 622 788
---------- ----------
Total other expenses 1,739 1,821
---------- ----------
Income before taxes 1,549 1,648
Applicable income taxes 409 435
---------- ----------
Net income $ 1,140 $ 1,213
========== ==========
Earnings per share:
Basic earnings per share $ 0.66 $ 0.69
Weighted average shares outstanding 1,734,221 1,756,835
Diluted earnings per share $ 0.65 $ 0.68
Weighted average shares outstanding 1,759,368 1,776,383
The accompanying notes are an integral part of these
condensed financial statements.
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002 and 2001
(UNAUDITED)
2002 2001
(000 Omitted)
Interest Income
Interest & fees on loans $ 10,029 $ 10,117
Interest on investment securities available
for sale 1,948 2,228
Interest on federal funds sold 0 27
Interest on deposits with banks 115 169
-------- ---------
Total interest & dividend income 12,092 12,541
-------- ---------
Interest Expense
Interest on deposits 2,981 4,590
Interest on borrowed money 1,175 936
-------- ---------
Total interest expense 4,156 5,526
-------- ---------
Net interest income 7,936 7,015
Provision for loan losses 220 90
-------- ---------
Net interest income after provision for loan
losses 7,716 6,925
-------- ---------
Other Income
Investment services income 47 178
Service charges on deposit accounts 450 352
Other service charges 48 66
Other operating income 477 468
Investment securities gains (losses) 1,709 1,631
-------- --------
Total other income 2,731 2,695
-------- --------
Other Expense
Salaries, wages and other benefits 2,630 2,424
Occupancy expense of bank premises 289 253
Furniture and fixture expense 420 408
Other operating expenses 1,994 2,199
-------- --------
Total other expenses 5,333 5,284
-------- --------
Income before taxes 5,114 4,336
-------- --------
Applicable income taxes
Net income $ 3,732 $ 3,225
======== ========
Earnings per share:
Basic earnings per share $ 2.15 $ 1.84
Weighted average shares outstanding 1,738,922 1,755,951
Diluted earnings per share $ 2.11 $ 1.82
Weighted average shares outstanding 1,765,403 1,775,951
The accompanying notes are an integral part of these
condensed financial statements.
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2002 and 2001
(UNAUDITED)
2002 2001
(000 Omitted)
Net income $ 3,732 $ 3,225
------- -------
Other comprehensive income:
Unrealized holding gains (losses) 4,074 2,356
reclassification adjustment for gains
Realized in net income ( 1,709) ( 1,631)
------- -------
2,365 725
Tax effect ( 804) ( 246)
------- -------
Other comprehensive income 1,561 479
------- -------
Comprehensive income $ 5,293 $ 3,704
======= =======
The accompanying notes are an integral part of these
condensed financial statements.
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
(UNAUDITED)
2002 2001
(000 omitted)
Cash flows from operating activities:
Net income $ 3,732 $ 3,225
Adjustments to reconcile net income to net cash:
Depreciation and amortization 347 307
Provision for loan losses 220 90
(Gain) on sale of investment securities ( 1,709) ( 1,631)
(Increase) in cash surrender value of life ( 1,041) 0
insurance
(Increase) decrease in other assets ( 1,068) ( 96)
(Increase) decrease in interest receivable 103 51
Increase (decrease) in interest payable ( 134) ( 31)
Increase (decrease) in other liabilities 1,318 417
Net cash provided (used) by operating ---------- ---------
activities 1,768 2,332
---------- ---------
Cash flows from investing activities:
Loans (net) ( 20,723) ( 17,178)
Purchases of bank premises, equipment,
furniture and fixtures ( 948) ( 704)
Interest bearing balances with banks 876 1,022
Purchases of available for sale securities ( 5,246) ( 12,479)
Maturities/sales of available for sale
securities 11,613 17,571
Sale of restricted bank stock 290 0
---------- ---------
Net cash (used) by investing activities ( 14,138) ( 11,768)
---------- ---------
Cash flows from financing activities:
Net increase in deposits 10,440 2,980
Debt (net) 3,326 8,710
Cash dividends paid ( 1,147) ( 1,265)
Purchase treasury stock ( 468) ( 106)
Proceeds from sale of capital stock 92 164
---------- ---------
Net cash provided by financing activities 12,243 10,483
---------- ---------
Net increase (decrease) in cash and cash
equivalents ( 127) 1,047
Cash and cash equivalents at beginning of year 8,080 5,115
---------- ---------
Cash and cash equivalents at end of period $ 7,953 $ 6,162
========== ==========
The accompanying notes are an integral part of these
condensed financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and
for the three and nine month periods ended September 30,
2002 and 2001 have been reviewed by independent certified
public accountants. Their report on their review is
attached as Exhibit 99 to this 10-Q filing.
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to present fairly Tower Bancorp,
Inc.'s consolidated financial position as of September
30, 2002 and the results of its operations for the three
and nine month periods ended September 30, 2002 and 2001.
The results of operations for the nine month period ended
September 30, 2002 and 2001 are not necessarily
indicative of the results to be expected for the full
year.
Note 2. Income Taxes
Income tax expense is less than the amount calculated
using the statutory tax rate primarily as a result of tax
exempt income earned from state and municipal securities
and loans.
Note 3. Commitments
In the normal course of business, the bank makes various
commitments and incurs certain contingent liabilities
which are not reflected in the accompanying financial
statements. These commitments include various guarantees
and commitments to extend credit and the bank does not
anticipate any losses as a result of these transactions.
TOWER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the first nine months of 2002 was $ 3,732,000
compared to $ 3,255,000 for 2001. Net income on a per share basis
for 2002 was $ 2.15, up $ .31 from the $ 1.84 realized during the
first nine months of 2001.
Total interest income for the first nine months of 2002 was
$ 12,092,000 compared to $ 12,541,000 for the first nine months of
2001. Increases occurred primarily in loan income resulting from a
volume increase as rates continue to decline. Average rates on
loans decreased approximately one hundred nineteen basis points
from those at the end of the first nine months of 2001. Average
loan balances at September 30, 2002 have increased 13.9% over those
at September 30, 2001. Increases were primarily in mortgage and
commercial loans, which increased 12.8% and 32.7%, respectively
since September 30, 2001. Earnings on investments for the first
nine months decreased 13.9% from totals for the corresponding
period in 2001. Decreases were attributable to volume decreases of
12.8% and a ninety three basis point drop in average rates earned
from June 30, 2001 to 2002.
Total interest expense was $ 4,156,000 for the first nine
months of 2002, a decrease of $ 1,370,000 from the $ 5,526,000
reported for the first nine months of 2001. Increases in average
total deposits has been 5.6% since September 30, 2001. Most of
this growth has occurred in the interest bearing demand deposit
accounts. Average rates on deposits decreased one hundred thirty
basis points from those paid during the first nine months of 2001.
This coupled with the fact that deposit growth has been
concentrated in transaction accounts has caused the bank's cost of
funds to decrease. With the increases in earning assets occurring
in mortgage and commercial loans, the Bank has been able to produce
higher net interest earnings over 2001. The loan to deposit ratio
was 100% at September 30, 2002 compared to 91% at September 30,
2001. Interest expense on borrowed money increased $ 239,000 over
2001 totals as the Bank increased its borrowings as a supplemental
source of funds to maintain liquidity goals. Management intends to
continue to competitively price its deposits while maintaining
desired net interest spreads.
The Bank made a $ 220,000 provision for loan losses during
the first nine months of 2002. Net charge-offs were $ 201,000
during the first nine months of 2002 compared to $ 110,000 during
the first nine months of 2001, which are well below peer group
averages. Management has significantly expanded its detailed
review of the loan portfolio, which is performed quarterly, in an
effort to identify and more readily act on loans with deteriorating
trends. Anticipated losses are well below the current allowance
amount and management is not aware of any 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
allowance to meet the constant risks associated with a growing loan
portfolio and an expanding customer base and intends to continue to
maintain the allowance at appropriate levels based on ongoing
evaluations of the loan portfolio.
Non-interest income was $ 2,731,000 for the first nine
months of 2002 representing a 1.3% increase over the first nine
months of 2001. Increases were primarily in service charges on
deposit accounts and Securities Gains. Investment Services income
is down significantly as expected due to the transfer of its Trust
Department Administration to Sentry Trust. Management expects to
regain some of this decrease by expanding its brokerage services.
Non-interest expenses were $ 5,333,000 for the first nine
months of 2002 compared to $ 5,284,000 for 2001. Increases were
primarily in personnel and technology costs as the bank prepares to
establish a new full service branch office in Hagerstown, Maryland.
The bank's effective income tax rate was 27% and 25.6% for
the first nine months of 2002 and 2001, respectively. The
statutory marginal tax bracket remains at 34%. The primary
differences between the statutory and effective rates are due to
nontaxable income from municipal investments and tax-free loans.
Total assets were $ 264,294,000 at September 30, 2002
compared to $ 239,331,000 at September 30, 2001. This represents a
growth rate of approximately 10.4%. Internal capital generation
has been the primary method utilized to increase capital. Total
stockholders' equity was $ 32,288,000 at September 30, 2002,
representing 12.2% of total assets compared to $ 29,173,000 at
September 30, 2001, which represented 12.2% of total assets. Risk-
based capital ratios continue to exceed regulatory minimums.
CONTROLS AND PROCEDURES
We maintain a system of controls and procedures designed to
provide reasonable assurance as to the reliability of the financial
statements and other disclosures included in this report, as well
as to safeguard assets from unauthorized use or disposition. We
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures under the supervision and with
the participation of management, including our Chief Executive
Officer and Chief Financial Officer, within 90 days prior to the
filing date of this report. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our
periodic Securities and Exchange Commission filings. No
significant changes were made to our internal controls or other
factors that could significantly affect these controls subsequent
to the date of their evaluation.
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Not applicable
Item 2 - Changes in Securities
- ------------------------------
Not applicable
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable
Item 5 - Other Information
- --------------------------
During the quarter ended September 30, 2002, the
Corporation entered into a "Supplemental Executive
Retirement Plan Agreement" and "Change of Control
Agreement" with its President/CEO Jeffrey B. Shank. Copies
of those agreements are attached as Exhibits 99.3 and 99.4
to this Form 10-Q filing.
Item 6 - Index to Exhibits and Reports on Form 8-K
- --------------------------------------------------
(a) Exhibits:
Exhibit Number Referred to Description
Item 601 of Regulation S-K of Exhibit
99 Report of Independent Accountant's on
Interim Financial Statements
99.1 Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350
99.2 Certification of Chief Financial
Officer pursuant to 18 U.S.C.
Section 1350
99.3 Supplemental Executive Retirement
Plan Agreement between the
First National Bank of Greencastle
(subsidiary of Tower Bancorp)
and Jeffrey B. Shank, President/CEO
of Tower Bancorp and First
National Bank of Greencastle.
99.4 Change of Control Agreement between
Tower Bancorp, First National Bank of
Greencastle, and Jeffrey B.
Shank, President/CEO.
(b) Reports on Form 8-K:
Current report on Form 8-K filed with the Commission on
September 19, 2002.
Current report on Form 8-K filed with the Commission on
September 25, 2002.
Current report on Form 8-K filed with the Commission on
October 4, 2002.
SIGNATURES
Pursuant to the requirements 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)
/s/ Jeffrey B. Shank
---------------------------------
Jeffrey B. Shank, President, CEO
(Principal Executive Officer)
Date: November 1, 2002
----------------
/s/Franklin T. Klink, III
--------------------------------
Franklin T. Klink, III,
Treasurer
(Principal Financial Officer)
Date: November 1, 2002
----------------
CERTIFICATION
I, Jeffrey B. Shank, President/CEO, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of
Tower Bancorp, Inc.
2. Based on my knowledge, the quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or
operation of the internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and
have identified for the registrant's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect the
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with
regard to significant deficiencies and material
weaknesses.
Date: November 1, 2002 By: /s/Jeffrey B. Shank
---------------- --------------------------
Jeffrey B. Shank,
President/CEO
(Principal Executive
Officer)
CERTIFICATION
I, Franklin T. Klink, III, Treasurer, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of
Tower Bancorp, Inc.
2. Based on my knowledge, the quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or
operation of the internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and
have identified for the registrant's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect the
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with
regard to significant deficiencies and material
weaknesses.
Date: November 1, 2002 By: /s/Franklin T. Klink, III
---------------- ---------------------------
Franklin T. Klink, III
Treasurer
(Principal Financial
Officer)
EXHIBIT 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Tower Bancorp, Inc.
Greencastle, Pennsylvania
We have reviewed the accompanying consolidated balance
sheet of Tower Bancorp, Inc. and Subsidiary as of September 30,
2002 and the related consolidated statements of income for the
three and nine month periods ended September 30, 2002 and 2001 and
consolidated statements of comprehensive income for the nine months
ended September 30, 2002 and 2001 and consolidated statements of
cash flows for the nine months ended September 30, 2002 and 2001.
These financial statements are the responsibility of the
corporation's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
/s/ Smith Elliott Kearns & Company, LLC
---------------------------------------
SMITH ELLIOTT KEARNS & COMPANY, LLC
Chambersburg, Pennsylvania
October 31, 2002
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OR THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tower Bancorp, Inc.
(the "Company") on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Jeffrey B. Shank, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the final condition and results of
operations of the Company.
/s/ Jeffrey B. Shank
-----------------------------
Chief Executive Officer
November 1, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OR THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tower Bancorp, Inc.
(the "Company") on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Franklin T. Klink, III, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the final condition and results of
operations of the Company.
/s/ Franklin T. Klink, III
------------------------------
Chief Financial Officer
November 1, 2002
EXHIBIT 99.3
THE FIRST NATIONAL BANK OF GREENCASTLE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
THIS AGREEMENT is made effective this 25th day of September
2002 (the "Effective Date"), by and between THE FIRST NATIONAL BANK
OF GREENCASTLE, a national bank located in Greencastle,
Pennsylvania (the "Bank") and JEFFREY B. SHANK (the "Executive"),
intending to be legally bound hereby.
INTRODUCTION
To encourage the Executive to remain an employee of the Bank,
the Bank is willing to provide supplemental retirement benefits to
the Executive. Nothing in this Agreement, however, shall guarantee
the Executive continuation of employment or preclude the parties
from terminating the employment relationship at their discretion.
The Bank will pay the supplemental retirement benefits from its
general assets.
AGREEMENT
Article 1
Definitions
1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the meanings specified:
1.1.1 "Change in Control" means any of the following:
a change in control (other than one occurring by reason
of an acquisition of the Corporation by Executive) of a
nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A or any successor
rule or regulation promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"); provided that,
without limiting the foregoing, a Change in Control shall be
deemed to have occurred if (i) any "person" or group of
"persons" (as such term is defined or used in Sections 3,
13(d) and 14(d) of the Exchange Act), other than the
Corporation, Bank, Executive or any "person" who on the date
hereof is a director or officer of the Bank, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 and Rule
13d-5 or any successor rule or regulation, promulgated under
the Exchange Act), directly or indirectly, of securities of
the Corporation which represent twenty percent (20%) or more
of the combined voting power of the Corporation's then
outstanding securities; or (ii) during any period of two (2)
consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a
director at the beginning of such period has been approved
in advance by directors representing at least three-fourths
of the directors then in office who were directors at the
beginning of the period; or (iii) the Corporation or Bank
shall be merged or consolidated or substantially all of the
assets of either of them shall be purchased by another
person (as defined above) and, as a result of such merger,
consolidation or sale of assets, less than a majority of the
outstanding voting stock of the surviving, resulting or
purchasing person is owned, immediately after the
transaction, by the holders of the voting stock of the
Corporation before the transaction.
Notwithstanding anything else to the contrary set forth in
this Agreement, if (i) an agreement is executed by the
Corporation providing for any of the transactions or events
constituting a Change in Control, as defined herein, and the
agreement subsequently expires or is terminated without the
transaction or event being consummated, and (ii) Executive's
employment did not terminate during the period after the
agreement and prior to such expiration or termination, for
purposes of this Agreement, it shall be as though such
agreement was never executed and no Change in Control event
shall be deemed to have occurred as a result of the execution
of such agreement.
1.1.2 "Code" means the Internal Revenue Code of 1986, as
amended.
1.1.3 "Corporation" means Tower Bancorp Inc.
1.1.4 "Disability" means the Executive's suffering a
sickness, accident or injury which has been determined by the
carrier of any individual or group disability insurance policy
covering the Executive, or by the Social Security Administration,
to be a disability rendering the Executive totally and permanently
disabled. The Executive must submit proof to the Bank of the
carrier's or Social Security Administration's determination upon
the request of the Bank.
1.1.5 "Early Termination" means the Termination of Employment
before Normal Retirement Age for reasons other than death,
Disability, Termination for Cause or following a Change in Control.
1.1.6 "Normal Retirement Age" means the Executive's 65th
birthday.
1.1.7 "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Employment.
1.1.8 "Plan Year" means each consecutive twelve (12) month
period commencing with the effective date of this Agreement.
1.1.9 "Termination of Employment" means that the Executive
ceases to be employed by the Bank for any reason whatsoever, other
than by reason of a leave of absence which is approved by the Bank.
For purposes of this Agreement, if there is a dispute over the
employment status of the Executive or the date of the Executive's
Termination of Employment, the Bank shall have the sole and
absolute right to decide the dispute.
1.1.10 "Termination for Cause" means that the Executive's
employment is terminated by the Corporation or Bank for any of the
following reasons: (1) the willful failure by the Executive to
substantially perform his duties, other than any such failure
resulting from Disability; (2) the willful engaging by the
Executive in gross misconduct materially injurious to the
Corporation or Bank; (3) Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime of falsehood or a
crime involving moral turpitude, or the actual incarceration of
Executive for a period of twenty (20) consecutive days or more; (4)
Executive's failure to follow the good faith lawful instructions of
the Boards of Directors of Corporation or Bank with respect to its
operations, after written notice from Corporation or Bank and a
failure to cure such violation within thirty (30) days of said
written notice; (5) Executive's removal or prohibition from being
an institutional-affiliated party by a final order of an
appropriate federal banking agency pursuant to Section 8(e) of the
Federal Deposit Insurance Act or by the Office of the Comptroller
of the Currency pursuant to national law; (6) conduct on the part
of the Executive which brings public discredit to Corporation, Bank
or their subsidiaries, as determined by an affirmative vote of one
hundred percent (100%) of the disinterested members of the Boards
of Directors of Corporation or Bank; (7) Executive's breach of
fiduciary duty involving personal profit; (8) unlawful
discrimination by the Executive, including harassment against
employees, customers, business associates, contractors, or vendors
of Corporation, Bank or their subsidiaries, which could result in
liability to Corporation, Bank or their subsidiaries, as determined
by an affirmative vote of one hundred percent (100%) of the
disinterested members of the Boards of Directors of Corporation or
Bank, following an investigation of the claims by a third party; or
(9) theft or material abuse by Executive of property of
Corporation, Bank or their subsidiaries, or the property of
customers, employees, contractors, vendors, or business associates
of Corporation, Bank or their subsidiaries.
Article 2
Lifetime Benefits
2.1 Normal Retirement Benefit. The Bank shall pay to the
Executive the benefit described in this Section 2.1 in lieu of any
other benefit under this Agreement, upon Termination of Employment,
for reasons other than death or Termination for Cause, on or after
the Normal Retirement Age.
2.1.1 Amount of Benefit. The annual Normal Retirement
Benefit under this Section 2.1 is $75,000 (seventy-five thousand
dollars). The Bank may increase the annual benefit under this
Section 2.1 at the sole and absolute discretion of the Bank's Board
of Directors. Any increase in the annual benefit shall require the
recalculation of all the amounts on Schedule A attached hereto.
The annual benefit amounts on Schedule A are calculated by
amortizing the Accrued Benefit using the interest method of
accounting, a 7.50% discount rate, monthly compounding and monthly
payments.
2.1.2 Payment of Benefit. The Bank shall pay the annual
benefit to the Executive in equal monthly installments payable on
the first day of each month commencing with the month following the
Executive's Normal Retirement Date and continuing for 239
consecutive months.
2.1.3 Benefit Increases. Commencing on the first anniversary
of the first benefit payment, and continuing on each subsequent
anniversary, the Bank's Board of Directors, in its sole discretion,
may increase the benefit.
2.2 Early Termination Benefit. Upon Early Termination, the
Bank shall pay to the Executive the benefit described in this
Section 2.2 in lieu of any other benefit under this Agreement.
2.2.1 Amount of Benefit. The annual benefit under this
Section 2.2 is the Accrued Benefit set forth in Schedule A for the
Plan Year ended immediately prior to the date on which Early
Termination occurred.
2.2.2 Payment of Benefit. The Bank shall pay the annual
benefit to the Executive in equal monthly installments commencing
within 90 days after the date on which the Executive's Early
Termination occurred and continuing for 239 consecutive months.
2.2.3 Benefit Increases. Benefit payments may be increased
as provided in Section 2.1.3.
2.3 Disability Benefit. If the Executive terminates employment
due to Disability prior to Normal Retirement Age, the Bank shall
pay to the Executive the benefit described in this Section 2.3 in
lieu of any other benefit under this Agreement.
2.3.1 Amount of Benefit. The annual benefit under this
Section 2.3 is the Disability Benefit amount set forth in Schedule
A for the Plan Year ended immediately prior to the date on which
Termination of Employment occurs.
2.3.2 Payment of Benefit. The Bank shall pay the annual
benefit to the Executive in equal monthly installments commencing
within 90 days after the date on which the Executive's Termination
of Employment occurred and continuing for 239 consecutive months.
2.3.3 Benefit Increases. Benefit payments may be increased
as provided in Section 2.1.3.
2.4 Change in Control Benefit. If Executive is actively
employed at the time of a Change in Control, the Bank shall pay to
the Executive the benefit described in this Section 2.4 in lieu of
any other benefit under this Agreement.
2.4.1 Amount of Benefit. The benefit under this Section 2.4
is the Normal Retirement benefit set forth in Section 2.1.1.
2.4.2 Payment of Benefit. The Bank shall distribute the
annual benefit to the Executive in equal monthly installments on
the first day of each month commencing with the month following the
Executive's Normal Retirement Age and continuing for 239
consecutive months.
Article 3
Death Benefits
3.1 Death During Active Service. If the Executive dies while
actively employed by the Bank, the Bank shall pay to the
Executive's beneficiary the benefit described in this Section 3.1.
This benefit shall be paid in lieu of the Lifetime Benefits of
Article 2.
3.1.1 Amount of Benefit. The annual benefit under this
Section 3.1 is the Early Termination Annual Benefit amount set
forth in Schedule A for the Plan Year ended immediately prior
to death of the Executive.
3.1.2 Payment of Benefit. The Bank shall pay the annual
benefit to the beneficiary in equal monthly installments
payable on the first day of each month commencing within 90
days of the Executive's death and continuing for 239
consecutive months.
3.2 Death During Benefit Period. If the Executive dies after
the benefit payments have commenced under this Agreement but before
receiving all such payments, the Bank shall pay the remaining
benefits to the Executive's beneficiary at the same time and in the
same amounts they would have been paid to the Executive had the
Executive survived.
3.3 Death Following Termination of Employment But Before
Benefits Commence. If the Executive is entitled to benefits under
this Agreement, but dies prior to receiving said benefits, the Bank
shall pay to the Executive's beneficiary the same benefits, in the
same manner, they would have been paid to the Executive had the
Executive survived; however, said benefit payments will commence
within 90 days of the Executive's death.
Article 4
Beneficiaries
4.1 Beneficiary Designations. The Executive shall designate a
beneficiary by filing a written designation with the Bank. The
Executive may revoke or modify the designation at any time by
filing a new designation. However, designations will only be
effective if signed by the Executive and accepted by the Bank
during the Executive's lifetime. The Executive's beneficiary
designation shall be deemed automatically revoked if the
beneficiary predeceases the Executive, or if the Executive names a
spouse as beneficiary and the marriage is subsequently dissolved.
If the Executive dies without a valid beneficiary designation, all
payments shall be made to the Executive's estate.
4.2 Facility of Payment. If a benefit is payable to a minor,
to a person declared incapacitated, or to a person incapable of
handling the disposition of his or her property, the Bank may pay
such benefit to the guardian, legal representative or person having
the care or custody of such minor, incapacitated person or
incapable person. The Bank may require proof of incapacity,
minority or guardianship, as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely
discharge the Bank from all liability with respect to such benefit.
Article 5
General Limitations
5.1 Excess Parachute or Golden Parachute Payment. If the
payments and benefits pursuant to this Agreement, either alone or
together with other payments and benefits which the Executive has
the right to receive from the Bank, would constitute a "parachute
payment" under Section 280G of the Code, the payments and benefits
pursuant to this Agreement shall be reduced, in the manner
determined by the Executive, by the amount, if any, which is the
minimum necessary to result in no portion of the payments and
benefits under this Agreement being non-deductible to the Bank
pursuant to Section 280G of the Code and subject to the excise tax
imposed under Section 4999 of the Code.
5.2 Termination for Cause. Notwithstanding any provision of this
Agreement to the contrary, the Bank shall not pay any benefit under
this Agreement, if the Bank terminates the Executive's employment
for "Cause," as defined in Section 1.1.10 of this Agreement.
5.3 Removal. Notwithstanding any provision of this Agreement to
the contrary, the Bank shall not pay any benefit under this
Agreement if the Executive is subject to a final removal or
prohibition order issued by an appropriate federal banking agency
pursuant to Section 8(e) of the Federal Deposit Insurance Act
("FDIA").
5.4 Competition after Termination of Employment. The Executive
shall forfeit his right to any further benefits due him under this
Agreement, if the Executive, without the prior written consent of
the Bank, violates the following described restrictive covenants.
5.4.1 Non-compete Provision. The Executive shall not, for the
term of this Agreement and for two (2) years following Termination
of Employment unless otherwise specifically noted:
(i) be engaged, directly or indirectly,
either for his own account or as agent, consultant,
employee, partner, officer, director, proprietor,
investor (except as an investor owning less than 5%
of the stock of a publicly owned company) or
otherwise of any person, firm, corporation or
enterprise engaged in (1) the banking or financial
services industry (including bank or financial holding
company), or (2) any other activity in which
Corporation, Bank or any of their subsidiaries or
affiliates are engaged during the term of
Executive's employment or on the date of Termination
of Employment in a fifty (50) mile radius of the
location of Corporation's main office (the "Non-
Competition Area"); or
(ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (1) the banking or
financial services industry (including bank or financial
holding company), or (2) any other activity in which
Corporation, Bank or any of their subsidiary
(iii)directly or indirectly contact, solicit or induce any
person, firm, corporation or other entity who or which is a
customer or referral source of Corporation, Bank or any of their
subsidiaries or affiliates during the term of Executive's
employment or on the date of Termination of Employment, to
become a client, customer or referral service of any other
person, firm, corporation or other entity; or
(iv) directly or indirectly solicit, induce or encourage any
employee of Corporation, Bank or any of their subsidiaries or
affiliates, who is employed during the term of Executive's
employment or on the date of termination of Executive's
employment, to leave the employ of Corporation, Bank or any
of their subsidiaries or affiliates or to seek, obtain or
accept employment with any person or entity other than
Corporation, Bank or any of their subsidiaries or affiliates.
(v) divulge, disclose, or communicate to others in any manner
whatsoever, any confidential information of the Corporation, Bank
or their subsidiaries or affiliates, which information includes,
but is not limited to, any services, products, improvements,
formulas, projects, proposals, designs or styles,
processes, customers, customer lists, methods of
business or any business practices, research,
product or business plans, customer lists, markets,
software, developments, inventions, technology,
drawings, engineering, marketing, distribution and
sales methods and systems, finances, sales and
profit figures, and other business information of
Corporation, Bank or any of their subsidiaries or
affiliates, the disclosure of which could be or will
be materially damaging to Corporation, Bank or any
of their subsidiaries or affiliates; provided,
however, that confidential information shall not
include any information known generally to the
public (other than as a result of unauthorized
disclosure by the Executive or any person with the
assistance, consent or direction of the Executive)
or any information of a type not otherwise
considered confidential by persons engaged in the
same business or a business similar to that
conducted by Corporation, Bank or their subsidiaries
or affiliates, or any information that must be
disclosed as required by law. The confidentially
agreement in this Section 5.4.1 (v) has no time
limitation; it continues for the life of the
Executive.
5.4.2 Judicial Remedies. In the event of a breach or
threatened breach by the Executive of any provision of these
restrictions, the Executive recognizes the substantial and
immediate harm that a breach or threatened breach will impose
upon the Bank, and further recognizes that in such event
monetary damages may be inadequate to fully protect the Bank.
Accordingly, in the event of a breach or threatened breach of
this Agreement, the Executive consents to the Bank's
entitlement to such ex parte, preliminary, interlocutory,
temporary or permanent injunctive, or any other equitable
relief, protecting and fully enforcing the Bank's rights
hereunder and preventing the Executive from further breaching
any of his obligations set forth herein. The Executive
expressly waives any requirement, based on any statute, rule of
procedure, or other source, that the Bank post a bond as a
condition of obtaining any of the above-described remedies.
Nothing herein shall be construed as prohibiting the Bank
from pursuing any other remedies available to the Bank at law
or in equity for such breach or threatened breach, including
the recovery of damages from the Executive. The Executive
expressly acknowledges and agrees that: (i) the restrictions
set forth in Section 5.4.1 hereof are reasonable, in terms of
scope, duration, geographic area, and otherwise, (ii) the
protections afforded the Bank in Section 5.4.1 hereof are
necessary to protect its legitimate business interest, (iii)
the restrictions set forth in Section 5.4.1 hereof will not be
materially adverse to the Executive's employment with the Bank,
and (iv) his agreement to observe such restrictions forms a
material part of the consideration for this Agreement.
5.4.3 Overbreadth of Restrictive Covenant. It is the
intention of the parties that if any restrictive covenant in
this Agreement is determined by a court of competent
jurisdiction to be overly broad, then the court should enforce
such restrictive covenant to the maximum extent permitted under
the law as to area, breadth and duration.
5.4.4 Change in Control. The non-compete provision detailed
in Section 5.4.1 hereof shall not be enforceable following a Change
in Control.
5.4 Suicide or Misstatement. No benefits shall be payable if
the Executive commits suicide within two years after the date of
this Agreement, or if the insurance company denies coverage for
material misstatements of fact made by the Executive on any
application for life insurance purchased by the Bank, or any other
reason; provided, however that the Bank shall evaluate the reason
for the denial, and upon advice of legal counsel and in its sole
discretion, consider judicially challenging any denial.
Article 6
Claims and Review Procedures
6.1 Claims Procedure. An Executive or beneficiary ("claimant")
who has not received benefits under the Agreement that he or she
believes should be paid shall make a claim for such benefits as
follows:
6.1.1 Initiation - Written Claim. The claimant initiates a
claim by submitting to the Bank a written claim for the benefits.
6.1.2 Timing of Bank Response. The Bank shall respond to such
claimant within 90 days after receiving the claim. If the Bank
determines that special circumstances require additional time for
processing the claim, the Bank can extend the response period by an
additional 90 days by notifying the claimant in writing, prior to
the end of the initial 90-day period, that an additional period is
required. The notice of extension must set forth the special
circumstances and the date by which the Bank expects to render
their decision.
6.1.3 Notice of Decision. If the Bank denies part or all of
the claim, the Bank shall notify the claimant in writing of such
denial. The Bank shall write the notification in a manner
calculated to be understood by the claimant. The notification shall
set forth:
6.1.3.1 The specific reasons for the denial,
6.1.3.2 A reference to the specific provisions of the Agreement
on which the denial is based,
6.1.3.3 A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation
of why it is needed,
6.1.3.4 An explanation of the Agreement's review procedures and
the time limits applicable to such procedures, and
6.1.3.5 A statement of the claimant's right to bring a civil
action under ERISA Section 502(a) following an adverse benefit
determination on review.
Article 7
Amendments and Termination
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer or
officers as may be specifically designated by the Board of
Directors of the Bank to sign on its behalf. No waiver by any
party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.
Article 8
Miscellaneous
8.1 Administration. The Bank shall have powers, which are
necessary to administer this Agreement, including but not limited
to:
8.1.1 Interpreting the provisions of the Agreement;
8.1.2 Establishing and revising the method of accounting
for the Agreement;
8.1.3 Maintaining a record of benefit payments; and
8.1.4 Establishing rules and prescribing any forms
necessary or desirable to administer the Agreement.
8.2 Applicable Law. The Agreement and all rights hereunder
shall be governed by the laws of the Commonwealth of Pennsylvania,
except to the extent preempted by the laws of the United States of
America.
8.3 Binding Effect. This Agreement shall bind the Executive
and the Bank, and their beneficiaries, survivors, executors,
successors, administrators and transferees.
8.4 Entire Agreement. This Agreement constitutes the entire
agreement between the Bank and the Executive as to the subject
matter hereof. No rights are granted to the Executive by virtue of
this Agreement other than those specifically set forth herein.
8.5 Administrator. The Bank shall be the administrator under
this Agreement. The Bank may delegate to others certain aspects of
the management and operational responsibilities including the
service of advisors and the delegation of ministerial duties to
qualified individuals.
8.6 Right of Offset. The Bank shall have the right to offset
the benefits against any unpaid obligation the Executive may have
with the Bank.
8.7 No Guarantee of Employment. This Agreement is not an
employment policy or contract. It does not give the Executive the
right to remain an employee of the Bank, nor does it interfere with
the Bank's right to discharge the Executive. It also does not
require the Executive to remain an employee nor interfere with the
Executive's right to terminate employment at any time.
8.8 Non-Transferability. Benefits under this Agreement cannot
be sold, transferred, assigned, pledged, attached or encumbered in
any manner.
8.9 Notice. For the purposes of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses
set forth below:
To the Bank: Chairman, Board of Directors
The First National Bank of Greencastle
Center Square
PO Box 8
Greencastle, Pennsylvania 17225
To the Executive: Jeffrey B. Shank
856 McDowell Road
Greencastle, Pa. 17225
8.10 Facility of Payment. If the Executive is declared to be
incompetent, or incapable of handling the disposition of his or her
property, the Bank may pay such benefit to the duly appointed
guardian, legal representative or person having the care or custody
of the Executive. The Bank may require proof of incompetence,
minority or guardianship as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely
discharge the Bank from all liability with respect to such benefit.
8.11 Reorganization. The Corporation shall not merge or
consolidate into or with another company, or reorganize, or sell
substantially all of its assets to another company, firm or person
unless such succeeding or continuing company, firm or person agrees
to assume and discharge the obligations of the Corporation
hereunder.
8.12 Tax Withholding. The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this
Agreement.
8.13 Nature of Obligations. Nothing contained herein shall create
or require the Bank to create a trust of any kind to fund any
benefits which may be payable hereunder, and to the extent that the
Executive acquires a right to receive benefits from the Bank
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Bank.
8.14 Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.15 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in
full force and effect.
8.16 Counterparts. This Agreement may be executed in one or more
counterparts, each off which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
8.17 Regulatory Prohibition. Notwithstanding any other
provision of this Agreement to the contrary, any payments made to
the Executive pursuant to this Agreement, or otherwise, are subject
to and conditioned upon their compliance with Section 18(k) of the
FDIA(12 U.S.C. 1828(k)) and any regulations promulgated
thereunder.
IN WITNESS WHEREOF, the Executive and duly authorized officers
of the Bank have signed this Agreement.
EXECUTIVE: BANK:
The First National Bank of
Greencastle
/s/Jeffrey B. Shank By /s/Kermit G. Hicks
- --------------------------- ------------------------
Jeffrey B. Shank Kermit G. Hicks
Title Chairman of the Board
------------------------
By execution hereof, Tower Bancorp Inc. consents to and agrees
to be bound by the terms and condition of this Plan document.
ATTEST: CORPORATION:
TOWER BANCORP INC.
/S/Franklin T. Klink, III By /s/Kermit G. Hicks
- --------------------------- --------------------------
Franklin T. Klink, III Kermit G. Hicks
Title Chairman of the Board
--------------------------
EXHIBIT 99.4
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of this 25th day of September, 2002,
among THE FIRST NATIONAL BANK OF GREENCASTLE, a national banking
association (the "Bank"), TOWER BANCORP, INC., a Pennsylvania
business corporation (the "Corporation"), and JEFFREY B. SHANK, an
adult individual (the "Executive").
WITNESSETH:
WHEREAS, the Bank is a subsidiary of the Corporation;
WHEREAS, the Bank and the Corporation employ the Executive as
President and Chief Executive Officer, and Executive is an integral
part of the management team of the Bank and Corporation;
WHEREAS, as a result of changes in federal and state banking
laws, there has been a dramatic increase in the number of mergers
and other acquisitions of Pennsylvania banks; while Bank and
Corporation remain committed to the policy of Bank remaining an
independent bank, it recognizes that it might nevertheless be
acquired as a result of an unsolicited takeover attempt or in a
negotiated transaction; and Executive will play a critical role in
any such acquisition, as it falls principally upon his and the
other members of Management to vigorously and aggressively
represent and protect the interests of the shareholders of the
Corporation;
WHEREAS, Bank and Corporation believe that Executive should
not be forced to sacrifice his future financial security in order
to fulfill his responsibilities to the shareholders, and the Board
of Directors of the Bank has carefully considered this issue and
has determined that it should be addressed; specifically, the Board
of Directors has concluded that basic financial protection should
be provided to Executive in the event that he is discharged or
resigns following, and for reasons relating to, a Change of Control
of the Bank or Corporation;
AND WHEREAS, the purpose of this Agreement is to define the
terms for Executive's financial protection, and to specify the
conditions under which they are to be paid.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and intending to be legally bound
hereby, the parties agree as follows:
1. UNDERTAKING OF THE BANK AND CORPORATION.
(a) This Agreement is not intended to affect the terms
of Executive's employment at will in the absence of a Change of
Control of the Bank or Corporation. Accordingly, although this
Agreement will take effect upon execution as a binding legal
obligation of the Bank and Corporation, it will become operative
only upon a Change of Control of the Bank or Corporation as that
concept is defined below. Nothing in this Agreement shall
constitute or give rise to any guarantee or contract of employment
of the Executive by the Corporation and/or the Bank, and shall not
give the Executive any right to be employed by or retained in the
employ of the Corporation and/or the Bank as the President and
Chief Executive Officer of the Corporation and the Bank, or in any
other position or capacity, except in the event of Change of
Control.
(b) The Bank and Corporation shall provide to Executive
the compensation and benefits specified in Paragraph 6 immediately
following a Change of Control of the Bank or Corporation.
(c) The Bank and Corporation shall provide to Executive
the compensation and benefits specified in Paragraph 7 below in the
event that at any time following a Change of Control of the Bank or
Corporation:
(i) Executive is discharged by the Bank or
Corporation, other than for Cause pursuant to Paragraph 4 below; or
(ii) Executive resigns from the Bank for Good Reason
pursuant to Paragraph 5 below. Executive's employment needs to
have been terminated under this Agreement prior to Executive having
obtained the age of sixty-five (65), or this Agreement shall have
no effect. In the event that Executive's employment is terminated
pursuant to Paragraph 1(c) between his 62nd and 65th birthday, the
terms of his employment under Paragraph 6 and the Severance Benefit
Period in Paragraph 7 shall be modified to the actual term
remaining between Executive's 62nd and 65th birthdays, rather than
three (3) years.
2. DEFINITION OF CHANGE OF CONTROL. For purposes of this
Agreement, the term "Change of Control" shall mean a change of
control (other than one occurring by reason of an acquisition of
the Corporation by Executive) of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation
14A or any successor rule or regulation promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"); provided
that, without limiting the foregoing, a Change of Control shall be
deemed to have occurred if (a) any "person" or group of "persons"
(as such term is defined or used in Sections 3, 13(d) and 14(d) of
the Act), other than the Corporation, the Bank, the Executive or
any "person" who on the date hereof is a director or officer of the
Bank, is or becomes the "beneficial owner" (as defined in Rule 13d-
3 and Rule 13d-5, or any successor rule or regulation, promulgated
under the Act), directly or indirectly, of securities of the
Corporation which represent twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding
securities, or (b) during any period of two consecutive years
during the initial term of this Agreement and any extension
thereof, individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any reason to
constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has
been approved in advance by directors representing at least
three-fourths of the directors then in office who were directors at
the beginning of the period, or (c) the Corporation or Bank shall
be merged or consolidated or substantially all of the assets of
either of them shall be purchased by another person (as defined
above) and, as a result of such merger, consolidation or sale of
assets, less than a majority of the outstanding voting stock of the
surviving, resulting or purchasing person is owned, immediately
after the transaction, by the holders of the voting stock of the
Corporation before the transaction.
3. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes of
this Agreement, the date of Change of Control shall mean:
(a) the first date on which a single person and/or
entity, or group of affiliated persons and/or entities, acquire the
beneficial ownership of twenty percent (20%) or more of the
Corporation's voting securities;
(b) the date of the transfer of all or substantially all
of the Bank or Corporation's assets;
(c) the date on which a merger, consolidation or
combination is consummated, as applicable; or
(d) the date on which individuals who formerly
constituted a majority of the Board of Directors of the Bank or
Corporation under Paragraph 2 above, ceased to be a majority.
4. DISCHARGE FOR CAUSE.
(a) The Bank or Corporation may at any time following a
Change of Control discharge Executive for "Cause," in which event
Executive shall not be entitled to receive the compensation and
benefits specified in Paragraphs 6 or 7 below.
(b) For purposes of this Agreement, the Bank shall have
"Cause" to discharge Executive only under the following
circumstances:
(i) Executive shall have committed an act of
dishonesty constituting a felony and resulting or intending to
result directly or indirectly in gain or personal enrichment of
Executive at the expense of the Bank; or
(ii) The dishonesty or gross negligence of the
Executive in the performance of his duties; or
(iii) The willful violation by Executive of law,
rule or regulation governing banks or bank officers, or of any
final Cease and Desist order issued by a bank regulatory authority,
any of which materially jeopardizes the business of the Corporation
or Bank.
5. RESIGNATION FOR GOOD REASON.
(a) Executive may at any time following a Change of
Control resign from the Bank and/or Corporation for Good Reason, in
which event Executive shall be entitled to receive the benefits
specified in Paragraph 7 below.
(b) For purposes of this Agreement, Executive shall have
Good Reason to resign under the following circumstances:
(i) the failure of the Bank or Corporation to offer
Executive a position as President and Chief Executive Officer of
Corporation and Bank following a Change of Control; or
(ii) any change or attempted change by the
Corporation or Bank, without Executive's prior written consent, of
Executive's authority, duties, responsibilities, compensation,
benefits or other conditions of employment; or(iii) the
assignment or attempted assignment by the Corporation or Bank,
without the Executive's prior written consent, of duties or
responsibilities inconsistent with Executive's status as President
and Chief Executive Officer of Corporation and Bank; or
(iv) a reassignment which requires Executive to move
his office more than twenty-five (25) miles from the location of
the Corporation and Bank's principal executive office immediately
prior to the execution of this Agreement or which requires
Executive to move his principal residence; or
(v) any removal of the Executive from office or any
adverse change in the terms and conditions of the Executive's
employment, except for any termination of the Executive's
employment for Cause; or
(vi) any reduction in the Executive's Annual Base
Salary as in effect on the date hereof or as the same may be
increased from time to time; or
(vii) any failure of Corporation and Bank to
provide the Executive with benefits at least as favorable as those
enjoyed by the Executive during the Employment Period under any of
the pension, life insurance, medical, health and accident,
disability or other employee benefit plans of Corporation and Bank,
or the taking of any action that would materially reduce any of
such benefits; or
(viii) a determination by Executive, Corporation
and Bank that he is unable to effectively carry out his duties and
discharge his responsibilities to the Corporation or Bank.
6. EMPLOYMENT AGREEMENT UPON CHANGE OF CONTROL. Immediately
upon the occurrence of a Change of Control, Executive shall be
employed by the Bank and Corporation pursuant to this Agreement and
subject to the following terms and conditions:
(a) Term of Employment. The Corporation and Bank shall
hereby employ the Executive, and the Executive hereby
accepts employment with the Corporation and Bank, for a
term of three (3) years beginning on the Effective Date
of Change of Control. Furthermore, upon the expiration
of the first twelve (12) full calendar months after the
Effective Date of the Change of Control, the term hereof
shall be extended for another twelve (12) full calendar
months, and upon expiration of each subsequent twelve
(12) full calendar months thereafter, the term of this
Agreement shall likewise be extended for an additional
twelve (12) full calendar months. Each such extension of
this Agreement's term shall be automatic unless the
Corporation provides the Executive written notice of its
intention not to extend this Agreement for such
additional twelve (12) month period; such written notice
must be given by the Corporation not less than ninety
(90) days before the expiration of the current twelve
(12) months.
(b) Position and Duties. The Executive shall serve as
the President and Chief Executive Officer of the
Corporation and of the Bank and shall serve as a member
of the Board of Directors of the Corporation and of the
Bank, reporting only to the Boards of Directors of the
Corporation and Bank. The Executive shall have
supervision and control over, and responsibility for, the
general management and operation of the Corporation and
Bank, and shall have such other powers and duties as may
from time to time be prescribed by the Board of Directors
of the Corporation and Bank, provided that such powers
and duties are consistent with the Executive's position
as the Chief Executive Officer in charge of the general
management of the Corporation and Bank.
(c) Engagement in Other Employment. The Executive shall
devote all of his working time, ability and attention to
the business of the Corporation and Bank during the term
of this Agreement. The Executive shall notify the Board
of Directors of the Corporation and Bank in writing and
receive written approval from the Corporation and Bank
before the Executive engages in any other business or
commercial duties or pursuits, including, but not limited
to, directorships of other companies. Under no
circumstances may the Executive engage in any business or
commercial activities, duties or pursuits which compete
with the business or commercial activities of the
Corporation or Bank, nor may the Executive serve as a
director or officer or in any other capacity in a company
which competes with the Corporation or Bank. Executive
shall not be precluded, however, upon written
notification to the Boards of Directors, from engaging in
voluntary or philanthropic endeavors, or from engaging in
activities incident or necessary to personal investments,
so long as they are, in the Boards' reasonable opinion,
not in conflict with or detrimental to the Executive's
rendition of services on behalf of the Corporation and
Bank.
(d) Compensation.
(1) ANNUAL DIRECT SALARY. As compensation for
services rendered to the Corporation and Bank under
this Agreement, the Executive shall be entitled to
receive from the Corporation an Annual Direct Salary
equivalent to at least the median salary for
financial institutions within the peer group of
Bank, as set forth in the L. R. Webber Associates,
Inc. Annual Salary Survey (or an equivalent salary
survey in the event of discontinuance of such
survey) for the calendar year immediately preceding
the Effective Date of Change of Control, but in no
event less than the actual annual salary set for
Executive during the calendar year in which the
Effective Date of Change of Control occurs, (the
"Initial Annual Direct Salary"), payable in
substantially equal periodic installments consistent
with the Bank's payroll policy, prorated for any
partial employment period.
The Annual Direct Salary shall be reviewed annually,
no later than December 15 of the then calendar year
and shall be subject to such annual change (but not
reduced below the Initial Annual Direct Salary as
set forth in this subsection without the Executive's
consent, except in cases of national financial
depression or emergency when compensation reduction
has been implemented by the Board of Directors for
the Bank's senior management) as may be set by the
Board of Directors of the Corporation and Bank
taking into account the position and duties of the
Executive and the performance of the Corporation and
Bank under the Executive's leadership.
(2) BONUS. The Executive shall be entitled to
participate in or receive benefits under the
incentive compensation plan in effect for the Chief
Executive Officer of the Corporation and Bank, at
the time that this Agreement is executed or as
subsequently amended.
(3) DIRECTOR FEES. The Executive shall not be
entitled to any director's fee or other compensation
as paid to other members of the Board of Directors
of the Bank and/or Corporation or subsidiaries of
either. The Executive, however, agrees to serve on
any committee of the Board of Directors of the Bank
and/or Corporation or subsidiary of either without
any additional compensation or fees.
(e) FRINGE BENEFITS, VACATION, EXPENSES, AND PERQUISITES.
(1) Employee Benefit Plans. The Executive shall be
entitled to participate in or receive benefits under
all Bank and Corporation employment benefit plans
including, but not limited to, any pension plan,
profit-sharing plan, deferred compensation plan,
savings plan, life insurance plan, disability
insurance plan or supplemental executive retirement
plan, as made available by the Bank and Corporation
to its employees, subject to and on a basis
consistent with terms, conditions and overall
administration of such plans and arrangements. The
employee benefits provided to the Executive
following the Change of Control shall be no less
than the employee benefits that he was receiving
immediately prior to the Change of Control. These
benefits shall include, but not be limited to:
(A) Vacation, Holidays, Sick Days and Personal
Days. Executive shall be entitled to the
number of paid vacation days in each calendar
year determined by the Bank and Corporation
from time to time for its senior executive
officers (prorated in any calendar year during
which the Executive is employed hereunder for
less than the entire such year in accordance
with the number of days in such calendar year
during which he is so employed). The Executive
also shall be entitled to all paid holidays,
sick days and personal days given by the Bank
and Corporation to its employees.
(B) Business Expenses. During the term of his
employment hereunder, Executive shall be
entitled to receive prompt reimbursement for
all reasonable expenses incurred by him (in
accordance with the policies and procedures
established by the Board of Directors of the
Bank for its senior executive officers) in
performing services hereunder, provided that
the Executive properly accounts therefore in
accordance with policy.
(C) Liability Insurance. The Corporation
shall use its best efforts to obtain insurance
coverage for the Executive under an insurance
policy covering officers and directors of the
Bank against lawsuits, arbitrations or other
legal or regulatory proceedings; however,
nothing herein shall be construed to require
the Corporation to obtain such insurance, if
the Board of Directors of the Corporation
determines that such coverage cannot be
obtained at commercially reasonable rates.
(D) Life Insurance Benefits equivalent to not
less than the greater of: $600,000.00 or four
(4) times Executive's annual salary.
(E) A Deferred Compensation Plan, involving
both Executive's salary and Board of Director's
fees, in a form similar to that currently
provided to Executive through the
Tiger's Eye Benefits Consulting - Theodore G.
Reeder, III, C.P.A., P.C.
(F) An automobile to be provided at Bank or
Corporation's expense of a value at least
comparable to that of the automobile that the
Executive was receiving at Bank or
Corporation's expense immediately prior to the
Change of Control.
(G) Memberships in such service clubs, country
clubs, and professional associations, as
provided to Executive as of the date of the
Change of Control.
7. PAYMENTS UPON TERMINATION AFTER A CHANGE OF CONTROL.
(a) If the Corporation or Bank shall for any reason
terminate Executive's employment as a result of or following a
Change of Control (as defined herein), other than for "Cause"
pursuant to Paragraph 4 hereof; or if Executive should terminate
his employment for "Good Reason" pursuant to Paragraph 5 hereof,
then, in such event, the Executive shall receive a lump sum payment
equal to 2.99 times his "Base Amount" which is defined as the mean
average of the total Annual Direct Salary [paid under Paragraph
6(d)(1)] plus the mean average of the annual total bonuses paid to
the Executive [paid under Paragraph 6(d)(2)] during the three (3)
calendar years immediately preceding the Effective Date of the
Change of Control.
(b) The Executive also shall receive during the
Severance Benefit Period the employee benefits as set forth in
Paragraph 6(e)(1)(A) through (G) above. If participation in these
benefits is prevented by law or the terms of a plan, the
Corporation and/or Bank shall provide a substantially equivalent
substitute. Further, unless precluded by the terms of the
insurance contract, Bank and Corporation shall provide for the
transfer to Executive, at the minimum legally permissible cost, the
policies for insurance benefits including, but not necessarily
limited to, life, disability and health insurance programs.
8. NOTICE. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Jeffrey B. Shank
856 McDowell Road
Greencastle, Pa. 17225
If to the Bank: The First National
Bank of Greencastle
Center Square, P.O. Box 8
Greencastle, Pa. 17225-0008
If to the Corporation: Tower Bancorp, Inc.
Center Square, P.O. Box 8
Greencastle, Pa. 17225-0008
or to such other address as any party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. SUCCESSORS AND PARTIES IN INTEREST.
(a) This Agreement shall be binding upon and shall inure
to the benefit of the Bank and Corporation and their successors and
assigns, including, without limitation, any corporation which
acquires, directly or indirectly, by purchase, merger,
consolidation or otherwise, all or substantially all of the
business or assets of the Bank or Corporation. Without limitation
of the foregoing, the Bank and Corporation shall require any such
successor, by agreement in form and substance satisfactory to
Executive, expressly to assume and agree to perform this Agreement
in the same manner and to the same extent that it is required to be
performed by the Bank and Corporation. Failure to obtain such
assumption and agreement shall serve as Good Reason for termination
under Paragraph 5.
(b) This Agreement is binding upon and shall inure to
the benefit of Executive, his heirs and personal representatives.
10. SEVERANCE BENEFIT PERIOD. The Severance Benefit Period
under Paragraph 7 shall commence upon the Effective Date of
Executive's discharge (for reasons other than "Cause") or of
Executive's resignation (for "Good Reason") and shall terminate
upon the expiration period of 2.99 years.
11. MITIGATION AND SETOFF.
(a) Executive shall not be required to mitigate the
amount of any payment or benefit provided for in Paragraph 7 above
by seeking employment or otherwise, and the Bank and Corporation
shall not be entitled to setoff against the amount of any payment
or benefit provided for in Paragraph 7 above by any amounts earned
by Executive in other employment during the Severance Benefit
Period.
(b) The Bank and Corporation hereby waive any and all
rights to setoff in respect to any claim, debt, obligation or other
liability of any kind whatsoever, against any payment or benefit
provided for in Paragraph 7 above.
12. SEVERABILITY. If any provision of this Agreement is
declared unenforceable for any reason, the remaining provisions of
this Agreement shall be unaffected thereby and shall remain in full
force and effect.
13. AMENDMENT. This Agreement may be amended or cancelled
only by mutual agreement of the parties in writing.
14. ATTORNEY'S FEES AND COSTS. If any action at law or in
equity is necessary to enforce the Executive's rights hereunder
following a Change of Control, the Executive shall be entitled to
recover all such attorney's fees, costs and disbursements
reasonably incurred by him in connection with any such suit brought
by him.
15. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. In the event of
Executive's death, any monies or benefits that may be due him from
the Corporation or Bank under this Agreement as of the date of
death or thereafter shall be paid to the person designated by him
in writing for this purpose, or, in the absence of any such
designation, to his estate.
16. LIMITATION OF DAMAGES FOR BREACH OF AGREEMENT. In the
event of a breach of this Agreement by either the Corporation, the
Bank or the Executive, each hereby waives to the fullest extent
permitted by law the right to assert any claim against the others
for punitive or exemplary damages.
17. LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania. In the event that any party shall institute any suit
or other legal proceeding, whether or law or in equity, arising
from or relating to this Agreement, the courts of the Commonwealth
of Pennsylvania shall have exclusive jurisdiction and venue shall
lie exclusively in the Court of Common Pleas of Franklin County,
Pennsylvania.
18. ENTIRE AGREEMENT. This Agreement supersedes any and all
prior agreements, either oral or in writing, between the parties
with respect to payments after a Change of Control, and this
Agreement contains all the covenants and agreements between the
parties with respect to same.
19. RIGHTS UNDER OTHER PLANS. This Agreement is not intended
to reduce, restrict or eliminate any benefit to which Executive may
otherwise be entitled at the time of his discharge or resignation
under any employee benefit plan of the Bank then in effect.
20. TERMINATION. This Agreement may not be terminated except
by mutual consent of the parties, as evidenced by a written
instrument duly executed by the Bank and Executive.
21. INDEPENDENT REPRESENTATION. The provisions of this
Agreement and their legal effect have been fully explained to the
parties by their respective, independent counsel. Each party
acknowledges that he/it has received independent legal advice, and
that each fully understands the facts and has been fully informed
as to his/its legal rights and obligations. Each party accepts
this Agreement as fair and equitable, and that it is being entered
into freely and voluntarily, after having received such advice and
with such knowledge.
22. "EXCESS PARACHUTE PAYMENT". Notwithstanding any other
provisions of this Agreement, Corporation shall not be required to
pay any Severance Benefits pursuant to Paragraph 7 hereof which
would be deemed an "Excess Parachute Payment", and thus non-
deductible to the Bank and/or Corporation, under the Internal
Revenue Code. Provided, however, it is the express intent of this
Agreement to provide to Executive the maximum amount to which he
would be entitled under the Internal Revenue Code, which amount
will result in no portion of such payment being deemed an "Excess
Parachute Payment".
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Agreement to be duly
executed in their respective names and, in the case of the
Corporation and Bank, by its authorized representatives the day and
year above mentioned.
ATTEST: THE FIRST NATIONAL BANK
OF GREENCASTLE
/s/ John H. McDowell By: /s/Kermit G. Hicks
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ATTEST: TOWER BANCORP, INC.
/s/ John H. McDowell By: /s/Kermit G. Hicks
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WITNESS:
/s/Denise K. Garnes /s/ Jeffrey B. Shank
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Jeffrey B. Shank