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 March 31, 2004
Commission file number: 2-89573
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.
1,735,146 shares of common stock outstanding at March 31, 2004
Page 1 of 22
TOWER BANCORP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - March 31, 2004
and December 31, 2003 4
Condensed consolidated statements of income - three months
ended March 31, 2004 and 2003 5
Condensed consolidated statements of comprehensive income -
three months ended March 31, 2004 and 2003 6
Condensed consolidated statements of cash flows - three
months ended March 31, 2004 and 2003 7
Notes to condensed consolidated financial statements 8 and 9
Management's discussion and analysis of financial
condition and results of operations 10 and 11
PART II - OTHER INFORMATION 13
Item 6 - Index to Exhibits and Reports on Form 8-K 13 - 14
Signatures 15
Exhibits 16 - 22
Page 2 of 22
PART I - FINANCIAL INFORMATION
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2004 2003
(Unaudited) (Audited)*
(000 Omitted)
ASSETS
Cash and due from banks $ 6,119 $ 8,929
Interest bearing balances with banks 675 675
Investment securities available for sale 62,882 63,076
Restricted bank stock 2,980 3,219
Loans 214,371 214,067
Less: reserve for possible loan losses ( 1,906) ( 1,864)
Bank premises, equipment, furniture and fixtures 4,554 4,158
Accrued interest receivable 974 962
Cash surrender value of life insurance 6,843 6,659
Other assets 554 857
------------ -----------
Total assets $ 298,046 $ 300,738
============ ===========
LIABILITIES AND CAPITAL
Deposits in domestic offices:
Demand $ 20,031 $ 18,412
Savings 118,180 116,484
Time 72,639 72,069
Federal funds purchased 4,232 0
Liabilities for borrowed money 34,853 47,373
Accrued interest payable 207 204
Other liabilities 5,951 5,758
------------ -----------
Total liabilities 256,093 260,300
------------ -----------
EQUITY CAPITAL
Capital stock, common, authorized 5,000,000
shares; 1,780,100 shares issued 2,225 2,225
Additional paid-in capital 6,778 6,763
Retained earnings 26,433 25,765
Accumulated other comprehensive income 7,882 7,006
Less: cost of treasury stock ( 1,365) ( 1,321)
------------ -----------
Total equity capital 41,953 40,438
------------ -----------
Total liabilities and capital $ 298,046 $ 300,738
============ ===========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
condensed financial statements.
Page 4 of 22
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
2004 2003
(000 Omitted)
Interest Income
Interest & fees on loans $ 2,895 $ 3,122
Interest on investment securities available for sale 538 525
Interest on deposits with banks 12 23
------------ ------------
Total interest & dividend income 3,445 3,670
------------ ------------
Interest Expense
Interest on deposits 544 734
Interest on federal funds purchased
and other borrowed money 438 377
------------ ------------
Total interest expense 982 1,111
------------ ------------
Net interest income 2,463 2,559
Provision for loan losses 90 90
------------ ------------
Net interest income after provision for loan losses 2,373 2,469
------------ ------------
Other Income
Investment service income 24 61
Service charges on deposit accounts 218 207
Other service charges and fees 103 68
Other operating income 119 111
Investment securities gains (losses) 567 918
------------ ------------
Total other income 1,031 1,365
------------ ------------
Other Expense
Salaries, wages and other benefits 1,078 937
Occupancy expense of bank premises 122 113
Furniture and fixture expense 142 130
Other operating expenses 676 716
------------ ------------
Total other expenses 2,018 1,896
------------ ------------
Income before taxes 1,386 1,938
Applicable income taxes 365 532
------------ ------------
Net income $ 1,021 $ 1,406
------------ ------------
Earnings per share:
Basic earnings per share $ 0.59 $ 0.81
Weighted average shares outstanding $ 1,735,151 $ 1,732,476
Diluted earnings per share $ 0.58 $ 0.80
Weighted average shares outstanding $ 1,763,854 $ 1,759,000
The accompanying notes are an integral part of these
condensed financial statements.
Page 5 of 22
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED
SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
2004 2003
(000 Omitted)
Net income $ 1,021 $ 1,406
---------- ----------
Other comprehensive income:
Unrealized holding gains (losses) 1,884 578
Reclassification adjustment for
gains realized in net income ( 567) ( 918)
---------- ----------
1,317 ( 340)
Tax effect ( 441) 116
---------- ----------
Other comprehensive income 876 ( 224)
---------- ----------
Comprehensive income $ 1,897 $ 1,182
========== ==========
The accompanying notes are an integral part of
these
condensed financial statements.
Page 6 of 22
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2004 and 2003
(UNAUDITED)
2004 2003
(000 Omitted)
Cash flows from operating activities:
Net income $ 1,021 $ 1,406
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 96 96
Provision for loan losses 90 90
(Gain) on sale of investment securities ( 567) ( 918)
(Increase) in cash surrender value of life
insurance ( 184) ( 98)
(Increase) decrease in other assets 303 247
(Increase) decrease in interest receivable ( 12) 2
(Decrease) increase in interest payable 3 ( 23)
(Decrease) increase in other liabilities ( 254) 384
------------ ------------
Net cash provided by operating activities 496 1,186
------------ ------------
Cash flows from investing activities:
Loans (net) ( 352) 213
Purchases of bank premises, equipment, ( 492) ( 392)
furniture and fixtures
Interest bearing balances with banks 0 389
Purchases of available for sale securities ( 1,564) ( 1,290)
Maturities/sales of available for sale securities 3,642 3,145
Redemption of restricted bank stock 239 0
------------ ------------
Net cash provided(used) by investing activities 1,473 2,065
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 3,885 7,115
Cash dividends paid ( 347) ( 1,178)
Purchase of treasury stock ( 221) ( 221)
Debt (net) ( 8,288) ( 11,321)
Proceeds from sale of capital stock 192 250
------------ ------------
Net cash provided (used) by financing activities ( 4,779) ( 5,355)
------------ ------------
Net increase (decrease) in cash and cash equivalents ( 2,810) ( 2,104)
Cash and cash equivalents at beginning of year 8,929 8,943
------------ ------------
Cash and cash equivalents at end of quarter $ 6,119 $ 6,839
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
Page 7 of 22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2004
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial
statements as of and for the three
months ended March 31, 2004 and 2003
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
March 31, 2004 and the results of its
operations for the three month period
ended March 31, 2004 and 2003.
The results of operations for the three
month period ended
March 31, 2004 and 2003 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.
Note 4. Stock Option Plans
The Corporation applies APB Opinion 25
and related interpretations in
accounting for its stock option plans.
Accordingly, only compensation cost for
the intrinsic value of options has been
recognized. Had compensation cost for
the Corporation's stock option plans
been determined based on the fair value
at the grant dates for awards under the
plans consistent with the method
prescribed by FASB Statement No.
Page 8 of 22
Note 4. Stock Option Plans (Continued)
123, the Corporation's net income and
earnings per share would have been adjusted
to the pro forma amounts indicated below:
2004 2003
Three Months Ended
March 31
Net income (000) omitted As reported $ 1,021 $ 1,406
Pro forma 999 1,394
Basic earnings per share As reported .59 .81
Pro forma .58 .80
Earnings per share assuming As reported .58 .80
dilution
Pro forma .57 .79
Page 9 of 22
TOWER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the first quarter of 2004 was $ 1,021,000
compared to $ 1,406,000 for the first quarter of 2003. Net income
on a per share basis for 2004 was $ .59, down $ .22 from the $ .81
realized during the first three months of 2003.
Total interest income for the first three months of 2004 was
$ 3,445,000 compared to $ 3,670,000 for the first three months of
2003. Decreases occurred primarily due to decreases in the yield
on earning assets. Investment yields dropped 111 basis points and
loan yields dropped 123 basis points from average yields realized
in the first quarter of 2003. The lower loan yield is due
primarily to mortgage refinancings with the yield on mortgages
dropping 119 basis points over the past twelve months. Average
loan balances at March 31, 2004 increased 14.0% over those at
March 31, 2003. However, loan balances remained flat with little
growth from balances at December 31, 2003. Increases from
March 31, 2003 were primarily in mortgage and commercial loans,
which increased 22.8% and 21.2%, respectively since March 31, 2003.
Earnings on investments for the first quarter were consistent with
totals for the corresponding period in 2003.
Total interest expense was $ 982,000 for the first quarter
of 2004, a decrease of $ 129,000 from the $ 1,111,000 reported for
the first quarter of 2003. Increases in average total deposits has
been 8.5% since March 31, 2003. Most of this growth has occurred
in the interest bearing demand deposit accounts. Average rates on
deposits have decreased 53 basis points from prior year amounts.
This coupled with the fact that the deposit growth has been
concentrated in transaction accounts has caused the bank's cost of
funds to decrease 25.9% from 2003 totals. However, asset yields
have decreased faster than corresponding decreases in cost of funds
causing the net interest margin for the first quarter of 2004 to
drop 72 basis points from the first quarter of 2003. The loan to
deposit ratio was 101.7% at March 31, 2004 compared to 96.2% at
March 31, 2003. Management intends to continue to competitively
price its deposits to maintain desired net interest spreads.
The bank made a $ 90,000 provision for loan losses during
the first quarter of 2004. Net charge-offs were $ 47,000 during
the first quarter of 2004 compared to $ 65,000 during the first
quarter of 2003, 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.
Page 10 of 22
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.
Noninterest income was $ 1,031,000 for the first quarter of
2004 representing a 24.5% decrease from the first quarter of 2003.
This decrease was primarily the result of lower securities gains.
Noninterest expenses were $ 2,018,000 for the first quarter
of 2004 compared to $ 1,896,000 for 2003. Increases were primarily
in personnel costs as the bank continues to increase its staff,
related benefit increases, and continued investment in technology
and related equipment.
The bank's effective income tax rate was 26.4% and 27.5% for
the first three months of 2004 and 2003, 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 $ 298,046,000 at March 31, 2004 compared
to $ 258,661,000 at March 31, 2003. This represents a growth rate
of approximately 15.3%. Internal capital generation has been the
primary method utilized to increase capital. Total stockholders'
equity was $ 41,953,000 at March 31, 2004, representing 14.1% of
total assets compared to $ 32,899,000 at March 31, 2003, which
represented 12.7% of total assets. Risk-based capital ratios
continue to exceed regulatory minimums.
CONTROLS AND PROCEDURES
The Corporation's Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of the
Corporation's disclosure controls and procedures (as such term is
defined in the Rules 13a-14(c) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") as of March 31, 2004. Based
on such evaluation, such officers have concluded that, as of March
31, 2004, the Corporation's disclosure controls and procedures are
effective in alerting them on a timely basis to material
information relating to the Corporation (including its consolidated
subsidiary) required to be included in the Corporation's periodic
filings under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in the
Corporation's internal control over financial reporting or in other
factors that could significantly affect such control during the
first quarter of 2004.
Page 11 of 22
PART II - OTHER INFORMATION
Page 12 of 22
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 - Changes in Securities
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) (b) (c) (d)
Total Number Average Total number Maximum
of shares price of shares number
purchased paid per purchased as shares
share part of that may yet
publicly be purchased
announced under the
plan plan
January 2004
1/1/2004 35,213
1/2/2004 500 $ 39.25 500 34,713
February
2004
0 $ 0 0 0
March 2004
3/11/2004 4,200 $ 41.14 4,200 30,513
3/22/2004 700 $ 40.75 700 29,813
Total 5,400 $ 40.91 5,400 29,813
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
Not applicable
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
31.1 Certification of Chief
Executive Officer pursuant to
Section 302 of the Sarbanes-
Oxley Act of 2002.
31.2 Certification of Chief
Financial Officer pursuant to
Section 302 of the Sarbanes-
Oxley Act of 2002.
Page 13 of 22
32.1 Certification of Chief
Executive Officer pursuant to 18
U.S.C. Section 1350
32.2 Certification of Chief
Financial Officer pursuant to 18
U.S.C. Section 1350
99 Report of Independent
Accountant's on Interim
Financial Statements
(b) Reports on Form 8-K:
Current report on Form 8-K filed with the Commission on
March 25, 2004.
Current report on Form 8-K filed with the Commission on
April 6, 2004.
Page 14 of 22
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/ Jeff B. Shank
-----------------------------
Jeff B. Shank, President, CEO
(Principal Executive Officer)
Date: May 11, 2004
/s/Franklin T. Klink, III
------------------------------
Franklin T. Klink, III,
Treasurer
(Principal Financial Officer)
Date: May 11, 2004
Page 15 of 22
Exhibit 31.1
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-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 and presented in
this quarterly report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
(c) disclosed in this quarterly report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the
registrant's internal control over financial
reporting.
Page 16 of 22
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of
internal control over financial reporting, 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 and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: May 11, 2004 By: /s/Jeff B. Shank
------------------------ -----------------------
Jeff B. Shank,
President/CEO
(Principal Executive
Officer)
Page 17 of 22
Exhibit 31.2
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-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 and presented in
this quarterly report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
(c) disclosed in this quarterly report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the
registrant's internal control over financial
reporting.
Page 18 of 22
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of
internal control over financial reporting, 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 and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: May 11, 2004 By: /s/Franklin T. Klink, III
------------------------ -------------------------
Franklin T. Klink, III
Treasurer
(Principal Financial
Officer)
Page 19 of 22
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF 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 March 31, 2004
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Jeff 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 financial condition and results of
operations of the Company.
/s/ Jeff B. Shank
--------------------------
Chief Executive Officer
May 11, 2004
Page 20 of 22
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF 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 March 31, 2004
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 financial condition and results of
operations of the Company.
/s/ Franklin T. Klink, III
---------------------------
Chief Financial Officer
May 11, 2004
Page 21 of 22
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 March 31, 2004 and the
related consolidated statements of income for the three months
ended March 31, 2004 and 2003 and consolidated statements of
comprehensive income for the three months ended March 31, 2004 and
2003 and consolidated statements of cash flows for the three months
ended March 30, 2004 and 2003. 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
May 11, 2004
Page 22 of 22