Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number: 0-12826
TOWER BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1445946
- ------------------------------- ------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
Center Square, Greencastle, Pennsylvania 17225
------------------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (717) 597-2137
------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-----------------------
Common Stock, no Par Value The Common Stock is not
registered on any exchange.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ X ]
As of December 31, 2004, 1,721,991 shares of the registrant's common stock were
outstanding. The aggregate market value of such shares held by nonaffiliates on
that date was $ 67,159,663.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31, 2004
are incorporated by reference into Parts I and II. Portions of the Proxy
Statement for 2005 Annual Meeting of Security Holders are incorporated by
reference in Part III of this Form 10-K.
TOWER BANCORP,INC.
FORM 10-K
INDEX
Part I
Page
Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 3a.Executive Officers of the Registrant 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7a.Quantitative and Qualitative Disclosures about
Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
Item 9a.Controls and Procedures 21
Item 9b.Other Information 21
Part III
Item 10.Directors and Executive Officers of the Registrant 22
Item 11.Executive Compensation 22
Item 12.Security Ownership of Certain Beneficial Owners and
Management 22
Item 13.Certain Relationships and Related Transactions 22
Item 14.Principal Accountant Fees and Services 22
Part IV
Item 15.Exhibits, Financial Statement Schedules and Reports on
Form 8-K 23
Signatures 26
Item 1. Business.
History and Business
Tower Bancorp, Inc. ("Tower") is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended. Tower was organized on
October 12, 1983, under the laws of the Commonwealth of Pennsylvania for the
purpose of acquiring The First National Bank of Greencastle, Greencastle,
Pennsylvania ("First") and such other banks and bank related activities as are
permitted by law and desirable. On June 1, 1984, Tower acquired 100% ownership
of The First National Bank of Greencastle, issuing 159,753 shares of Tower's
common stock to the former First shareholders.
During 2000 Tower acquired 7,750 shares of its own common stock and
sold 1,655 shares of treasury stock to First executive officers and directors as
part of a stock option plan.
During 2001 Tower acquired 19,024 shares of its own common stock and
sold 8,454 shares of treasury stock to First's ESOP plan, and 1,374 shares to
First executive officers as part of a stock option plan.
During 2002 Tower acquired 21,127 shares of its own common stock and
sold 3,080 shares of treasury stock to First's ESOP plan, 1,440 shares to First
executive officers, and 2,108 shares to First directors as part of a stock
option plan.
During 2003 Tower acquired 14,833 shares of its own common stock and
sold 10,470 shares of treasury stock to First's ESOP plan, 1,623 shares to First
executive officers, and 4,435 shares to First directors as part of a stock
option plan.
During 2004 Tower acquired 20,436 shares of its own common stock and
sold 6,376 shares of treasury stock to First's ESOP plan and 1,703 shares to
First executive officers as part of a stock option plan.
Tower's primary activity consists of owning and supervising its
subsidiary, The First National Bank of Greencastle, which is engaged in
providing banking and bank related services in South Central Pennsylvania,
principally Franklin County, where its nine branches are located in Quincy,
Shady Grove, Waynesboro, Mercersburg, Chambersburg (2), and Laurich,
Pennsylvania, and Hagerstown, Maryland, as well as its main office in
Greencastle, Pennsylvania. The day-to-day management of First is conducted by
the subsidiary's officers. Tower derives the majority of its current income
from First.
Tower has no employees other than its four officers who are also
employees of First, its subsidiary. On December 31, 2004, First had 93 full-
time and 21 part-time employees.
- 3 -
Tower contemplates that in the future it will evaluate and may
acquire, or may cause its subsidiaries to acquire, other banks. Tower also may
seek to enter businesses closely related to banking or to acquire existing
companies already engaged in such activities. Any acquisition by Tower will
require prior approval of the Board of Governors of the Federal Reserve System,
the Pennsylvania Department of Banking, and, in some instances, other regulatory
agencies and its shareholders.
Business of First
First was organized as a national bank in 1983 as part of an agreement
and plan of merger between Tower and The First National Bank of Greencastle, the
predecessor of First, under which First became a wholly-owned subsidiary of
Tower. As indicated, First is the successor to The First National Bank of
Greencastle which was originally organized in 1864.
First is engaged in commercial banking as authorized by the National
Bank Act. This involves accepting demand, time and savings deposits and
granting loans (consumer, commercial, real estate, business) to individuals,
corporations, partnerships, associations, municipalities and other governmental
bodies.
First grants agribusiness, commercial, and residential loans to
customers throughout the Cumberland Valley area. It maintains a diversified
loan portfolio and evaluates each customer's credit-worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary upon the
extension of credit, is based on management's credit evaluation of the customer.
Collateral held varies, but generally includes equipment and real estate. The
concentrations of credit by type of loan are set forth on the face of the
balance sheet (page 2 of the Annual Report to Shareholders).
In 2000, First entered into an affiliation agreement with Sentry Trust
Company, a Pennsylvania Limited Purpose Bank, (Sentry) whereby Sentry acquired
from First the right to service the trust accounts of First. Through this
affiliation agreement trust and other financial services are provided to First's
customers by Sentry.
As of December 31, 2004, First had total assets of approximately
$ 316.9 million, total shareholders' equity of approximately $ 44 million and
total deposits of approximately $ 230 million.
- 4 -
Regulation and Supervision
Tower Bancorp, Inc. (Tower) is a bank holding company within the
meaning of the Bank Holding Company Act of 1956 (BHC Act), and is registered as
such with the Board of Governors of the Federal Reserve System (FRB). As a
registered bank holding company, the parent company is required to file with the
FRB certain reports and information. Tower is also subject to examination by
the FRB and is restricted in its acquisitions, certain of which are subject to
approval by the FRB. In addition, the parent company would be required to
obtain the approval of the Pennsylvania State Banking Department in order for it
to acquire certain bank and nonbank subsidiaries.
Under the BHC Act, a bank holding company is, with limited exceptions,
prohibited from (i) acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company which is not a bank or (ii) engaging
in any activity other than managing or controlling banks. With the prior
approval of the FRB, however, a bank holding company may own shares of a company
engaged in activities which the FRB determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
addition, federal law imposes certain restrictions on transactions between Tower
and its subsidiary, First National Bank of Greencastle (First). As an affiliate
of First, Tower is subject, with certain exceptions, to provisions of federal
law imposing limitations on, and requiring collateral for, extensions of credit
by First to its affiliates.
The operations of First are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured by
the Federal Deposit Insurance Corporation. Bank operations are also subject to
regulations of the Office of the Comptroller of the Currency, the Federal
Reserve Board and the Federal Deposit Insurance Corporation.
The primary supervisory authority of First is the Office of the
Comptroller of the Currency (OCC), who regularly examines such areas as
reserves, loans, investments, management practices and other aspects of bank
operations. These examinations are designed primarily for the protection of the
Bank depositors.
Federal and state banking laws and regulations govern, among other
things, the scope of a bank's business, the investments a bank may make, the
reserves against deposits a bank must maintain, the loans a bank makes and
collateral it takes, the maximum interest rates a bank may pay on deposits, the
activities of a bank with respect to mergers and consolidations, and the
- 5 -
establishment of branches, and management practices and other aspects of banking
operations. See Note 20 of the Notes to Financial Statements for a discussion
of the limitations on the availability of Tower's subsidiary's undistributed
earnings for the payment of dividends due to such regulation and other reasons.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989(FIRREA) provides among other things that a financial institution insured by
the Federal Deposit Insurance Corporation(FDIC) sharing common ownership with a
failed institution can be required to indemnify the FDIC for its losses
resulting from the insolvency of the failed institution, even if such
indemnification causes the affiliated institution also to become insolvent.
Tower currently has only one subsidiary and as a result has not been
significantly affected by the aforementioned provisions of FIRREA.
The OCC issued guidelines which, effective December 31, 1990, imposed
upon national banks risk-based capital and leverage standards. These capital
requirements of bank regulators, are discussed in Note 20 of the notes to
financial statements. Failure to meet applicable capital guidelines could
subject a national bank to a variety of enforcement remedies available to the
federal regulatory authorities. Depending upon circumstances, the regulatory
agencies may require an institution to surpass minimum capital ratios
established by the OCC and the FRB.
In December 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. FDICIA contains provisions
limiting activities and business methods of depository institutions. FDICIA
requires the primary federal banking regulators to promulgate regulations
setting forth standards relating to, among other things, internal controls and
audit systems; credit underwriting and loan documentation; interest rate
exposure and other off-balance sheet assets and liabilities; and compensation of
directors and officers. FDICIA also provides for expanded regulation of
depository institutions and their affiliates, including parent holding
companies, by such institutions' primary federal banking regulator. Each
primary federal banking regulator is required to specify, by regulation, capital
standards for measuring the capital adequacy of the depository institutions it
supervises and, depending upon the extent to which a depository institution does
not meet such capital adequacy measures, the primary federal banking regulator
may prohibit such institution from paying dividends or may require such
institution to take other steps to become adequately capitalized.
- 6 -
FDICIA establishes five capital tiers, ranging from "well
capitalized", to "critically undercapitalized". A depository institution is
well capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure. Under FDICIA, an institution that
is not well capitalized is generally prohibited from accepting brokered deposits
and offering interest rates on deposits higher than the prevailing rate in its
market; in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital restoration plan to the
appropriate federal bank regulatory agency. One requisite element of such a
plan is that the institution's parent holding company must guarantee compliance
by the institution with the plan, subject to certain limitations. In the event
of the parent holding company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to federal bank regulators
to maintain the capital of its depository institution subsidiaries, would be
assumed by the bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital ratios at December 31,
2004, the Bank is considered well capitalized, based on the definitions in the
regulations issued by the Federal Reserve Board and the other federal bank
regulatory agencies setting forth the general capital requirements mandated by
FDICIA. See "Capital Funds" in management's discussion and analysis in the
corporation's annual report as shown in Exhibit 13.
A federal depositor preference statute was enacted in 1993 providing
that deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.
- 7 -
Other Federal Laws and Regulations
Our operations are subject to additional federal laws and regulations
applicable to financial institutions, including, without limitation:
- Privacy provisions of the Gramm-Leach-Bliley Act and related
regulations, which require us to maintain privacy policies
intended to safeguard customer financial information, to disclose
the policies to our customers and to allow customers to "opt out"
of having their financial service providers disclose
their confidential financial information to non-affiliated
third parties, subject to certain exceptions;
- Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of
financial records;
- Consumer protection rules for the sale of insurance products by
depository institutions, adopted pursuant to the requirements of
the Gramm-Leach-Bliley Act; and
- USA Patriot Act, which requires financial institutions to take
certain actions to help prevent, detect and prosecute international
money laundering and the financing of terrorism.
Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley
Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws
affecting corporate governance, accounting obligations and corporate reporting.
The Sarbanes-Oxley Act is applicable to all companies with equity securities
registered or that file reports under the Securities Exchange Act of 1934. In
particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit
committees, including independence, expertise, and responsibilities; (ii)
additional responsibilities regarding financial statements for the Chief
Executive Officer and Chief Financial Officer of the reporting company; (iii)
new standards for auditors and regulation of audits; (iv) increased disclosure
and reporting obligations for the reporting company and its directors and
executive officers; and (v) new and increased civil and criminal penalties for
violations of the securities laws. Many of the provisions were effective
immediately while other provisions become effective over a period of time and
are subject to rulemaking by the SEC. Because the Corporation's common stock is
registered with the SEC, it is currently subject to this Act.
The earnings of First, and therefore the earnings of Tower, are
affected by general economic conditions, management policies, and the
legislative and governmental actions of various regulatory authorities including
the FRB, the OCC and the FDIC.
In addition to banking and securities laws, regulations and regulatory
agencies, the Corporation also is subject to various other laws, regulations and
regulatory agencies throughout the United States. Furthermore,
- 8 -
various proposals, bills and regulations have been and are being considered in
the United States Congress, and various other governmental regulatory and
legislative bodies, which could result in changes in the profitability and
governance of the Corporation. It cannot be predicted whether new legislation
or regulations will be adopted and, if so, how they would affect the
Corporation.
References under the caption "Supervision and Regulation" to
applicable statutes, regulations and orders are brief summaries of portions
thereof which do not purport to be complete and which are qualified in their
entirety by reference thereto.
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in such statements. In
connection with certain statements made in this report and those that may be
made in the future by or on behalf of the Corporation which are identified as
forward-looking statements, the Corporation notes that the following important
factors, among others, could cause actual results to differ materially from
those set forth in any such forward-looking statements. Further, such forward-
looking statements speak only as of the date on which such statement or
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
The business and profitability of a financial services organization
such as the Corporation is influenced by prevailing economic conditions and
governmental policies. The actions and policy directives of the Federal Reserve
Board determine to a significant degree the cost and the availability of funds
obtained from money market sources for lending and investing. Federal Reserve
Board policies and regulations also influence, directly and indirectly, the
rates of interest paid by commercial banks on their interest-bearing deposits
and may also impact the value of financial instruments held by the Corporation.
The nature and impact on the Corporation of future changes in economic and
market conditions and monetary and fiscal policies, both foreign and domestic,
are not predictable, and are beyond the Corporation's control. In addition,
these conditions and policies can impact the Corporation's customers and
counterparties which may increase the risk of default on their obligations to
the Corporation and its affiliates. They can also affect the competitive
conditions in the markets and products within which the Corporation operates,
which can have an adverse impact on the Corporation's ability to maintain its
revenue streams.
- 9 -
As part of its ongoing business, the Corporation assumes financial
exposures to interest rates, currencies, equities and other financial products.
In doing so, the Corporation is subject to unforeseen events which may not have
been anticipated or which may have effects which exceed those assumed within its
risk management processes. This risk can be accentuated by volatility and
reduction in liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions concerned. In addition,
the Corporation is dependent on its ability to access the financial markets for
its funding needs.
As noted in "Supervision and Regulation", the Corporation is regulated
by and subject to various regulators. The actions of these regulators can have
an impact on the profitability and governance of the Corporation. Increases by
regulatory authorities of minimum capital, reserve, deposit insurance and other
financial viability requirements can also affect the Corporation's
profitability.
The Corporation is subject to operational and control risk which is
the potential for loss caused by a breakdown in communication, information,
processing and settlement systems or processes or a lack of compliance with the
procedures on which they rely either within the Corporation or within the
broader financial systems infrastructure.
As with any financial institution, the Corporation is also subject to
the risk of litigation and to an unexpected or adverse outcome in such
litigation. Competitive pressures in the marketplace and unfavorable or adverse
publicity and news coverage can have the effect of lessening customer demand for
the Corporation's services. Ultimately, the Corporation's businesses and their
success are dependent on the Corporation's ability to attract and retain high
quality employees.
Competition
First's principal market area consists of the southern two thirds
portion of Franklin County, Pennsylvania and the northcentral portion of
Washington County, Maryland. It services a substantial number of depositors in
this market area, with the greatest concentration within a limited radius of
Greencastle, Pennsylvania.
First, like other depository institutions, has been subjected to
competition from less heavily regulated entities such as brokerage firms, money
market funds, consumer finance and credit card companies and other commercial
banks, many of which are larger than First. First is generally competitive with
all competing financial institutions in its service area with respect to
interest rates paid on time and savings deposits, service charges on deposit
accounts and interest rates charged on loans.
- 10 -
The Corporation files periodic reports with the Securities and
Exchange Commission (SEC) in the form of 10-Q's - quarterly reports; 10-K -
annual report; 14A - annual proxy statements and Form 8-K for any significant
events that may arise during the year. Copies of the Corporation's filings may
be obtained through the SEC's internet site at www.sec.gov or may be obtained
free of charge upon written request furnished to: Mr. Franklin T. Klink, III,
CFO, Tower Bancorp, Inc., P. O. Box 8, Center Square, Greencastle, Pennsylvania
17225.
Item 2. Properties.
The First National Bank of Greencastle owns buildings at Center
Square, Greencastle, Pennsylvania (its corporate headquarters); Shady Grove,
Pennsylvania; 4136 Lincoln Way West, (Laurich Branch), Chambersburg,
Pennsylvania; Quincy, Pennsylvania; Waynesboro, Pennsylvania; 18233 Maugans
Avenue, Hagerstown, Maryland; and Lincoln Way East, Chambersburg, Pennsylvania.
In addition, First leases approximately 1,500 square feet in a building located
at 11906 Buchanan Trail West, Mercersburg, Pennsylvania and 565 square feet
located at 785 Fifth Avenue, Chambersburg, Pennsylvania. Offices of the bank
are located in each of these buildings.
Item 3. Legal Proceedings.
Tower is an occasional party to legal actions arising in the ordinary
course of its business. In the opinion of Tower's management, Tower has
adequate legal defenses and/or insurance coverage respecting any and each of
these actions and does not believe that they will materially affect Tower's
operations or financial position.
- 11 -
Item 3a. Executive Officers of the Registrant
The following table sets forth selected information about the
principal officers of the Corporation, each of whom is elected by the Board of
Directors and each of whom holds office at the discretion of the Board.
Held Employee Age as
Name/Office Held Since Since of 12/31/04
Kermit G. Hicks, Chairman
of the Board 1983 (1) 69
Jeff B. Shank, President
and Chief Executive
Officer 1991 1976 49
Robert L. Pensinger,
Vice Chairman of
the Board 2002 (1) 71
John H. McDowell,
Executive Vice President/
Secretary 1986 1977 55
Don Kunkle, Vice President 1990 1987 55
Franklin T. Klink, III, Vice
President/Treasurer 2001 2001 49
(1) These directors are not employees of the Bank.
Item 4. Submission of Matters to Vote of Security Holders.
None
- 12 -
Part II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters.
Tower's common stock is not traded on a national securities exchange,
but is traded through the local and over-the-counter local markets under the
symbol TOBC. At December 31, 2004, the approximate number of shareholders of
record was 1,011. The price ranges for Tower common stock set forth below are
the approximate bid prices obtained from brokers who make a market in the stock
and don't reflect prices in actual transactions.
Period Dividends Market Price
2004 1st Quarter $ .20 $ 38.65 - $ 43.00
2nd Quarter .20 40.10 - 43.00
3rd Quarter .22 40.05 - 42.00
4th Quarter .72 41.00 - 44.00
2003 1st Quarter $ .68 $ 29.50 - $ 34.90
2nd Quarter .18 33.80 - 36.50
3rd Quarter .20 35.10 - 36.50
4th Quarter .20 35.40 - 40.00
Item 6. Selected Financial Data
The selected five-year financial data on page 25 of the annual
shareholders' report for the year ended December 31, 2004 incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Contractural obligations of the Corporation as of December 31, 2004 as
follows:
Payments due by period
(in thousands) Total Less 1 - 3 3 - 5 More
than 1 years years than 5
Contractual obligations year years
Long-term debt obligations $30,225 $ 225 $ 0 $15,000 $15,000
Operating lease
obligations 106 43 60 3 0
------- ------- ------ ------- ------
Total $30,331 $ 268 $ 60 $15,003 $15,000
======= ======= ====== ======= ======
All other information required by Item 7 is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations, on
pages 30 through 37 of the annual shareholders report which is incorporated
herein by reference.
- 13 -
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth on pages 35 and 36 of the annual
shareholders' report regarding quantitative and qualitative disclosures about
market risk is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data, some of which is
required under Guide 3 (statistical disclosures by bank holding companies) are
shown on pages 2 through 29 of the annual shareholders report for the year ended
December 31, 2004 and are incorporated herein by reference. Certain statistical
information required in addition to those included in the annual shareholders'
report are submitted herewith as follows.
Description of Statistical Information Page
Loan portfolio 15
Summary of loan loss experience 16
Nonaccrual, delinquent and impaired loans 17
Allocation of allowances for loan losses 18-19
Deposits and return on equity and assets 20
Consolidated summary of operations 21
- 14 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOAN PORTFOLIO
The following table presents the loan portfolio at the end of each of
the last five years:
2004 2003 2002 2001 2000
(000 omitted)
Commercial,
financial &
agricultural $ 40,257 $ 38,703 $ 32,422 $ 33,606 $ 20,903
Real estate -
Construction 6,793 7,156 7,246 6,029 4,827
Real estate -
Mortgage 171,415 155,649 135,104 111,709 104,838
Installment
& other
personal
loans (net
of unearned
income) 11,004 12,559 12,765 16,333 17,002
-------- -------- -------- --------- --------
Total loans $229,469 $214,067 $187,537 $167,677 $147,570
======== ======== ========= ========= ========
- 15 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
2004 2003 2002 2001 2000
(000 omitted)
Average total loans
outstanding (net
of unearned income) $ 220,789 $ 198,599 $ 183,805 $ 158,570 $ 140,788
--------- --------- --------- --------- ---------
Allowance for loan
losses, beginning
of period 1,864 1,632 1,577 1,586 1,719
Additions to
provision for
loan losses
charged to
operations 360 360 310 120 0
Loans charged off
during the year
Commercial 276 29 101 0 4
Real estate
mortgage 0 0 0 0 0
Installment 106 162 205 192 149
--------- --------- --------- --------- ---------
Total charge-
off's 382 191 306 192 153
--------- --------- --------- --------- ---------
Recoveries of loans
previously charged
off:
Commercial 35 5 3 4 4
Installment 25 58 34 39 16
Mortgage 0 0 14 20 0
--------- --------- --------- --------- ---------
Total recoveries 60 63 51 63 20
--------- --------- --------- --------- ---------
Net loans charged
off (recovered) 322 128 255 129 133
--------- --------- --------- --------- ---------
Allowance for loan
losses, end of
period 1,902 1,864 1,632 1,577 1,586
Ratio of net loans
charged off
(recovered)
to average loans
outstanding .15% .06% .14% .08% .09%
======== ========= ========= ========= =======
The provision is based on an evaluation of the adequacy of the
allowance for possible loan losses. The evaluation includes, but is not limited
to, review of net loan losses for the year, the present and prospective
financial condition of the borrowers and evaluation of current and projected
economic conditions.
- 16 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOANS
The following table sets forth the outstanding balances of those
loans on a nonaccrual status and those on accrual status which are contractually
past due as to principal or interest payments for 30 days and 90 days or more at
December 31.
2004 2003 2002 2001 2000
(000 omitted)
Nonaccrual loans $ 9 $ 540 $ 781 $ 64 $ 63
===== ===== ======= ===== =====
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
30 - 89 days
past due 155 432 386 802 800
90 days or
more past due 13 178 188 734 25
----- ------- ------- ----- -----
Total
accrual
loans $ 168 $ 610 $ 574 $ 1,536 $ 825
===== ===== ======= ======= =====
See Note 8 of the Notes to Consolidated Financial Statements for
details of income recognized and foregone revenue on nonaccrual loans for the
past three years, and disclosures of any impaired loans.
Management has not identified any significant problem loans in the
accrual loan categories shown above.
- 17 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following is an allocation by loan categories of the allowance for
loan losses at December 31 for the last five years. In retrospect the specific
allocation in any particular category may prove excessive or inadequate and
consequently may be reallocated in the future to reflect the then current
conditions. Accordingly, the entire allowance is available to absorb losses in
any category:
Years Ended December 31
2004 2003
Percentage Percentage
of Loans of Loans
in Each in Each
Category Category
Allowance to Total Allowance to Total
Amount Loans Amount Loans
(000 omitted)
Commercial,
financial and
agricultural $ 453 17.5% $ 694 18.1%
Real estate -
Construction 0 3.0 0 3.3
Real estate -
Mortgage 664 74.7 664 72.7
Installment 0 4.8 0 5.9
Unallocated 785 N/A 506 N/A
------ ----- ------ -----
Total $ 1,902 100.0% $ 1,864 100.0%
======= ===== ======= =====
Years Ended December 31
2002 2001
Percentage Percentage
of Loans of Loans
in Each in Each
Category Category
Allowance to Total Allowance to Total
Amount Loans Amount Loans
(000 omitted)
Commercial,
financial and
agricultural $ 718 17.3% $ 816 20.0%
Real estate -
Construction 0 3.9 0 3.6
Real estate -
Mortgage 664 72.1 650 66.6
Installment 0 6.7 0 9.7
Unallocated 250 N/A 111 N/A
------- ----- ------- -----
Total $ 1,632 100.0% $ 1,577 100.0%
======= ===== ======= =====
- 18 -
Years Ended December 31
2000
Percentage
of Loans
in Each
Category
Allowance to Total
Amount Loans
(000 omitted)
Commercial, financial
and agricultural $ 812 14.2%
Real estate - Construction 0 3.3
Real estate - Mortgage 630 71.0
Installment 0 11.5
Unallocated 144 N/A
------- -----
Total $ 1,586 100.0%
======= =====
- 19 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December 31
2004 2003 2002
(000 omitted)
Demand deposits $ 19,386 $ 15,144 $ 12,470
Interest bearing
demand deposits 92,933 84,107 76,373
Savings deposits 28,787 25,702 22,792
Time deposits 75,463 72,307 71,631
--------- --------- ---------
Total deposits $ 216,569 $ 197,260 $ 183,266
========= ========= =========
RETURN ON EQUITY AND ASSETS
(APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant earnings and
capital ratios:
2004 2003 2002
(000 omitted)
Assets $ 316,890 $ 300,738 $ 262,589
Net income $ 4,723 $ 4,951 $ 4,853
Equity $ 44,071 $ 40,438 $ 32,866
Cash dividends $ 2,311 $ 2,185 $ 1,458
Return on assets 1.55% 1.80% 1.91%
Return on equity 11.24% 14.46% 15.81%
Dividend payout ratio 48.90% 44.13% 30.04%
Equity to asset ratio 13.76% 13.01% 12.52%
- 20 -
TOWER BANCORP INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
2004 2003 2002 2001 2000
(000 omitted)
Interest income $ 14,126 $ 14,350 $ 15,780 $ 16,510 $ 15,523
Interest expense 4,011 4,267 5,252 6,988 7,295
-------- -------- -------- --------- ---------
Net interest income 10,115 10,083 10,528 9,522 8,228
Provision for loan
Losses 360 360 310 120 0
-------- -------- -------- -------- ---------
Net interest income
after provision
for loan losses 9,755 9,723 10,218 9,402 8,228
Other income:
Investment services
income 79 31 0 191 577
Service charges -
Deposits 992 864 621 519 335
Other service charges,
collection and
exchange, charges,
commission fees 559 431 390 305 1,630
Other operating
income 2,706 3,199 2,046 1,922 1,073
-------- -------- -------- -------- ---------
Total other
income 4,336 4,525 3,057 2,937 3,615
-------- -------- -------- --------- --------
Income before
operating expense 14,091 14,248 13,275 12,339 11,843
Operating expenses:
Salaries and
employees
benefits 4,078 3,901 3,558 3,211 3,026
Occupancy and
equipment
expense 1,702 1,594 1,575 1,627 1,393
Other operating
expenses 1,899 1,981 1,526 1,864 1,842
-------- -------- -------- -------- ---------
Total operating
Expenses 7,679 7,476 6,659 6,702 6,261
-------- -------- -------- --------- --------
Income before
income taxes 6,412 6,772 6,616 5,637 5,582
Income tax 1,689 1,821 1,763 1,636 1,489
-------- -------- -------- -------- ---------
Net income
applicable to
common stock $ 4,723 $ 4,951 $ 4,853 $ 4,001 $ 4,093
======== ======== ======== ========= ========
Per share data:
Earnings per
common share $ 2.73 $ 2.86 $ 2.79 $ 2.29 $ 2.32
Cash dividend -
common $ 1.34 $ 1.26 $ .84 $ 1.12 $ .56
Average number of
common shares 1,727,856 1,733,477 1,737,298 1,745,847 1,761,699
- 21 -
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
Item 9a. 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 Rules 13a-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2004.
Based on such evaluation, such officers have concluded that, as of December 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 fourth quarter of 2004.
Item 9b. Other Information
The Corporation had no other events that should have been disclosed on
Form 8K that were not already disclosed on such form.
- 22 -
PART III
Item 10. Directors and Executive Officers of the Registrant
The Corporation has adopted a Code of Ethics that applies to all
Directors and Senior Managers (including its Chief Executive Officer and Chief
Financial Officer). The Corporation's Directors and Senior Management Code of
Ethics is available on First National Bank of Greencastle's website at
http://www.fnbgc.com.
All other information required by Item 10 is incorporated by reference
from Tower Bancorp's definitive proxy statement for the 2005 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from
Tower Bancorp's definitive proxy statement for the 2005 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by Item 12 is incorporated by reference from
Tower Bancorp, Inc.'s definitive proxy statement for the 2005 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from
Tower Bancorp's definitive proxy statement for the 2005 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference from
Tower Bancorp's definitive proxy statement for the 2005 Annual Meeting of
Shareholders filed pursuant to Regulation 14A.
- 23 -
PART IV
Item 15. Exhibits, Financial Statement Schedules and
Reports of Form 8-K.
(a) (1) - List of Financial Statements
The following consolidated financial statements of
Tower Bancorp and its subsidiary, included in the
annual report of the registrant to its
shareholders for the year ended December 31, 2004,
are incorporated by reference in Item 8:
Consolidated balance sheets - December 31,
2004 and 2003
Consolidated statements of income - Years
ended December 31, 2004, 2003, and 2002
Consolidated statements of stockholders'
equity - Years ended December 31, 2004, 2003,
and 2002
Consolidated statements of cash flows - Years
ended December 31, 2004, 2003, and 2002
Notes to consolidated financial statements -
December 31, 2004
(2) List of Financial Statement Schedules
All financial statement schedules for which provision is
made in the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3) (i) Articles of incorporation
Exhibit (3) (ii) Bylaws
Exhibit (4) Instruments defining the rights
of security holders including indentures
Exhibit (10) Material contracts
Exhibit (13) Annual report to security
Holders
Exhibit (21) Subsidiaries of the registrant
Exhibit (23) Consent of independent registered public
accounting firm
Exhibit (31) Rule 13a - 14(a)/15d-14(a) Certifications
Exhibit (32) Section 1350 Certifications
All other exhibits for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
- 24 -
(b) Reports on Form 8-K filed
* Report filed December 8, 2004 for news release
declaring dividend for fourth quarter and a special
dividend.
* Report filed January 11, 2005 for news release
announcing financial results for quarter ended
December 31, 2004.
(c) Exhibits
(3)(i) Articles of incorporation.
Incorporated by reference to Form 8-K
dated May 26, 1998.
(ii) By-laws. Incorporated by reference
to Exhibit D to the Registrant's
Registration Statement on Form S-14,
Registration No. 2-89573.
(4) Instruments defining the rights of
security holders including indentures.
The rights of the holders of Registrant's
common stock are contained in:
(i) Articles of Incorporation of Tower
Bancorp, Inc., incorporated by
reference to Form 8-K dated May 26,
1998.
(ii) By-laws of Tower Bancorp, Inc., filed
as Exhibit D to the Registrant's
Registration Statement on Form S-14
(Registration No. 2-89573).
(10.1) Change of control agreements,
Incorporated by reference to the
registrant's Form 10Q filing dated
November 12, 2002 Exhibit 99.4, and
Form 10K filing dated March 15, 2002
for the year ended December 31, 2001
Exhibits 10-1 and 10-2 and Form 10-K
filing dated March 22, 1999 Exhibit
10-1 and 10-2 for the year ended
December 31, 1998.
(10.2) Non-Qualified stock option plan;
stock option plan for outside
directors and amended and restated
employee stock ownership plan filed
as Exhibit 99.1 to the Registrant's
Statement on Form S-8 (Registration
No. 333-40661).
- 25 -
(10.3) Supplemental Executive Retirement
Plan Agreement incorporated by
reference to the registrant's Form
10-Q filing dated November 10, 2002
Exhibit 99.3.
(13) Annual report to security holders - filed
herewith
(21) Subsidiaries of the registrant - filed
herewith
(23.1)Consent of independent registered public
accounting firm - filed herewith
(31.1) Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 -
filed herewith
(31.2) Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 -
filed herewith
(32.1) Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 - filed
herewith.
(32.2) Certification of Chief Financial
Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 - filed
herewith.
(d) Financial statement schedules
None
- 26 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOWER BANCORP, INC.
--------------------------
(Registrant)
By /s/ Jeff B. Shank
--------------------------
Jeff B. Shank,
President/CEO
(Principal Executive
Officer)
By /s/Franklin T. Klink, III
--------------------------
Franklin T. Klink, III
Treasurer (Principal Financial
and Accounting Officer)
Dated: March 23, 2005
--------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Jeff B. Shank President &
- ----------------------- Director March 23, 2005
Jeff B. Shank
/s/ Kermit G. Hicks Chairman of the
- ----------------------- Board & Director March 23, 2005
Kermit G. Hicks
/s/Robert L. Pensinger Vice Chairman of the
- ----------------------- Board & Director March 23, 2005
Robert L. Pensinger
/s/Frederic M. Frederick Director March 23, 2005
- -----------------------
Frederic M. Frederick
/s/James H. Craig, Jr. Director March 23, 2005
- -----------------------
James H. Craig, Jr.
/s/ Lois Easton Director March 23, 2005
- -----------------------
Lois Easton
/s/ Mark E. Gayman Director March 23, 2005
- -----------------------
Mark E. Gayman
- 27 -
Exhibit Index
Exhibit No.
13 Annual report to security holders
21 Subsidiaries of the Registrant
23.1 Consent of Independent Registered Public Accounting Firm
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
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.1 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
- 28 -
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. The First National Bank of Greencastle, Center Square, Greencastle,
Pennsylvania; a National Bank organized under the National Bank Act.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Tower Bancorp, Inc.
We consent to the incorporation by reference in the registration statements
(Form S-14 No. 2-89573 and Form S-8 No. 333-40661) of our report dated
January 18, 2005, with respect to the consolidated balance sheets of Tower
Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003 and the related
consolidated statements of income, stockholders' equity and cash flows for the
three year period ended December 31, 2004, which report is incorporated by
reference in the December 31, 2004 annual report to stockholders on Form 10-K of
Tower Bancorp, Inc.
/s/SMITH ELLIOTT KEARNS & COMPANY, LLC
--------------------------------------
Chambersburg, PA
March 23, 2005
Exhibit 31.1
CERTIFICATION
I, Jeffery B. Shank, President and CEO, certify, that:
1. I have reviewed this annual report on Form 10-K of Tower Bancorp, Inc.
2. Based on my knowledge, the annual 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 annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(c) disclosed in this annual 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.
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 the 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.
By: /s/ Jeffery B. Shank
Jeffery B. Shank
President and CEO
(Principal Executive Officer)
March 23, 2005
Exhibit 31.2
CERTIFICATION
I, Franklin T. Klink, III, Treasurer, certify, that:
1. I have reviewed this annual report on Form 10-K of Tower Bancorp, Inc.
2. Based on my knowledge, the annual 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 annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this annual report based on such evaluation; and
(c) disclosed in this annual 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.
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 the 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.
By: /s/ Franklin T. Klink, III
Franklin T. Klink, III
Treasurer
(Principal Financial Officer)
March 23, 2005
Exhibit 32.1
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 Annual Report of Tower Bancorp, Inc. (the
Corporation) on Form 10-K for the period ending December 31, 2004 as filed with
the Securities and Exchange Commission on the date therein specified (the
"Report"), I, Jeffery B. Shank, President and Chief Executive Officer of the
Corporation, 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
Corporation as of and for the period covered by the report.
/s/ Jeffery B. Shank
Jeffery B. Shank
President and Chief Executive Officer
Dated: March 23, 2005
Exhibit 32.2
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 Annual Report of Tower Bancorp, Inc. (the
Corporation) on Form 10-K for the period ending December 31, 2004 as filed with
the Securities and Exchange Commission on the date therein specified (the
"Report"), I, Franklin T. Klink, III, Chief Financial Officer of the
Corporation, 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
Corporation as of and for the period covered by the report.
/s/ Franklin T. Klink, III
Franklin T. Klink, III
Chief Financial Officer
Dated: March 23, 2005