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 June 30, 2000
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.
1,763,076 shares of common stock
Page 1 of 13 pages
TOWER BANCORP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - June 30, 2000
and December 31, 1999 3
Condensed consolidated statements of income - three months
ended June 30, 2000 and 1999 4
Condensed consolidated statements of comprehensive income -
three months ended June 30, 2000 and 1999 5
Condensed consolidated statements of income - six months
ended June 30, 2000 and 1999 6
Condensed consolidated statements of comprehensive income -
six months ended June 30, 2000 and 1999 7
Condensed consolidated statements of cash flows - six
months ended June 30, 2000 and 1999 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 12
Signatures 13
Exhibits
Page 2 of 13 page
PART I - FINANCIAL INFORMATION
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999 *
ASSETS (Unaudited) (Audited)
(000 Omitted)
Cash and due from banks $ 5,406 $ 5,062
Interest bearing balances with banks 6,108 6,215
Investment securities available for sale 55,351 53,067
Restricted bank stock 2,953 2,779
Loans 138,415 131,760
Less: reserve for possible loan losses ( 1,631) ( 1,719)
Bank premises, equipment, furniture
and fixtures 3,549 3,213
Accrued interest receivable 1,271 1,137
Deferred income taxes 1,354 1,094
Cash surrender value of life insurance 2,937 2,895
Other assets 1,329 1,371
Total assets $ 217,042 $ 206,874
LIABILITIES AND CAPITAL
Deposits in domestic offices:
Demand $ 17,023 $ 13,746
Savings 82,394 81,678
Time 68,097 64,300
Liabilities for borrowed money 24,170 23,025
Accrued interest payable 433 385
Other liabilities 1,617 1,604
Total liabilities 193,734 184,738
EQUITY CAPITAL
Capital stock, common, authorized 5,000,000
shares; 1,780,100 shares issued - 2000
1,780,100 shares issued - 1999 2,225 2,225
Additional paid-in capital 6,706 6,707
Retained earnings 15,873 14,461
Accumulated other comprehensive income ( 976) ( 725)
Less: cost of treasury stock ( 520) ( 532)
Total equity capital 23,308 22,136
Total liabilities and
capital $ 217,042 $ 206,874
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
Page 3 of 13 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest Income
Interest & fees on loans $ 2,938 $ 2,558
Interest on investment securities
available for sale 788 687
Interest on federal funds sold 2 42
Interest on deposits with banks 96 95
Total interest & dividend income 3,824 3,382
Interest Expense
Interest on deposits 1,404 1,273
Interest on federal funds purchased and
Securities sold under repo agreements 0 0
Interest on borrowed money 386 304
Total interest expense 1,790 1,577
Net interest income 2,034 1,805
Provision for loan losses 0 0
Net interest income after provision
for loan losses 2,034 1,805
Other Income
Trust Department income 142 99
Service charges on deposit accounts 117 95
Other service charges 25 18
Other operating income 308 69
Investment securities gains (losses) 77 550
Total other income 669 831
Other Expense
Salaries, wages and other benefits 758 740
Occupancy expense of bank premises 75 74
Furniture and fixture expense 134 114
Other operating expenses 581 709
Total other expenses 1,548 1,637
Income before taxes 1,155 999
Applicable income taxes 282 301
Net income $ 873 $ 698
Common share date:
Net income per share $ .50 $ .40
Weighted average number of shares
outstanding 1,762,937 1,763,494
The accompanying notes are an integral part of these condensed
financial statements.
Page 4 of 13 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Net income $ 873 $ 698
Other comprehensive income:
Unrealized holding gains (losses) 160 ( 1,821)
reclassification adjustment for gains
Realized in net income ( 77) 550
83 ( 1,271)
Tax effect ( 29) 432
Other comprehensive income 54 ( 839)
Comprehensive income $ 927 ($ 141)
The accompanying notes are an integral part of these condensed
financial statements.
Page 5 of 13 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest Income
Interest & fees on loans $ 5,761 $ 5,092
Interest on investment securities
available for sale 1,559 1,349
Interest on federal funds sold 2 42
Interest on deposits with banks 201 186
Total interest & dividend income 7,523 6,669
Interest Expense
Interest on deposits 2,757 2,511
Interest on federal funds purchased and
Securities sold under repo agreements 0 9
Interest on borrowed money 736 497
Total interest expense 3,493 3,017
Net interest income 4,030 3,652
Provision for loan losses 0 0
Net interest income after provision
for loan losses 4,030 3,652
Other Income
Trust Department income 348 255
Service charges on deposit accounts 224 172
Other service charges 47 35
Other operating income 372 93
Investment securities gains (losses) 445 837
Total other income 1,436 1,392
Other Expense
Salaries, wages and other benefits 1,521 1,445
Occupancy expense of bank premises 160 157
Furniture and fixture expense 264 226
Other operating expenses 1,206 1,236
Total other expenses 3,151 3,064
Income before taxes 2,315 1,980
Applicable income taxes 585 595
Net income $ 1,730 $ 1,385
Common share date:
Net income per share $ .98 $ .79
Weighted average number of shares
outstanding 1,762,791 1,764,230
The accompanying notes are an integral part of these condensed
financial statements.
Page 6 of 13 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Net income $ 1,730 $ 1,385
Other comprehensive income:
Unrealized holding gains (losses) ( 830) ( 2,543)
reclassification adjustment for gains
Realized in net income 445 837
( 385) ( 1,706)
Tax effect 134 580
Other comprehensive income ( 251) ( 1,126)
Comprehensive income $ 1,479 $ 259
The accompanying notes are an integral part of these condensed
financial statements.
Page 7 of 13 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Cash flows from operating activities:
Net income $ 1,730 $ 1,385
Adjustments to reconcile net income to net
cash:
Depreciation and amortization 212 180
Provision for loan losses 0 0
(Gain) on sale of investment securities ( 445) ( 837)
Provision for deferred taxes ( 126) ( 108)
(Increase) in other assets 0 ( 1,095)
(Increase) in interest receivable ( 134) ( 70)
Increase (decrease) in interest payable 48 ( 36)
Increase (decrease) in other liabilities 13 62
Net cash provided (used) by operating activities 1,298 ( 519)
Cash flows from investing activities:
Loans (net) ( 6,743) ( 824)
Purchases of bank premises, equipment,
furniture and fixtures ( 548) ( 293)
Interest bearing balances with banks 107 661
Purchases of available for sale securities ( 7,568) ( 9,442)
Maturities/sales of available for sale
securities 5,170 1,472
Purchase of cash surrender value -
officers' life insurance 0 ( 2,895)
Sales of other real estate 0 121
Net cash (used) by investing activities ( 9,582) ( 11,200)
Cash flows from financing activities:
Net increase in deposits 7,790 13,875
Net change in federal funds 0 ( 2,366)
Debt (net) 1,145 ( 413)
Cash dividends paid ( 318) ( 265)
Proceeds from sale of capital stock 11 0
Net cash provided by financing activities 8,628 10,831
Net increase in cash and cash equivalents 344 ( 888)
Cash and cash equivalents at beginning of year 5,062 5,114
Cash and cash equivalents at end of quarter $ 5,406 $ 4,226
The accompanying notes are an integral part of these condensed
financial statements.
Page 8 of 13 pages
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three and six month periods ended June 30, 2000 and 1999
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 June 30, 2000 and the
results of its operations for the three and six month periods
ended June 30, 2000 and 1999. Certain reclassifications have
been made to the 1999 historical financial statements to
conform to the 2000 presentation.
The results of operations for the six month period ended
June 30, 1999 and 1998 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.
Page 9 of 13 pages
TOWER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the first six months of 2000 was $ 1,730,000
compared to $ 1,385,000 for the first half of 1999. Net income on a
per share basis for 2000 was $ .98, up $ .19 from the $ .79 realized
during the first six months of 1999.
Total interest income for the first six months of 2000 was
$ 7,523,000 compared to $ 6,669,000 for the first six months of
1999. Increases occurred primarily in loan income resulting from a
combination of volume and rate increases. Average rates on loans
increased approximately fourteen basis points over those at the end
of the first half of 1999 as loan rates have steadily risen during
most of 1999. Average loan balances at June 30, 2000 have
increased 9.7% over those at June 30, 1999. Increases were
primarily in mortgage and commercial loans, which increased 13.1%
and 16.0%, respectively since June 30, 1999. Earnings on
investments for the first half increased 11.7% over totals for the
corresponding period in 1999. Increases were attributable
primarily to volume increases as average rates earned remained
relatively constant with 1999 rates.
Total interest expense was $ 3,493,000 for the first half of
2000, an increase of $ 476,000 over the $ 3,017,000 reported for
the first half of 1999. $ 239,000 of the increase in interest
expense was attributable to increases in liabilities for borrowed
money. In an effort to manage net interest spreads, management is
using available borrowing arrangements as a supplemental source of
funds to maintain liquidity goals. Increases in average total
deposits has been 9.2% since June 30, 1999. Most of this growth
has occurred in the transaction and savings accounts with some
modest growth in certificates of deposit. Average rates on
deposits have remained consistent with prior year amounts. This
coupled with the fact that deposit growth has been concentrated in
the deposit areas that represent the lowest cost of funds to the
bank, has allowed the bank to maintain its net interest margin.
Management intends to continue to competitively price its deposits
while maintaining desired net interest spreads.
The bank has not made a provision for loan losses, which is
consistent with the first half of 1999. Net charge-offs were
$ 88,000 during the first half of 2000 compared to $ 105,000 during
the first half of 1999, 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.
As a result, nonaccrual and classified loans continue to decrease.
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 uncertainities 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.
Page 10 of 13
Noninterest income was $ 1,436,000 for the first half of
2000 representing a 3.2% increase over the first half of 1999.
Increases were primarily in services charges on deposit accounts
and Trust Department income. Gains from the sales of investments
were down by $ 392,000 at June 30, 2000 compared to 1999 due to
decreases in sales activities and decreases in market values during
2000. Other income through June 30, 2000 was $ 279,000 above the
total reported through June 30, 1999. This was due to a one time
gain of $ 236,000 on the disposition of insurance stock received as
part of the demutalization of John Hancock Life.
Noninterest expenses were $ 3,151,000 for the first half of
2000 compared to $ 3,064,000 for 1999. 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 25.2% and 30.1% for
the first six months of 2000 and 1999, 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, which have
increased 28.9% from June 30, 1999 to June 30, 2000.
Total assets were $ 217,042,000 at June 30, 2000 compared to
$ 198,546,000 at June 30, 1999. This represents a growth rate of
approximately 9.3%. Internal capital generation has been the
primary method utilized to increase capital. Total stockholders'
equity was $ 23,308,000 at June 30, 2000, representing 10.7% of
total assets compared to $ 22,482,000 at June 30, 1999, which
represented 11.3% of total assets. The bank has been able to
sustain its equity ratio comparable to prior year levels after
paying a special dividend of $ .50 per share in the latter part of
1999 and increasing its regular dividend for 1999 by 9%. Risk-
based capital ratios continue to exceed regulatory minimums.
Page 11 of 13
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
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
27 Financial Data Schedule
99 Report of Independent
Accountant's on Interim Financial
Statements
(b) Reports on Form 8-K:
None
Page 12 of 13 pages
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
and Principal Financial
Officer)
Date: August 9, 2000
/s/Donald F. Chlebowski, Jr.
Donald F. Chlebowski, Jr.,
Treasurer
(Principal Accounting Officer)
Date: August 9, 2000
Page 13 of 13 pages
6-MOS
DEC-31-2000
JUN-30-2000
5,406
6,108
0
0
58,304
0
0
138,415
1,631
217,042
167,514
3,315
2,050
21,543
0
0
2,225
21,083
217,042
5,761
1,762
0
7,523
2,757
736
4,030
0
445
3,151
2,315
1,730
0
0
1,730
.98
.98
3.91
393
744
0
0
1,719
96
8
1,631
1,631
0
1,219
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 June 30, 2000 and the
related consolidated statements of income for the three and six month
periods ended June 30, 2000 and 1999 and consolidated statements of
comprehensive income for the three and six month periods ended
June 30, 2000 and 1999 and consolidated statements of cash flows for
the six months ended June 30, 2000 and 1999. 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
August 9, 2000
