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, 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.
1,762,826 shares of common stock
Page 1 of 11 pages
TOWER BANCORP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - March 31, 2000
and December 31, 1999 3
Condensed consolidated statements of income - three months
ended March 31, 2000 and 1999 4
Condensed consolidated statements of comprehensive income -
three months ended March 31, 2000 and 1999 5
Condensed consolidated statements of cash flows - three
months ended March 31, 2000 and 1999 6
Notes to condensed consolidated financial statements 7
Management's discussion and analysis of financial
condition and results of operations 8 and 9
PART II - OTHER INFORMATION 10
Item 6 - Index to Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibits
Page 2 of 11 page
PART I - FINANCIAL INFORMATION
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999 *
ASSETS (Unaudited) (Audited)
(000 Omitted)
Cash and due from banks $ 5,229 $ 5,062
Interest bearing balances with banks 6,698 6,215
Investment securities available for sale 54,463 53,067
Restricted bank stock 2,904 2,779
Loans 134,724 131,760
Less: reserve for possible loan losses ( 1,678) ( 1,719)
Bank premises, equipment, furniture
and fixtures 3,567 3,213
Accrued interest receivable 540 1,137
Deferred income taxes 1,344 1,094
Cash surrender value of life insurance 2,931 2,895
Other assets 2,093 1,371
Total assets $ 212,815 $ 206,874
LIABILITIES AND CAPITAL
Deposits in domestic offices:
Demand $ 13,992 $ 13,746
Savings 84,981 81,678
Time 64,133 64,300
Liabilities for borrowed money 24,858 23,025
Accrued interest payable 402 385
Other liabilities 1,756 1,604
Total liabilities 190,122 184,738
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 6,707 6,707
Retained earnings 15,317 14,461
Accumulated other comprehensive income ( 1,030) ( 725)
Less: cost of treasury stock ( 526) ( 532)
Total equity capital 22,693 22,136
Total liabilities and
capital $ 212,815 $ 206,874
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
Page 3 of 11 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest Income
Interest & fees on loans $ 2,823 $ 2,534
Interest on investment securities
available for sale 771 663
Interest on federal funds sold 0 1
Interest on deposits with banks 105 90
Total interest & dividend income 3,699 3,288
Interest Expense
Interest on deposits 1,353 1,239
Interest on federal funds purchased and
Securities sold under repo agreements 0 9
Interest on borrowed money 350 193
Total interest expense 1,703 1,441
Net interest income 1,996 1,847
Provision for loan losses 0 0
Net interest income after provision
for loan losses 1,996 1,847
Other Income
Trust Department income 206 157
Service charges on deposit accounts 107 77
Other service charges 22 17
Other operating income 64 23
Investment securities gains (losses) 368 287
Total other income 767 561
Other Expense
Salaries, wages and other benefits 763 704
Occupancy expense of bank premises 85 83
Furniture and fixture expense 130 113
Other operating expenses 625 527
Total other expenses 1,603 1,427
Income before taxes 1,160 981
Applicable income taxes 303 295
Net income $ 857 $ 686
Common share date:
Net income per share $ .49 $ .39
Weighted average number of shares
outstanding 1,762,646 1,763,480
The accompanying notes are an integral part of these condensed
financial statements.
Page 4 of 11 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Net income $ 857 $ 686
Other comprehensive income:
Unrealized holding gains (losses) ( 836) ( 722)
reclassification adjustment for gains
Realized in net income 368 287
( 468) ( 435)
Tax effect 163 148
Other comprehensive income ( 305) ( 287)
Comprehensive income $ 552 $ 399
The accompanying notes are an integral part of these condensed
financial statements.
Page 5 of 11 pages
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Cash flows from operating activities:
Net income $ 857 $ 686
Adjustments to reconcile net income to net
cash:
Depreciation and amortization 105 90
Provision for loan losses 0 0
(Gain) on sale of investment securities ( 368) ( 287)
Provision for deferred taxes ( 88) ( 546)
(Increase) in other assets ( 758) ( 340)
(Increase) in interest receivable 597 ( 47)
Increase in interest payable 17 ( 6)
(Decrease) in other liabilities 152 453
Net cash provided by operating activities 514 3
Cash flows from investing activities:
Loans (net) ( 3,005) 475
Purchases of bank premises, equipment,
furniture and fixtures ( 459) ( 338)
Interest bearing balances with banks ( 483) 2
Purchases of available for sale securities ( 4,294) ( 2,811)
Maturities/sales of available for sale
Securities 2,673 685
Net cash (used) by investing activities ( 5,568) ( 1,987)
Cash flows from financing activities:
Net increase in deposits 3,382 6,089
Net change in federal funds 0 ( 2,366)
Debt (net) 1,833 ( 440)
Proceeds from sale of capital stock 6 0
Net cash provided by financing activities 5,221 3,283
Net increase in cash and cash equivalents 167 1,299
Cash and cash equivalents at beginning of year 5,062 3,442
Cash and cash equivalents at end of quarter $ 5,229 $ 4,741
The accompanying notes are an integral part of these condensed
financial statements.
Page 6 of 11 pages
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three months ended March 31, 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 March 31, 2000 and the
results of its operations for the three month period ended
March 31, 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 three month period ended
March 31, 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 7 of 11 pages
TOWER BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the first quarter of 2000 was $ 857,000
compared to $ 686,000 for the first quarter of 1999. Net income on
a per share basis for 2000 was $ .49, up $ .10 from the $ .39
realized during the first three months of 1999.
Total interest income for the first three months of 2000 was
$ 3,699,000 compared to $ 3,288,000 for the first three 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 quarter of 1999 as loan rates have steadily risen
during most of 1999. Average loan balances at March 31, 2000 have
increased 9.5% over those at March 31, 1999. Increases were
primarily in mortgage and commercial loans, which increased 12% and
19.5%, respectively since March 31, 1999. Earnings on investments
for the first quarter increased 16% 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 $ 1,703,000 for the first quarter
of 2000, an increase of $ 262,000 over the $ 1,441,000 reported for
the first quarter of 1999. Increases in average total deposits has
been 11% since March 31, 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 quarter of 1999. Net charge-offs were
$ 41,000 during the first quarter of 2000 compared to $ 27,000
during the first quarter 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 8 of 11
Noninterest income was $ 767,000 for the first quarter of
2000 representing a 36.7% increase over the first quarter of 1999.
Increases were primarily in services charges on deposit accounts,
securities gains and Trust Department income.
Noninterest expenses were $ 1,603,000 for the first quarter
of 2000 compared to $ 1,427,000 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 26.1% and 30.1% for
the first three 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 35.7% from March 31, 1999 to March 31, 2000.
Total assets were $ 212,815,000 at March 31, 2000 compared
to $ 206,874,000 at March 31, 1999. This represents a growth rate
of approximately 3%. Internal capital generation has been the
primary method utilized to increase capital. Total stockholders'
equity was $ 22,693,000 at March 31, 2000, representing 10.7% of
total assets compared to $ 22,136,000 at March 31, 1999, which also
represented 10.7% 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 9 of 11
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 10 of 11 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: May 10, 2000
/s/Donald F. Chlebowski, Jr.
Donald F. Chlebowski, Jr.,
Treasurer
(Principal Accounting Officer)
Date: May 10, 2000
Page 11 of 11 pages
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, 2000 and the
related consolidated statements of income for the three months ended
March 31, 2000 and 1999 and consolidated statements of comprehensive
income for the three months ended March 31, 2000 and 1999 and
consolidated statements of cash flows for the three months ended
March 31, 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
May 9, 2000
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<COMMON> 2,225
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