FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 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.
1,761,561 shares of common stock
Page 1 of 13 pages
TOWER BANCORP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets - September 30, 2000
and December 31, 1999 3
Condensed consolidated statements of income - three months
ended September 30, 2000 and 1999 4
Condensed consolidated statements of income - nine months
ended September 30, 2000 and 1999 5
Condensed consolidated statements of comprehensive income -
nine months ended June 30, 2000 and 1999 6
Condensed consolidated statements of cash flows - nine
months ended September 30, 2000 and 1999 7
Notes to condensed consolidated financial statements 8
Management's discussion and analysis of financial
condition and results of operations 9 and 10
PART II - OTHER INFORMATION 11
Item 6 - Index to Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibits
Page 2 of 13 pages
PART I - FINANCIAL INFORMATION
TOWER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999 *
ASSETS (Unaudited) (Audited)
(000 Omitted)
Cash and due from banks $ 4,627 $ 5,062
Interest bearing balances with banks 5,517 6,215
Investment securities available for sale 56,389 53,067
Restricted bank stock 3,095 2,779
Loans 145,111 131,760
Less: reserve for possible loan losses ( 1,601) ( 1,719)
Bank premises, equipment, furniture
and fixtures 3,597 3,213
Accrued interest receivable 1,352 1,137
Deferred income taxes 1,018 1,094
Cash surrender value of life insurance 3,084 2,895
Other assets 1,234 1,371
Total assets $ 223,421 $ 206,874
LIABILITIES AND CAPITAL
Deposits in domestic offices:
Demand $ 13,506 $ 13,746
Savings 81,915 81,678
Time 70,738 64,300
Liabilities for borrowed money 30,763 23,025
Accrued interest payable 488 385
Other liabilities 1,471 1,604
Total liabilities 198,881 184,738
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 6,705 6,707
Retained earnings 16,739 14,461
Accumulated other comprehensive income ( 577) ( 725)
Less: cost of treasury stock ( 552) ( 532)
Total equity capital 24,540 22,136
Total liabilities and
capital $ 223,421 $ 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 SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest Income
Interest & fees on loans $ 3,122 $ 2,823
Interest on investment securities
available for sale 812 554
Interest on federal funds sold 0 39
Interest on deposits with banks 131 54
Total interest & dividend income 4,035 3,470
Interest Expense
Interest on deposits 1,545 1,297
Interest on federal funds purchased and
Securities sold under repo agreements 0 3
Interest on borrowed money 389 249
Total interest expense 1,934 1,549
Net interest income 2,101 1,921
Provision for loan losses 0 0
Net interest income after provision
for loan losses 2,101 1,921
Other Income
Trust Department income 203 152
Service charges on deposit accounts 125 106
Other service charges 27 33
Other operating income 63 95
Investment securities gains (losses) 280 431
Total other income 698 817
Other Expense
Salaries, wages and other benefits 753 740
Occupancy expense of bank premises 82 65
Furniture and fixture expense 132 112
Other operating expenses 669 593
Total other expenses 1,636 1,510
Income before taxes 1,163 1,228
Applicable income taxes 297 368
Net income $ 866 $ 860
Common share date:
Net income per share $ .49 $ .49
Weighted average number of shares
outstanding 1,762,311 1,762,306
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 INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Interest Income
Interest & fees on loans $ 8,883 $ 7,915
Interest on investment securities
available for sale 2,371 1,902
Interest on federal funds sold 0 82
Interest on deposits with banks 304 240
Total interest & dividend income 11,558 10,139
Interest Expense
Interest on deposits 4,302 3,809
Interest on federal funds purchased and
Securities sold under repo agreements 0 12
Interest on borrowed money 1,125 745
Total interest expense 5,427 4,566
Net interest income 6,131 5,573
Provision for loan losses 0 0
Net interest income after provision
for loan losses 6,131 5,573
Other Income
Trust Department income 551 408
Service charges on deposit accounts 349 278
Other service charges 74 68
Other operating income 435 187
Investment securities gains (losses) 725 1,268
Total other income 2,134 2,209
Other Expense
Salaries, wages and other benefits 2,274 2,185
Occupancy expense of bank premises 242 222
Furniture and fixture expense 396 339
Other operating expenses 1,875 1,829
Total other expenses 4,787 4,575
Income before taxes 3,478 3,207
Applicable income taxes 882 963
Net income $ 2,596 $ 2,244
Common share date:
Net income per share $ 1.47 $ 1.27
Weighted average number of shares
outstanding 1,762,630 1,763,469
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
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Net income $ 2,596 $ 2,244
Other comprehensive income:
Unrealized holding gains (losses) 944 ( 1,672)
reclassification adjustment for gains
Realized in net income 725 1,268
219 ( 404)
Tax effect ( 71) 137
Other comprehensive income 148 ( 267)
Comprehensive income $ 2,744 $ 1,977
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
Nine Months Ended September 30, 2000 and 1999
(UNAUDITED)
2000 1999
(000 Omitted)
Cash flows from operating activities:
Net income $ 2,596 $ 2,244
Adjustments to reconcile net income to net
cash:
Depreciation and amortization 310 339
Provision for loan losses 0 0
(Gain) on sale of investment securities ( 725) ( 1,268)
Provision for deferred taxes 4 ( 1,329)
(Increase) decrease in other assets 137 266
(Increase) decrease in interest receivable ( 215) ( 139)
Increase (decrease) in interest payable 103 ( 25)
Increase (decrease) in other liabilities ( 133) 676
Net cash provided (used) by operating activities 2,077 764
Cash flows from investing activities:
Loans (net) ( 13,469) ( 7,734)
Purchases of bank premises, equipment,
furniture and fixtures ( 694) ( 251)
Interest bearing balances with banks 698 375
Purchases of available for sale securities ( 9,551) ( 13,810)
Maturities/sales of available for sale
securities 6,859 5,325
Purchase of cash surrender value -
officers' life insurance ( 189) ( 2,895)
Sales of other real estate 0 121
Net cash (used) by investing activities ( 16,346) ( 18,869)
Cash flows from financing activities:
Net increase in deposits 6,435 16,097
Net change in federal funds 0 ( 2,366)
Debt (net) 7,738 3,846
Cash dividends paid ( 317) ( 263)
Purchase treasury stock ( 44) 0
Proceeds from sale of capital stock 22 0
Net cash provided by financing activities 13,834 17,314
Net increase (decrease) in cash and cash
equivalents ( 435) ( 791)
Cash and cash equivalents at beginning of year 5,062 5,114
Cash and cash equivalents at end of quarter $ 4,627 $ 4,323
The accompanying notes are an integral part of these condensed
financial statements.
Page 8 of 13 pages
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
Review of Interim Financial Statements
The condensed consolidated financial statements as of and for
the three and nine month periods ended September 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 September 30, 2000 and
the results of its operations for the three and nine month
periods ended September 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 nine month period ended
September 30, 2000 and 1999 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 nine months of 2000 was $ 2,596,000
compared to $ 2,244,000 for 1999. Net income on a per share basis
for 2000 was $ 1.47, up $ .20 from the $ 1.27 realized during the
first nine months of 1999.
Total interest income for the first nine months of 2000 was
$ 11,558,000 compared to $ 10,139,000 for the first nine months of
1999. Increases occurred primarily in loan income resulting from a
combination of volume and rate increases. Average rates on loans
increased approximately thirty-five basis points over those at the
end of September 1999 as loan rates have steadily risen during most
of 2000. Average loan balances at September 30, 2000 have
increased 10.2% over those at September 30, 1999. Increases were
primarily in mortgage and commercial loans, which increased 14.0%
and 15.0%, respectively since September 30, 1999. Earnings on
investments through September 30, 2000 increased 24.7% 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 $ 5,427,000 for the first nine
months of 2000, an increase of $ 861,000 over the $ 4,566,000
reported for 1999. $ 380,000 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 6.4% since September 30, 1999. Most of this growth has
occurred in the interest bearing transaction accounts and
certificates of deposit. Average rates on deposits have increased
twenty-two basis points over prior year amounts. This has been
matched with corresponding increases in average rates on loans, as
mentioned earlier, and 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 nine months of 1999. Net charge-offs
were $ 118,000 during the first nine months of 2000 compared to
$ 88,000 during the first nine months 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 $ 2,134,000 for the first nine months
of 2000 representing a 3.5% increase over the first nine months of
1999. Increases were primarily in service charges on deposit
accounts and Trust Department income. Gains from the sales of
investments were down by $ 543,000 at September 30, 2000 compared
to 1999 due to decreases in sales activities and decreases in
market values during 2000. Other income through September 30, 2000
was $ 248,000 above the total reported through September 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 $ 4,787,000 for the first nine
months of 2000 compared to $ 4,575,000 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 25.4% and 30.0% for
the first nine 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 27.7% from September 30, 1999 to September 30,
2000.
Total assets were $ 223,421,000 at September 30, 2000
compared to $ 205,216,000 at September 30, 1999. This represents a
growth rate of approximately 8.9%. Internal capital generation has
been the primary method utilized to increase capital. Total
stockholders' equity was $ 24,540,000 at September 30, 2000,
representing 10.8% 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: November 9, 2000
/s/Donald F. Chlebowski, Jr.
Donald F. Chlebowski, Jr.,
Treasurer
(Principal Accounting Officer)
Date: November 9, 2000
Page 13 of 13 pages
9-MOS
DEC-31-2000
SEPT-30-2000
4,627
5,517
0
0
59,482
0
0
145,111
1,601
223,421
166,159
3,265
1,959
27,498
2,225
0
0
22,315
223,421
8,883
2,371
304
11,558
4,302
1,125
6,131
0
725
4,787
3,478
3,478
0
0
2,596
1.47
1.47
3.84
278
517
0
0
1,719
132
14
1,601
1,601
0
1,100
EXHIBIT 99
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors
Tower Bancorp, Inc.
Greencastle, Pennsylvania
We have reviewed the accompanying consolidated balance sheet
of Tower Bancorp, Inc. and Subsidiary as of September 30, 2000 and the
related consolidated statements of income for the three and nine month
periods ended September 30, 2000 and 1999 and consolidated statements
of comprehensive income for the nine months ended September 30, 2000
and 1999 and consolidated statements of cash flows for the nine months
ended September 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
November 9, 2000
