<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___.
Commission file number 000-22469
LAFAYETTE BANCORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1605492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
133 North 4th Street, Lafayette, Indiana 47902
(Address of principal executive offices) (Zip Code)
(765) 423-7100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1994 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 13, 1998
Common Stock, without par value 2,164,195 shares
<PAGE>2
LAFAYETTE BANCORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- June 30, 1998 and December 31, 1997
Consolidated Statements of Income -- Three Months Ended June 30, 1998 and
1997
Consolidated Statements of Income -- Six Months Ended June 30, 1998 and
1997
Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1998 and
1997
Notes to Consolidated Financial Statements -- June 30, 1998
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
SIGNATURES
<PAGE>3
ITEM 1.
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
June 30, December 31,
1998 1997
ASSETS
Cash and due from banks $ 23,230 $ 16,901
Federal funds sold 11,150 14,000
-------------- -------------
Total cash and cash equivalents 34,380 30,901
Securities available-for-sale (at market) 71,953 66,577
Securities held-to-maturity, at cost (market value $4,633
and $5,378) 4,510 5,268
Loans held for sale 7,909 7,640
Loans 322,837 312,227
Less: Allowance for loan losses (3,741) (3,464)
-------------- -------------
Loans, net 319,096 308,763
Federal Home Loan Bank stock (at cost) 1,539 1,242
Premises, furniture and equipment, net 6,492 6,183
Accrued interest receivable and other assets 11,791 12,455
-------------- -------------
Total assets $ 457,670 $ 439,029
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 44,798 $ 42,752
Interest-bearing demand and savings deposits 150,164 144,028
Interest-bearing time deposits 175,049 168,415
-------------- -------------
Total deposits 370,011 355,195
Short-term borrowings 19,243 20,372
Long-term debt 22,111 19,886
Accrued interest payable and other liabilities 5,612 5,107
-------------- -------------
Total liabilities 416,977 400,560
Shareholders' equity
Common stock, no par value: 5,000,000 shares authorized;
2,176,395 and 2,173,570 shares issued; and 2,164,195
and 2,161,370 shares outstanding 2,176 2,174
Additional paid-in capital 24,622 24,555
Retained earnings 14,030 11,927
Unrealized gain /(loss) on securities available-for-sale,
net of tax (($25) and ($59)) (38) (90)
Less: Treasury stock, at cost (12,200 shares) (97) (97)
-------------- -------------
Total shareholders' equity 40,693 38,469
-------------- -------------
Total liabilities and shareholders' equity $ 457,670 $ 439,029
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>4
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended June 30, 1998 and 1997
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Interest income
Loans $ 7,278 $ 6,449
Taxable securities 812 1,040
Tax exempt securities 220 192
Other 180 124
-------------- -------------
Total interest income 8,490 7,805
Interest expense
Deposits 3,690 3,474
Short-term borrowings 169 148
Long-term debt 318 144
-------------- -------------
Total interest expense 4,177 3,766
-------------- -------------
Net interest income 4,313 4,039
Provision for loan losses 180 90
-------------- -------------
Net interest income after provision for loan losses 4,133 3,949
Noninterest income
Income from fiduciary activities 226 206
Service charges on deposit accounts 333 306
Net realized gain on securities - 2
Net gain on loan sales 269 150
Other service charges and fees 255 213
Other operating income 129 135
-------------- -------------
Total noninterest income 1,212 1,012
-------------- -------------
Noninterest expense
Salaries and employee benefits 1,957 1,855
Occupancy expenses, net 217 212
Equipment expenses 252 234
Other operating expenses 895 810
-------------- -------------
Total noninterest expense 3,321 3,111
-------------- -------------
Income before income taxes 2,024 1,850
Income taxes 683 650
-------------- -------------
Net income 1,341 1,200
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 78 392
-------------- -------------
Comprehensive income $ 1,419 $ 1,592
============== =============
Basic earnings per share $ .62 $ .55
============== =============
Diluted earnings per share $ .61 $ .55
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>5
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the six months ended June 30, 1997 and 1996
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Interest income
Loans $ 14,349 $ 12,474
Taxable securities 1,632 2,100
Tax exempt securities 411 430
Other 350 293
-------------- -------------
Total interest income 16,742 15,297
Interest expense
Deposits 7,259 6,898
Short-term borrowings 332 330
Long-term debt 615 284
-------------- -------------
Total interest expense 8,206 7,512
-------------- -------------
Net interest income 8,536 7,785
Provision for loan losses 360 150
-------------- -------------
Net interest income after provision for loan losses 8,176 7,635
Noninterest income
Income from fiduciary activities 452 410
Service charges on deposit accounts 658 594
Net realized gain on securities - 31
Net gain on loan sales 494 281
Other service charges and fees 469 382
Other operating income 360 249
-------------- -------------
Total noninterest income 2,433 1,947
-------------- -------------
Noninterest expense
Salaries and employee benefits 3,914 3,560
Occupancy expenses, net 432 431
Equipment expenses 506 462
Other operating expenses 1,719 1,590
-------------- -------------
Total noninterest expense 6,571 6,043
-------------- -------------
Income before income taxes 4,038 3,539
Income taxes 1,372 1,219
-------------- -------------
Net income 2,666 2,320
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 52 (71)
-------------- --------------
Comprehensive income $ 2,718 $ 2,249
============== ==============
Basic earnings per share $ 1.23 $ 1.07
============== ==============
Diluted earnings per share $ 1.21 $ 1.07
============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>6
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,666 $ 2,320
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 316 319
Premium amortization, net of discount accretion 146 167
Provision for loan losses 360 150
Net realized gain on securities - (31)
Net (gain) loss on :
Other real estate (43) 22
Change in assets and liabilities:
Loans originated for sale (36,375) (21,035)
Loans sold 36,106 21,350
Accrued interest receivable and other assets 378 235
Accrued interest payable and other liabilities 505 284
----------- -----------
Net cash from operating activities 4,059 3,781
Cash flows from investing activities
Purchase of securities available-for-sale (27,845) (6,217)
Proceeds from sales of securities available-for-sale 3,286 10,437
Proceeds from maturities of securities available-for-sale 19,174 9,320
Purchase of securities held-to-maturity (1,107) (524)
Proceeds from maturities of securities held-to-maturity 1,858 2,036
Loans made to customers, net of payments collected (10,693) (23,220)
Purchase of FHLB stock (297) (126)
Property and equipment expenditures (625) (130)
Proceeds from sales of other real estate 251 126
----------- -----------
Net cash from investing activities (15,998) (8,298)
Cash flows from financing activities
Net change in deposit accounts 14,816 5,822
Net change in short-term borrowings (1,129) (9,111)
Proceeds from long-term debt 2,800 5,000
Payments on long-term debt (575) (608)
Common stock issued 69 -
Dividends paid (563) (491)
------------ ------------
Net cash from financing activities 15,418 612
Net change in cash and cash equivalents 3,479 (3,905)
Cash and cash equivalents at beginning of year 30,901 29,380
----------- -----------
Cash and cash equivalents at end of period $ 34,380 $ 25,475
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 7,925 $ 7,344
Income taxes 1,277 988
Non-cash investing activity
Loans transferred to other real estate $ - $ -
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>7
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Dollar amounts in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The significant accounting policies followed by Lafayette Bancorporation (the
"Corporation") for interim financial reporting are consistent with the
accounting policies followed for annual financial reporting. The consolidated
interim financial statements have been prepared in accordance with Generally
Accepted Accounting Principles and in accordance with instructions to Form 10-Q
and may not include all information and footnotes normally disclosed for full
annual financial statements. All adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
reported have been included in the accompanying unaudited consolidated financial
statements and all such adjustments are of a normal recurring nature.
NOTE 2 - PER SHARE DATA
The following illustrates the computation of basic and diluted earnings per
share, and includes the weighted average number of shares used in calculating
earnings and dividends per share amounts for the periods presented. The weighted
average number of shares have been retroactively restated for stock dividends.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Basic earnings per share
Net income $ 2,666 $ 2,320
Weighted average shares outstanding 2,164,023 2,161,386
------------- -------------
Basic earnings per share $ 1.23 $ 1.07
============== ==============
Diluted earnings per share
Net income $ 2,666 $ 2,320
Weighted average shares outstanding 2,164,023 2,161,386
Stock Options 111,112 97,048
Assumed shares repurchased upon exercise (65,218) (87,962)
-------------- --------------
Diluted average shares outstanding 2,209,917 2,170,472
--------------- -------------
Diluted earnings per share $ 1.21 $ 1.07
=============== ==============
</TABLE>
<PAGE>8
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Dollar amounts in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Basic earnings per share
Net income $ 1,341 $ 1,200
Weighted average shares outstanding 2,164,195 2,161,386
------------- -------------
Basic earnings per share $ .62 $ .55
============= =============
Diluted earnings per share
Net income $ 1,341 $ 1,200
Weighted average shares outstanding 2,164,195 2,161,386
Stock Options 111,112 97,048
Assumed shares repurchased upon exercise (62,053) (83,589)
-------------- --------------
Diluted average shares outstanding 2,213,254 2,174,845
-------------- -------------
Diluted earnings per share $ .61 $ .55
============== =============
</TABLE>
NOTE 3 - SECURITIES
The amortized cost and estimated market values of securities are as follows at
June 30, 1998:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 19,944 $ 19,936
Obligations of states and political subdivisions 15,495 15,570
Corporate obligations 1,010 1,010
Mortgage-backed and other asset-backed securities 35,567 35,437
----------- -----------
$ 72,016 $ 71,953
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 4,510 $ 4,633
=========== ===========
</TABLE>
The amortized cost and estimated market values of securities are as follows at
December 31, 1997:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 21,946 $ 21,906
Obligations of states and political subdivisions 9,892 9,981
Corporate obligations 250 250
Mortgage-backed and other asset-backed securities 34,637 34,440
----------- -----------
$ 66,725 $ 66,577
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 5,268 $ 5,378
=========== ===========
</TABLE>
<PAGE>9
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Dollar amounts in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans are comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Commercial and agricultural loans $ 110,009 $ 112,586
Real estate construction loans 24,295 17,117
Residential real estate loans 137,893 127,574
Installment loans to ind 50,640 54,950
---------------- ---------------
Total loans $ 322,837 $ 312,227
================ ===============
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, January 1 $ 3,464 $ 3,198
Provision charged to operations 360 150
Loans charged off (190) (235)
Recoveries on loans previously charged off 107 81
------------- --------------
Balance, June 30 $ 3,741 $ 3,194
============= ==============
</TABLE>
<PAGE>10
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Repurchase agreements $ 16,869 $ 17,340
Treasury tax and loan open-end note 2,374 3,032
---------------- ---------------
Total short-term borrowings $ 19,243 $ 20,372
================ ===============
</TABLE>
<PAGE>11
ITEM 2.
LAFAYETTE BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Lafayette Bancorporation (the "Corporation") is a one-bank holding company
located in Lafayette, Indiana, and conducts business from fourteen offices in
Tippecanoe and White Counties, Indiana. The Corporation provides a wide range of
commercial and personal banking activities, including accepting deposits; making
commercial and consumer loans; originating mortgage loans; providing personal
and corporate trust services; providing investment advisory and brokerage
services; and providing auto, homeowners, and other insurance products.
RESULTS OF OPERATIONS
Net Income
The Corporation earned $1,341, or $.62 per share for the second quarter of 1998
compared to $1,200, or $.55 per share for the second quarter of 1997. Net income
increased $346, or 14.9% to $2,666 for the six month period ending June 30, 1998
compared to that same 1997 time period. Basic earnings per share were $1.23 and
$1.07 for the six month period ending June 30, 1998 and 1997, respectively. Net
interest income continues to be the most significant factor in the increased net
income, although increased contributions from certain noninterest income sources
such as realized gains on the sale of mortgage loans in the secondary market,
the Corporation's investment brokerage department, and ATM fee income enhanced
overall profits. A gain on the sale of an other real estate property recorded in
the first quarter of 1998 also augmented noninterest income. A higher loan loss
provision, along with increased salary and benefits expense and certain other
noninterest expenses partially offset the increases recognized in other 1998
income categories.
Return on average assets (ROA) was 1.21% and 1.14% for the six month periods
ending June 30, 1998 and 1997, respectively, while return on average equity
(ROE) was 13.45% and 13.11% for those same periods ending June 30, 1998 and
1997, respectively.
Net Interest Income
Net interest income is the most significant component of the Corporation's
earnings. Net interest income is the difference between interest and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed funds. The net interest margin is this difference
expressed as a percentage of average earning assets. Net interest income is
determined by several factors, including the volume of earning assets and
liabilities, the mix of earning assets and liabilities, and interest rates. For
the six months ended June 30, 1998 and 1997, net interest income was $8,536 and
$7,785, respectively. This represents a $751, or 9.6% increase over the prior
year. Net interest income for the second quarter of 1998 was $274, or 6.8%
higher than for that same three month period ending June 30, 1997. The increase
in net interest income during 1998 is primarily attributable to the higher loan
volume generated by the Corporation.
<PAGE>12
Total interest income for the six month period ending June 30, 1998 and 1997 was
$16,742 and $15,297, respectively. Total interest income for the second quarter
of 1998 was $685, or 8.8% greater than for that same quarter in 1997. Interest
and fees on loans increased $1,875, or 15.0%, to $14,349 for the first six
months of 1998, compared to $12,474 for the first six months of 1997. For the
second quarter of 1998, interest and fees on loans increased $829, or 12.9%
compared to the second quarter of 1997. Growth in the Corporation's loan
portfolio continued to account for the majority of the increase in total
interest income, as average loan balances were approximately $36,613, or 12.5%
higher in June 1998 compared to June 1997. Although outstanding loan totals
continue to increase, the Corporation has not experienced the growth it did
during the 1996 and 1997 years. Overall, second quarter average loan growth was
slightly less than that of the first quarter of 1998.
Total interest expense for the six month period ending June 30, 1998 and 1997
was $8,206 and $7,512, respectively. For the second quarter of 1998, total
interest expense increased $411, or 10.9%, compared to the same 1997 time
period. Average total interest-bearing liabilities and long-term debt increased
approximately $25,572, or 7.5% and $11,888, or 116.3%, receptively from June
1997 to June 1998. While growth in the interest-bearing deposit accounts have
contributed to increased overall interest expense, the average cost of these
funds between the two periods has remained relatively unchanged. Although the
average cost of long-term debt has declined between periods, overall interest
expense increased as a result of the increase in principal debt.
The following table summarizes the Corporation's net interest income (on a
tax-equivalent basis) for each of the periods presented. A marginal federal
income tax rate of 34% for each period was used.
<TABLE>
<CAPTION>
Six Months Change from
Ended June 30, Prior Period
1998 1997 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $16,996 $15,571 $1,425 9.2%
Interest expense 8,206 7,512 694 9.2%
------ ------ ------
Net interest income $ 8,790 $ 8,059 $ 731 9.1%
======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Change from
Ended June 30, Prior Period
1998 1997 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $8,625 $7,931 $694 8.8%
Interest expense 4,177 3,766 411 10.9%
----- ----- -----
Net interest income $4,448 $4,165 $ 283 6.8%
====== ====== ======
</TABLE>
Net interest income, on a tax equivalent basis, for the first six months of 1998
was $731, or 9.1% higher than for that same six month period ending June 30,
1997. For the second quarter of 1998, net interest income, on a tax equivalent
basis, was $283, or 6.8% higher than for the same 1997 time period. The net
interest margin, on a tax equivalent basis for the six months ending June 30,
1998 and 1997 was 4.31% and 4.28%, respectively. The ongoing growth in the loan
portfolio is primarily responsible for the increase recognized in net interest
income. The increase in interest expense, on the other hand, is primarily
attributed to the 7.5% growth in interest-bearing liabilities. Net interest
income for the second quarter increased at a slower pace than that of the first
quarter mainly due to lower earning asset yields and higher total
interest-bearing liability costs, predominately borrowed funds.
Provision for Loan Losses and Asset Quality
The provision for loan losses represents charges made to earnings to maintain an
adequate allowance for loan losses. The allowance is maintained at an amount
believed by management to be sufficient to absorb losses inherent in the credit
portfolio. Management conducts, on a quarterly basis, a detailed evaluation of
the adequacy of the allowance.
<PAGE>13
The consolidated provision for loan losses was $360 and $150 for the first six
months of 1998 and 1997, respectively. The provision for loan losses increased
$90 for the second quarter of 1998, compared to the same 1997 time period.
Although management believes the allowance is sufficient, an attempt is being
made to increase the allowance as a result of the significant loan growth
experienced over the last two years. The allowance for loan losses at June 30,
1998 was $3,741, or 1.16% of total loans compared to $3,464, or 1.11% of total
loans at December 31, 1997. Net charge-offs were $83 and $154 for the first six
months of 1998 and 1997, respectively. This $71, or 46.1% decrease is primarily
attributable to the decline in indirect lending charge-offs recorded by the
Corporation.
Nonperforming loans include nonaccrual loans, restructured loans, and loans
delinquent 90 days or more. Loans are classified as nonaccrual when management
believes that collection of interest is doubtful, typically when payments are
past due 90 days, unless the loans are well secured and in the process of
collection.
The following table indicates the composition of nonperforming loans:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Loans past due 90 days or more $ 812 $ 505
Nonaccrual loans 125 127
Restructured loans 240 350
---------------- ---------------
Total nonperforming loans $ 1,177 $ 982
================ ===============
</TABLE>
Nonperforming loan totals at December 31, 1997 were at their lowest level in the
last five years. Although total nonperforming loans increased $195, management
believes overall asset quality to be good. The $307 increase in loans past due
90 days or more is attributable to a $231 net increase in mortgage loans and a
$103 net increase in the installment loan portfolio, of which $71 related to the
indirect lending function. Nonaccrual loans were at their five year low at June
30, 1998, while restructured loan totals declined $110 from the $350 reported at
December 31, 1997.
Noninterest Income and Expense
Noninterest income totaled $2,433 for the first six months of 1998, compared to
$1,947 for that same period of 1997, an increase of $486, or 25.0%. Noninterest
income for the second quarter increased $200, or 19.8% to $1,212 compared to the
prior year.
Service charges on deposit accounts, which comprise the largest component of
noninterest income, increased for the first six months of 1998 and also for the
second quarter of 1998 when compared to the same 1997 time periods. The number
of accounts being assessed fees, along with an increase in the fee structure
which became effective November 1, 1997 account for the majority of this change.
Net gain on loans originated and sold in the secondary mortgage market were $494
and $281 for the first six months of 1998 and 1997 respectively, an increase of
$213, or 75.8%. For the second quarter of 1998, net gain on loan sales were
$269, an increase of $119, or 79.3% from the prior year. The continued strength
of the local economy, along with the low mortgage interest rate environment,
spurred not only an increase in new home sales, but also the volume of home
refinancings. These factors, in addition to an increase in the departmental
staffing level has led to an increase of $14,756, or 69.1% in loan fundings for
the six months ended June 30, 1998 compared to June 30, 1997. Loan fundings for
the second quarter of 1998 increased 20.9% to $19,758 compared to $16,348
recorded for the first quarter of the same year.
Other service charges and fees were $469 and $382 for the first six months of
1998 and 1997, respectively, and increase of $87, or 22.8%. For the second
quarter of 1998, other service charges and fees increased $42, or 19.7% compared
to the prior year. The majority of the increase is attributable to ATM surcharge
fees. The Corporation began surcharging non-bank customer ATM transactions in
May 1997.
<PAGE>14
Noninterest expense totaled $6,571 for the first six months of 1998, compared to
$6,043 for that same period of 1997, an increase of $528, or 8.7%. Total
noninterest expense for the second quarter of 1998 was $210, or 6.8% higher than
the prior year.
Salary and employee benefits expense was $3,914 for the first six months of
1998, an increase of $354, or 9.9%, from the $3,560 for the first six months of
1997. Total salaries and employee benefits for the second quarter of 1998 was
$1,957, a $102, or 5.5% increase from the 1997 amount. The number of full-time
equivalent employees increased to 215 from 202 at June 30, 1998 and 1997,
respectively. These additional staffing needs were a result of a new branch
being opened in March, 1998, in addition to additional staffing needs being met
in the secondary mortgage market department to increase loan origination volume.
The improvement in the income generated by the secondary mortgage market, as
well as the Investment Center, also led to an increase in the commissions paid
to certain employees. The Corporation also realized an increase in health
insurance costs, primarily as a result of the increased staffing level.
Other operating expenses were $1,719 for the first six months of 1998, an
increase of $129, or 8.1%, compared to $1,590 for the first six months of 1997.
For the second quarter of 1998, other operating expenses increased $85, or 10.5%
from the prior year. In addition to higher office supply costs attributed to the
opening of the new branch facility, the Corporation expanded its marketing and
advertising efforts which account for the majority of the overall increase in
this category.
Income Taxes
Income taxes were $1,372 for the first six months of 1998 compared to $1,219 for
the first six months of 1997, an increase of $153, or 12.6%. Compared to the
prior year, income taxes increased $33, or 5.1% for the second quarter of 1998.
Increased corporate earnings contributed to a higher income tax expense, in
addition to tax-exempt income for the six months ended June 30, 1998 being less
than that same 1997 time period. For the second quarter, however, tax-exempt
income increased $28, or 14.6% in 1998 compared to 1997, which assisted in
minimizing the overall income tax liability.
FINANCIAL CONDITION
Total assets were $457,670 at June 30, 1998 compared to $439,029 at December 31,
1997, an increase of $18,641, or 4.2%. Increases of $3,479, $4,618, and $10,333
were realized in cash and cash equivalents, investment securities, and net
loans, respectively, for the first six months of 1998.
Total deposits and long-term debt for the first six months of 1998 increased
$14,816 and $2,225, respectively, while short-term debt decreased $1,129 during
that same time period. Increases in interest-bearing deposits accounted for
86.2% of the total deposit increase, while the increase in long-term debt is
primarily attributable to an additional $2,800 in borrowings, net of principal
repayments, from the Federal Home Loan Bank in Indianapolis.
Capital
The Corporation and Bank are subject to various regulatory capital guidelines as
required by federal and state banking agencies. These guidelines define the
various components of core capital and assign risk weights to various categories
of assets.
Tier 1 capital consists of shareholders' equity less goodwill and core deposit
intangibles, as defined by bank regulators. The definition of Tier 2 capital
includes the amount of allowance for loan losses which does not exceed 1.25% of
gross risk weighted assets. Total capital is the sum of Tier 1 and Tier 2
capital.
The minimum requirements under the capital guidelines are generally at least a
4.00% leverage ratio (Tier 1 capital divided by average assets less intangible
assets and unrealized gains/losses), a 4.00% Tier 1 risk-based capital ratio
(Tier 1 capital divided by risk-weighted assets), and a 8.00% total capital
ratio (Tier 1 capital plus Tier 2 capital divided by risk-weighted assets).
<PAGE>15
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires federal regulatory agencies to define capital tiers. These are:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage
ratio of at least 5.00% and not be under a capital directive order. Failure to
meet capital requirements can initiate regulatory action that could have a
direct material effect on the Corporation's financial statements. If only
adequately capitalized; regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions, asset growth, and
expansion is limited, in addition to the institution being required to submit a
capital restoration plan.
Management believes the Corporation and the Bank met all the capital
requirements as of June 30, 1998 and December 31, 1997, and were
well-capitalized under the guidelines established by the banking regulators. To
be well-capitalized, the Corporation and Bank must maintain the prompt
corrective action capital guidelines described above.
At June 30, 1998 and December 31, 1997, management was not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material effect on
the Corporation's consolidated liquidity, capital resources or operations.
The Corporation's actual consolidated capital amounts and ratios are presented
in the following table. The Bank's actual capital amounts and ratios are not
materially different from the consolidated amounts below.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 40,693 $ 38,469
Less: Intangibles (841) (908)
Add/less: Unrealized loss/(gain) on securities 38 90
---------------- ---------------
TOTAL TIER 1 CAPITAL $ 39,890 $ 37,651
================ ===============
Total capital
Tier 1 capital $ 39,890 $ 37,651
Allowable allowance for loan losses 3,741 3,464
---------------- ---------------
TOTAL CAPITAL $ 43,631 $ 41,115
================ ===============
RISK WEIGHTED ASSETS $ 321,581 $ 310,170
================ ===============
AVERAGE ASSETS $ 444,346 $ 430,555
================ ===============
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
Actual ratios as of
June 30, December 31, Capital Adequacy Well-Capitalized
1998 1997 Requirement Requirement
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Tier I Capital
(to average assets) 9.0% 8.8% 4.0% 5.0%
Tier I Capital
(to risk
weighted assets) 12.4% 12.1% 4.0% 6.0%
Total Capital
(to risk
weighted assets) 13.6% 13.3% 8.0% 10.0%
</TABLE>
Liquidity
The consolidated statement of cash flows illustrates the elements which gave
rise to the change in the Corporation's cash and cash equivalents for the six
months ended June 30, 1998 and 1997. Including net income of $2,666, the net
cash from operating activities for the first six months of 1998 generated $4,059
of available cash. Net cash from investing activities utilized $15,998 of
available cash, primarily as a result of purchasing $4,634 in investment
securities and funding $10,693 in net loans. The $14,816 increase in deposits,
along with $2,800 in long-term debt proceeds, offset by the net decrease in
short-term borrowings and long-term debt principal repayments account for the
majority of the $15,418 in cash generated from financing activities. Total cash
inflows for the six month period in 1998 exceeded cash outflows by $3,479
resulting in a cash and cash equivalent balance of $34,380 at June 30, 1998.
Year 2000
The Corporation's Board of Directors and management is aware of the possible
consequences the Year 2000 may pose with regard to the computer systems utilized
to conduct business on a daily basis. A "Year 2000 Committee", which reports
monthly to the Board of Directors, has prepared a detailed plan to address this
issue. Testing of specific system applications is scheduled to begin during the
early part of the third quarter and lasting until the end of the first quarter
of 1999. The Corporation has developed contingency plans, conducted internal
training seminars for employees, and has scheduled customer awareness seminars
not only to communicate the Year 2000 issue, but also to inform these
individuals of the Corporation's approach to address this issue. A risk
assessment process has also been implemented to evaluate the Year 2000
preparedness of commercial borrowers of the Corporation.
While management does not believe the necessary steps involved to resolve this
issue will significantly impair the organization's ability to operate and
conduct business in a normal fashion, the Corporation does estimate the total
cost to address this issue to be approximately $1.6 million. The expenditures
related to this issue are comprised primarily of system upgrades, consisting
both of hardware and software, in addition to dedicated personnel costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk of the Corporation encompasses exposure to both liquidity risk and
interest rate risk and is reviewed quarterly by the Asset/Liability Committee
and the Board of Directors. There have been no material changes in the
quantitative and qualitative disclosures about market risks as of June 30, 1998
from the analysis and disclosures provided in the Corporation's Form 10-K for
the year ended December 31, 1997.
<PAGE>17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation's Annual Meeting of Shareholders was held Monday,
April 13, 1998.
(b) The following members were elected to the Corporation's Board of
Directors to hold office as indicated by the term expiration, or until
their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
Term Against or Broker
Expiration Nominee For Withheld Abstain Non-Votes
<S> <C> <C> <C> <C> <C>
2001 Richard A. Boehning 1,807,260 30,182 5,173 0
2001 Joseph A. Bonner 1,837,041 392 5,173 0
</TABLE>
(c) The following matters were also voted upon at the Annual Meeting of
Shareholders
<TABLE>
<CAPTION>
Against or Broker
Matter For Withheld Abstain Non-Votes
<S> <C> <C> <C> <C>
Approval of the 1998
Nonqualified Stock Option Plan 1,761,571 47,399 44,784 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for June 30, 1998
(b) Reports on Form 8-K
No Form 8-K was filed with the SEC during the quarter ended
June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1998 By /s/ Robert J. Weeder
Robert J. Weeder
President
Date: August 13, 1998 By /s/ Marvin S. Veatch
Marvin S. Veatch
Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001035373
<NAME> LAFAYETTE BANCORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,230
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,953
<INVESTMENTS-CARRYING> 4,510
<INVESTMENTS-MARKET> 4,633
<LOANS> 322,837
<ALLOWANCE> 3,741
<TOTAL-ASSETS> 457,670
<DEPOSITS> 370,011
<SHORT-TERM> 19,243
<LIABILITIES-OTHER> 5,612
<LONG-TERM> 22,111
0
0
<COMMON> 2,176
<OTHER-SE> 38,517
<TOTAL-LIABILITIES-AND-EQUITY> 457,670
<INTEREST-LOAN> 14,349
<INTEREST-INVEST> 2,043
<INTEREST-OTHER> 350
<INTEREST-TOTAL> 16,742
<INTEREST-DEPOSIT> 7,259
<INTEREST-EXPENSE> 8,206
<INTEREST-INCOME-NET> 8,536
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,571
<INCOME-PRETAX> 4,038
<INCOME-PRE-EXTRAORDINARY> 4,038
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,666
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 4.31
<LOANS-NON> 125
<LOANS-PAST> 812
<LOANS-TROUBLED> 240
<LOANS-PROBLEM> 1,026
<ALLOWANCE-OPEN> 3,464
<CHARGE-OFFS> 190
<RECOVERIES> 107
<ALLOWANCE-CLOSE> 3,741
<ALLOWANCE-DOMESTIC> 2,199
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,542
</TABLE>
