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, 1999.
[ ] 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, 1999
Common Stock, without par value 2,387,868 shares
<PAGE>2
LAFAYETTE BANCORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- June 30, 1999 and December 31, 1998
Consolidated Statements of Income and
Comprehensive Income-- Three Months Ended June 30, 1999 and 1998
Consolidated Statements of Income and
Comprehensive Income -- Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated Financial Statements -- June 30, 1999
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
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
ITEM 1.
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,075 $ 17,368
Federal funds sold 5,300 1,400
--------- ---------
Total cash and cash equivalents 26,375 18,768
Interest-bearing balances with other financial institutions 684 671
Securities available-for-sale (at market) 95,850 76,956
Securities held-to-maturity (market value $6,916
and $5,063) 6,859 4,879
Loans held for sale 8,244 10,086
Loans 457,583 353,828
Less: Allowance for loan losses (4,135) (4,241)
--------- ---------
Loans, net 453,448 349,587
Federal Home Loan Bank stock (at cost) 1,897 1,539
Premises, furniture and equipment, net 9,040 7,953
Intangible assets 14,105 827
Accrued interest receivable and other assets 15,252 12,703
--------- ---------
Total assets $ 631,754 $ 483,969
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 61,417 $ 48,657
Interest-bearing demand and savings deposits 230,553 170,308
Interest-bearing time deposits 222,721 176,581
--------- ---------
Total deposits 514,691 395,546
Short-term borrowings 29,690 16,402
Long-term debt 36,922 23,854
Accrued interest payable and other liabilities 6,642 5,553
--------- ---------
Total liabilities 587,945 441,355
Shareholders' equity
Common stock, no par value: 5,000,000 shares authorized;
2,398,827 and 2,394,035 shares issued; and 2,385,219
and 2,380,427 shares outstanding 2,399 2,394
Additional paid-in capital 32,737 32,620
Retained earnings 10,248 7,747
Unrealized gain / (loss) on securities available-for-sale,
net of tax (($965) and ($27)) (1,470) (42)
Less: Treasury stock, at cost (13,608 shares) (105) (105)
--------- ---------
Total shareholders' equity 43,809 42,614
--------- ---------
Total liabilities and shareholders' equity $ 631,754 $ 483,969
========= =========
</TABLE>
<PAGE>4
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended June 30, 1999 and 1998
(Dollar amounts in thousands, except per share data)
(Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans $ 9,647 $ 7,337
Taxable securities 1,040 812
Tax exempt securities 379 220
Other 201 180
-------- --------
Total interest income 11,267 8,549
Interest expense
Deposits 4,505 3,690
Short-term borrowings 368 169
Long-term debt 579 318
-------- --------
Total interest expense 5,452 4,177
-------- --------
Net interest income 5,815 4,372
Provision for loan losses 190 180
-------- --------
Net interest income after provision for loan losses 5,625 4,192
Noninterest income
Income from fiduciary activities 250 226
Service charges on deposit accounts 408 333
Net realized gain on securities 12 --
Net gain on loan sales 259 269
Other service charges and fees 244 196
Other operating income 176 129
-------- --------
Total noninterest income 1,349 1,153
-------- --------
Noninterest expense
Salaries and employee benefits 2,474 1,957
Occupancy expenses, net 266 217
Equipment expenses 343 252
Intangible asset amortization 184 21
Other operating expenses 1,233 874
-------- --------
Total noninterest expense 4,500 3,321
-------- --------
Income before income taxes 2,474 2,024
Income taxes 824 683
-------- --------
Net income 1,650 1,341
-------- --------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities (1,347) 78
-------- --------
Comprehensive income $ 303 $ 1,419
======== ========
Basic earnings per share $ .69 $ .56
======== =========
Diluted earnings per share $ .68 $ .55
======== ==========
Dividend per share $ .14 $ .12
======== ==========
</TABLE>
<PAGE>5
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the six months ended June 30, 1999 and 1998
(Dollar amounts in thousands, except per share data)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans $ 17,777 $ 14,466
Taxable securities 1,930 1,632
Tax exempt securities 740 411
Other 303 350
-------- --------
Total interest income 20,750 16,859
Interest expense
Deposits 8,406 7,259
Short-term borrowings 643 332
Long-term debt 975 615
-------- --------
Total interest expense 10,024 8,206
-------- --------
Net interest income 10,726 8,653
Provision for loan losses 370 360
-------- --------
Net interest income after provision for loan losses 10,356 8,293
Noninterest income
Income from fiduciary activities 503 452
Service charges on deposit accounts 715 658
Net realized gain on securities 12 --
Net gain on loan sales 567 494
Other service charges and fees 422 352
Other operating income 326 360
-------- --------
Total noninterest income 2,545 2,316
-------- --------
Noninterest expense
Salaries and employee benefits 4,640 3,914
Occupancy expenses, net 509 432
Equipment expenses 629 506
Intangible asset amortization 239 41
Other operating expenses 2,140 1,678
-------- --------
Total noninterest expense 8,157 6,571
-------- --------
Income before income taxes 4,744 4,038
Income taxes 1,575 1,372
-------- --------
Net income 3,169 2,666
-------- --------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities (1,429) 52
-------- --------
Comprehensive income $ 1,740 $ 2,718
======== ========
Basic earnings per share $ 1.33 $ 1.12
======== ========
Diluted earnings per share $ 1.30 $ 1.10
======== ========
Dividend per share $ .28 $ . 24
======== ========
</TABLE>
<PAGE>6
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(Dollar amounts in thousands)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,169 $ 2,666
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 414 316
Premium amortization, net of discount accretion 307 146
Provision for loan losses 370 360
Net realized gain on securities (12) --
Net realized (gain) loss on sale of :
Other real estate -- (43)
Change in assets and liabilities:
Loans originated for sale (43,513) (36,375)
Loans sold 45,355 36,106
Accrued interest receivable and other assets (1,687) 378
Accrued interest payable and other liabilities 1,089 505
--------- ---------
Net cash from operating activities 5,492 4,059
Cash flows from investing activities
Change in interest-bearing balances with other financial institutions (13) --
Purchase of securities available-for-sale (121,173) (27,845)
Proceeds from sales of securities available-for-sale 5,333 3,286
Proceeds from maturities of securities available-for-sale 94,531 19,174
Purchase of securities held-to-maturity (2,000) (1,107)
Proceeds from maturities of securities held-to-maturity 16 1,858
Loans made to customers, net of payments collected (45,926) (10,693)
Purchase of FHLB stock (358) (297)
Property and equipment expenditures (1,501) (625)
Proceeds from sales of other real estate -- 251
--------- ---------
Net cash from investing activities (71,091) (15,998)
Cash flows from financing activities
Net change in deposit accounts 2,130 14,816
Cash received in branch acquisition for liabilities assumed, net
of assets acquired 45,266 --
Net change in short-term borrowings 13,288 (1,129)
Proceeds from long-term debt 14,000 2,800
Payments on long-term debt (932) (575)
Common stock issued 122 69
Dividends paid (668) (563)
--------- ---------
Net cash from financing activities 73,206 15,418
Net change in cash and cash equivalents 7,607 3,479
Cash and cash equivalents at beginning of year 18,768 30,901
--------- ---------
Cash and cash equivalents at end of period $ 26,375 $ 34,380
========= =========
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 9,298 $ 7,925
Income taxes 1,478 1,277
Non-cash investing activity
Loans transferred to other real estate $ 104 $ --
</TABLE>
<PAGE>7
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Basic earnings per share
Net income $ 3,169 $ 2,666
Weighted average shares outstanding 2,384,954 2,380,255
------------- -------------
Basic earnings per share $ 1.33 $ 1.12
============= =============
Diluted earnings per share
Net income $ 3,169 $ 2,666
Weighted average shares outstanding 2,384,954 2,380,255
Diluted effect of assumed shares
exercised of Stock Options 60,371 40,937
------------- -------------
Diluted average shares outstanding 2,445,325 2,421,192
------------- -------------
Diluted earnings per share $ 1.30 $ 1.10
============= ==============
</TABLE>
<PAGE>8
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Basic earnings per share
Net income $ 1,650 $ 1,341
Weighted average shares outstanding 2,385,219 2,380,186
------------- -------------
Basic earnings per share $ .69 $ .56
============= =============
Diluted earnings per share
Net income $ 1,650 $ 1,341
Weighted average shares outstanding 2,385,219 2,380,186
Diluted effect of assumed shares
exercised of Stock Options 60,619 44,723
------------- -------------
Diluted average shares outstanding 2,445,838 2,424,909
--------------- --------------
Diluted earnings per share $ .68 $ .55
============== =============
</TABLE>
NOTE 3 - SECURITIES
The amortized cost and estimated market values of securities are as follows at
June 30, 1999:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 16,239 $ 16,065
Obligations of states and political subdivisions 27,646 26,768
Corporate obligations 3,516 3,465
Mortgage-backed and other asset-backed securities 50,853 49,521
Other securities 31 31
----------- -----------
$ 98,285 $ 95,850
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 6,859 $ 6,916
=========== ===========
</TABLE>
<PAGE>9
The amortized cost and estimated market values of securities are as follows at
December 31, 1998:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 14,039 $ 14,110
Obligations of states and political subdivisions 23,526 23,637
Corporate obligations 2,520 2,513
Mortgage-backed and other asset-backed securities 36,940 36,696
----------- -----------
$ 77,025 $ 76,956
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 4,879 $ 5,063
=========== ===========
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans are comprised of the following:
June 30, December 31,
1999 1998
Commercial and agricultural loans $181,591 $115,198
Real estate construction loans 40,011 28,043
Residential real estate loans 178,819 160,655
Installment loans to individuals 57,162 49,932
-------- --------
Total loans $457,583 $353,828
======== ========
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
1999 1998
---- ----
Balance, January 1 $ 4,241 $ 3,464
Provision charged to operations 370 360
Loans charged off (549) (190)
Recoveries on loans previously charged off 73 107
------- -------
Balance, June 30 $ 4,135 $ 3,741
======= =======
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following:
June 30, December 31,
1999 1998
Repurchase agreements $27,762 $15,788
Treasury tax and loan open-end note 1,928 614
------- -------
Total short-term borrowings $29,690 $16,402
======= =======
<PAGE>10
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 7 - BRANCH ACTIVITY
On March 12, 1999 the Bank completed the acquisition of three Bank One, Indiana
branches located in DeMotte, Remington, and Rensselaer, Indiana. The fair value
of assets acquired was $58,584 (predominately commercial loans and the physical
facilities), the fair value of liabilities assumed was $117,360 (predominately
deposits), and the Bank received $45,266 of cash at settlement. Goodwill and
core deposit intangibles associated with this purchase amounted to $13,510.
The branch acquisition was not considered to be an acquisition of a business
since, among other things, approximately 39% of the assets acquired was in the
form of cash, loans consisted almost entirely of commercial loans, the branches
represented a small portion of the seller's operations in the market area, and
the seller's products differ from the Corporation's products. In addition, the
future earnings from the net assets acquired will be dependent on the effective
use of the cash and the generation of other types of loans, including real
estate, home equity, credit cards, and other consumer loans. Accordingly,
historical operating results of the branches acquired would not be indicative of
future results, and only the above summary information on the net assets
acquired is presented.
In an unrelated event, the Corporation closed the branch located in Chalmers,
Indiana on March 27, 1999.
NOTE 8 - SEGMENT INFORMATION
The Corporation's operations include three primary segments: banking, mortgage
banking, and trust. Through its banking subsidiary's sixteen locations in
Tippecanoe, White, and Jasper Counties, the Corporation provides traditional
community banking services, such as accepting deposits and making commercial,
residential and consumer loans. Mortgage banking activities include the
origination of residential mortgage loans for sale on a servicing released basis
to various investors. The Corporation's trust department provides both personal
and corporate trust services.
The Corporation's three reportable segments are determined by the products and
services offered. Loans, investments and deposits comprise the primary revenues
and expenses of the banking operation, net gains on loans sold account for the
revenues in the mortgage banking segment, and trust administration fees provide
the primary revenues in the trust department.
The following segment financial information has been derived from the internal
profitability reporting system utilized by management to monitor and manage the
financial performance of the Corporation. The accounting policies of the three
segments are the same as those described in the summary of significant
accounting policies of the annual report. The Corporation evaluates segment
performance based on profit or loss before income taxes. The evaluation process
for the mortgage banking and trust segments include only direct expenses, while
certain indirect expenses, including goodwill, are absorbed by the banking
operation.
<PAGE>11
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Quarter ended June 30:
1999 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 5,966 $ 56 $ -- $ 6,022
Net gain on loan sales -- 259 -- 259
Other revenue 818 22 250 1,090
Noncash items:
Depreciation 202 12 6 220
Provision for loan loss 190 -- -- 190
Segment profit 2,445 142 87 2,674
Segment assets 622,432 8,419 163 631,014
1998 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 4,318 $ 48 $ -- $ 4,366
Net gain on loan sales -- 269 -- 269
Other revenue 658 -- 226 884
Noncash items:
Depreciation 147 6 6 159
Provision for loan loss 180 -- -- 180
Segment profit 1,908 190 51 2,149
Segment assets 448,823 8,051 180 457,054
<PAGE>12
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Significant segment totals are reconciled to the financial statements as
follows:
Quarter ended June 30:
Reportable Consolidated
1999 Segments Other Totals
- ---- -------- ----- ------
Net interest income (expense) $ 6,022 $ (207) $ 5,815
Provision for loan loss 190 -- 190
Net gain on loan sales 259 -- 259
Other revenue 1,090 -- 1,090
Profit 2,674 (1,024) 1,650
Assets 631,014 740 631,754
Reportable Consolidated
1998 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 4,366 $ 6 $ 4,372
Provision for loan loss 180 -- 180
Net gain on loan sales 269 -- 269
Other revenue 884 -- 884
Profit 2,149 (808) 1,341
Assets 457,054 616 457,670
Amounts included in the "other" column are as follows.
1999 1998
---- ----
Income:
Holding company net interest
income (expense) $(207) $ 6
Profit:
Holding company net interest
income (expense) (207) 6
Holding company expenses 7 (131)
Income tax expense (824) (683)
Assets:
Holding company assets 740 616
<PAGE>13
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Six months ended June 30:
<TABLE>
<CAPTION>
1999 Mortgage Total
Banking Banking Trust Segments
<S> <C> <C> <C> <C>
Net interest income $ 10,848 $ 117 $ - $ 10,965
Net gain on loan sales - 567 - 567
Other revenue 1,431 44 503 1,978
Noncash items:
Depreciation 383 19 12 414
Provision for loan loss 370 - - 370
Segment profit 4,554 355 174 5,083
Segment assets 622,432 8,419 163 631,014
</TABLE>
<TABLE>
<CAPTION>
1998 Mortgage Total
Banking Banking Trust Segments
<S> <C> <C> <C> <C>
Net interest income $ 8,559 $ 85 $ - $ 8,644
Net gain on loan sales - 494 - 494
Other revenue 1,358 12 452 1,822
Noncash items:
Depreciation 291 13 12 316
Provision for loan loss 360 - - 360
Segment profit 3,926 296 97 4,319
Segment assets 448,823 8,051 180 457,054
</TABLE>
<PAGE>14
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Significant segment totals are reconciled to the financial statements as
follows:
Six months ended June 30:
<TABLE>
<CAPTION>
Reportable Consolidated
1999 Segments Other Totals
- ---- -------- ----- ------
<S> <C> <C> <C>
Net interest income (expense) $ 10,965 $ (239) $ 10,726
Provision for loan loss 370 - 370
Net gain on loan sales 567 - 567
Other revenue 1,978 - 1,978
Profit 5,083 (1,914) 3,169
Assets 631,014 740 631,754
</TABLE>
<TABLE>
<CAPTION>
Reportable Consolidated
1998 Segments Other Totals
- ---- -------- ----- ------
<S> <C> <C> <C>
Net interest income $ 8,644 $ 9 $ 8,653
Provision for loan loss 360 - 360
Net gain on loan sales 494 - 494
Other revenue 1,822 - 1,822
Profit 4,319 (1,653) 2,666
Assets 457,054 616 457,670
</TABLE>
Amounts included in the "other" column are as follows.
1999 1998
---- ----
Income:
Holding company net interest
income (expense) $ (239) $ 9
Profit:
Holding company net interest
income (expense) (239) 9
Holding company expenses (100) (290)
Income tax expense (1,575) (1,372)
Assets:
Holding company assets 740 616
<PAGE>15
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. The Corporation's wholly-owned subsidiary,
Lafayette Bank and Trust Company ("Bank") conducts business from sixteen offices
in Tippecanoe, White, and Jasper 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
Mergers and Acquisitions
On March 12, 1999 the Corporation completed the acquisition of three Bank One,
Indiana branches located in DeMotte, Remington, and Rensselaer, Indiana. The
Corporation added approximately $117 million in deposits and approximately $58
million in loans as a result of this transaction. Goodwill and core deposit
intangibles associated with this purchase was approximately $13.5 million. This
acquisition is the first for the Corporation in this market and it added
approximately 25% to the Corporation's deposit base.
Net Income
The Corporation earned $1,650, or $.69 per share for the second quarter of 1999
compared to $1,341, or $.56 per share for the second quarter of 1998. Net income
increased $503, or 18.9% to $3,169 for the six month period ending June 30, 1999
compared to that same 1998 time period. Basic earnings per share were $1.33 and
$1.12 for the six month period ending June 30, 1999 and 1998, respectively. In
general, the addition of the three Jasper County branches acquired from Bank
One, Indiana on March 12, 1999 gave rise to the higher earnings realized in the
second quarter of 1999. Aside from the loans acquired in the branch acquisition,
actual loan growth of $30,879 was achieved during the second quarter which
resulted in increased interest income. The increase in interest income, however,
was offset by certain transition and overhead costs incurred in connection with
the purchase of the three branches.
Return on average assets (ROA) and return on average equity (ROE) for the three
and six months ending June 30, 1999 and 1998 are summarized below:
Three months ending Six months ending
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
ROA 1.12% 1.21% 1.06% 1.20%
ROE 14.48% 13.45% 14.95% 13.36%
<PAGE>16
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, 1999 and 1998, net interest income was $10,726 and
$8,653, respectively. This represents a $2,073, or 24.0% increase over the prior
year. Net interest income for the second quarter of 1999 was $1,443, or 33.0%
higher than for that same three month period ending June 30, 1998. The
Corporation's loan growth continued during the second quarter through the
deployment of the excess funds obtained in the Jasper County branch acquisition.
Total interest income for the six month period ending June 30, 1999 and 1998 was
$20,750 and $16,859, respectively. Total interest income for the second quarter
of 1999 was $2,718, or 31.8% greater than for that same quarter in 1998.
Interest and fees on loans increased $3,311, or 22.9%, to $17,777 for the first
six months of 1999, compared to $14,466 for the first six months of 1998. For
the second quarter of 1999, interest and fees on loans increased $2,310, or
31.5% compared to the second quarter of 1998. Although investment security
income rose during 1999 through increased investing activities, the significant
loan growth experienced by the Corporation continued to account for the largest
portion of the total interest income increase. As previously mentioned, actual
loan growth of $30,879 was recognized during the second quarter of this year.
That increase, along with the loans acquired in the branch acquisition, led to a
$128,191, or 39.5% increase in average loan balances from June 1998 to June
1999.
Total interest expense for the six month period ending June 30, 1999 and 1998
was $10,024 and $8,206, respectively. For the second quarter of 1999, total
interest expense increased $1,275, or 30.5%, compared to the same 1998 time
period. Total average interest-bearing liabilities, including short-term and
long-term borrowings, increased $164,283, or 45.1% from June 1998 to June 1999.
The deposits acquired in the branch acquisition, in addition to the long-term
debt incurred by the Corporation for injection into its subsidiary bank's
capital accounted for approximately 80% of the increase.
While the increase in average interest-bearing liabilities gave rise to an
increase in overall interest expense, the overall cost of funds continued to
decline. Despite the slight increase in interest rates during the period,
certain interest-bearing deposits repriced at a lower rate when compared to the
rates offered and paid two and three years ago.
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
1999 1998 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $21,145 $17,129 $4,016 23.4%
Interest expense 10,024 8,206 1,818 22.2%
------ ------ ------
Net interest income $ 11,121 $ 8,923 $ 2,198 24.6%
======== ======= =======
</TABLE>
<PAGE>17
<TABLE>
<CAPTION>
Three Months Change from
Ended June 30, Prior Period
1999 1998 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $11,471 $8,692 $2,779 32.0%
Interest expense 5,452 4,177 1,275 30.5%
----- ----- -----
Net interest income $6,019 $4,515 $ 1,504 33.3%
====== ====== =======
</TABLE>
Net interest income, on a tax equivalent basis, for the first six months of 1999
was $2,198, or 24.6% higher than for that same six month period ending June 30,
1998. For the second quarter of 1999, net interest income, on a tax equivalent
basis, was $1,504, or 33.3% higher than for the same 1998 time period. The net
interest margin, on a tax equivalent basis for the six months ending June 30,
1999 and 1998 was 4.22% and 4.37%, respectively. Although the growth in loan
volume has contributed to higher net interest income, the competitive nature of
the market in which the Corporation operates has led to lower yields realized on
those loans funded. These lower yields coupled with the loan growth has resulted
in the lower net interest margin posted during the current year.
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.
Loans with a fair value of $56,398 were acquired in the Bank One, Indiana branch
acquisition. The fair value of loans acquired is net of a fair value adjustment
for credit risk of $563. This credit risk valuation account will be used to
absorb future charge-offs recorded on the acquired loans.
The consolidated provision for loan losses was $370 and $360 for the first six
months of 1999 and 1998, respectively. The allowance for loan losses was $4,137
and $4,241 at June 30, 1999 and December 31, 1998, respectively. When adding the
credit valuation account amount with the allowance for loan loss account balance
at June 30, 1999, the allowance as a percentage of loans was 1.03%. This same
ratio at December 31, 1998 was 1.20%. The increased net charge-offs resulted in
a lower allowance for loan loss account balance at June 30, 1999 than existed at
December 31, 1998. Specifically, net charge-offs for the six months ended June
30, 1999 exceeded the contribution to the provision for loan loss by $106. The
lower allowance for loan loss account balance in conjunction with the loan
growth experienced during the second quarter yielded a lower allowance as a
percentage of loans. One commercial and one mortgage loan accounted for
approximately 62% of the Corporation's $282 net charge-offs in the second
quarter.
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:
June 30, December 31,
1999 1998
Loans past due 90 days or more $ 831 $ 775
Nonaccrual loans 1,318 1,468
Restructured loans 173 197
------ ------
Total nonperforming loans $2,322 $2,440
====== ======
<PAGE>18
Total nonperforming loans have decreased slightly in the first six months of
1999 primarily as a result of charging-off one nonaccrual commercial loan and
one significantly delinquent mortgage loan.
The Corporation currently has approximately 17% of its outstanding loans to
agricultural-related borrowers. Given the recent decline in both the hog and
grain markets, management is monitoring these specific industry credits on an
on-going basis.
Despite the higher net charge-offs and the current situation involving
agricultural-related credits, management believes overall credit quality
continues to be good.
Noninterest Income and Expense
Noninterest income totaled $2,545 for the first six months of 1999, compared to
$2,316 for that same period of 1998, an increase of $229, or 9.9%. Noninterest
income for the second quarter increased $196, or 17.0% to $1,349 compared to the
prior year.
Income from fiduciary activities increased for the first six months and also for
the second quarter of 1999 when compared to the same 1998 time periods. The
number and size of new accounts, along with the increase in the fee structure
has led to higher earnings.
Service charges on deposit accounts comprise the largest component of
noninterest income. The number of accounts being assessed fees, primarily due to
the three branch acquisitions earlier in the year resulted in a 8.7% and 22.5%
increase in revenue for the six months and the three months ended June 30, 1999,
respectively, when compared to that same 1998 time period.
Net gain on loans originated and sold in the secondary mortgage market were $567
and $494 for the first six months of 1999 and 1998 respectively, an increase of
$73, or 14.8%. Loan fundings for the six months ended June 30, 1999 increased
$9,250, or 25.6% compared to the prior year, while fundings for the three months
ended June 30, 1999 rose $1,807, or 9.1% when compared to that same time period
one year earlier. Although the local economy continues to remain strong, the
slight rise in interest rates impacted the number of fundings, especially
refinancings, during the second quarter of 1999.
Other service charges and fees were $422 and $352 for the first six months of
1999 and 1998, respectively, an increase of $70, or 19.9%. For the second
quarter of 1999, other service charges and fees increased $48, or 24.5% compared
to the prior year. The majority of the increase is attributable to ATM and safe
deposit box fees as a result of the expanded Jasper County customer base.
Noninterest expense totaled $8,157 for the first six months of 1999, compared to
$6,571 for that same period of 1998, an increase of $1,586, or 24.1%. Total
noninterest expense for the second quarter of 1999 was $1,179, or 35.5% higher
than the prior year.
Salary and employee benefits expense was $4,640 for the first six months of
1999, an increase of $726, or 18.5%, from the $3,914 for the first six months of
1998. Total salaries and employee benefits for the second quarter of 1999 was
$2,474, a $517, or 26.4% increase from the 1998 amount. Total salaries and
benefits increased significantly due to the first full quarter effect of the
three branch acquisitions in Jasper County. Approximately fifty-six employees
were added to the Corporation's staff as a result of the acquisition. Health
insurance costs were also impacted through the higher staffing level of the
Corporation.
Occupancy and equipment expenses were also affected by the branch acquisitions,
as certain repairs and upgrades were made to the facilities, in addition to the
depreciation recorded on the fixed assets acquired.
Intangible asset amortization increased significantly for both the six months
and three months ended June 30, 1999 solely as a result of the goodwill and core
deposit amortization related to the acquisition of the Jasper County branches.
<PAGE>19
Other operating expenses were $2,140 for the first six months of 1999, an
increase of $462, or 27.5%, compared to $1,678 for the first six months of 1998.
For the second quarter of 1999, other operating expenses increased $359, or
41.1% from the prior year. The majority of this increase for the six months and
three months ended June 30, 1999 relate to increased overhead items, such as
office supplies, telephone, postage, insurance, credit card and ATM processing
fees, all of which are directly associated with the addition of the three Jasper
County branches.
Income Taxes
The Corporation's effective tax rate for the three months ending June 30, 1999
and 1998 was 33.3% and 33.7%, respectively. For the six months ended June 30,
1999 and 1998, the effective tax rate for the Corporation was 33.2% and 34.0%,
respectively. Increased interest on tax-exempt securities and loans was a
significant factor in the lower effective tax rate realized.
FINANCIAL CONDITION
Total assets were $631,754 at June 30, 1999 compared to $483,969 at December 31,
1998, an increase of $147,785, or 30.5%. As previously mentioned, approximately
$117 million in deposits and $58 million in loans were attributable to the three
Bank One, Indiana branches acquired in March, 1999. Increases of $7,607,
$20,874, and $103,861 were realized in cash and cash equivalents, investment
securities, and net loans, respectively, for the first six months of 1999.
Total deposits increased $119,145 to $514,691 at June 30, 1999 compared to
$395,546 at December 31, 1998. Short-term borrowings increased $13,288 during
the first six months primarily due to increases in repurchase agreements.
Long-term debt at June 30, 1999 was $36,922, an increase of $13,068 when
compared to December 31, 1998. Loan proceeds of $14,000, of which $350 has been
repaid, was obtained by the Corporation and injected into capital of its
wholly-owned subsidiary bank. Principal repayments of $582 to the Federal Home
Loan Bank of Indianapolis for other long-term borrowing obligations accounted
for the remainder of the change.
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 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 an 8.00% total capital ratio (Tier 1 capital plus
Tier 2 capital divided by risk-weighted assets).
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%, 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. If an institution is 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.
<PAGE>20
At June 30, 1999 and December 31, 1998, 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 are presented in the
following table.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 43,809 $ 42,614
Less: Intangibles (14,090) (806)
Add/less: Unrealized loss/(gain) on securities 1,470 42
---------------- ---------------
TOTAL TIER 1 CAPITAL $ 31,189 $ 41,850
================ ===============
Total capital
Tier 1 capital $ 31,189 $ 41,850
Allowable allowance for loan losses 4,135 4,241
---------------- ---------------
TOTAL CAPITAL $ 35,324 $ 46,091
================ ===============
RISK WEIGHTED ASSETS $ 462,581 $ 353,215
================ ===============
AVERAGE ASSETS $ 607,993 $ 475,438
================ ===============
</TABLE>
The Corporation and Bank's actual capital ratios and minimum required levels are
presented in the following table.
<TABLE>
<CAPTION>
Actual ratios as of Minimum
June 30, December 31, Capital Adequacy Well-Capitalized
1999 1998 Requirement Requirement
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Tier I Capital
(to average assets)
Consolidated 5.1% 8.8% 4.0% 5.0%
Lafayette Bank and Trust 7.1% 8.7% 4.0% 5.0%
Tier I Capital
(to risk weighted assets)
Consolidated 6.7% 11.9% 4.0% 6.0%
Lafayette Bank and Trust 9.3% 11.8% 4.0% 6.0%
Total Capital
(to risk weighted assets)
Consolidated 7.6% 13.1% 8.0% 10.0%
Lafayette Bank and Trust 10.2% 13.0% 8.0% 10.0%
</TABLE>
<PAGE>21
As discussed earlier, the Corporation's wholly-owned subsidiary bank acquired
three branches on March 12, 1999. Management was aware this transaction would
reduce consolidated and bank-only capital levels. As a result, the Corporation
borrowed $14 million and contributed $13 million of capital to the Bank in order
for the Bank to maintain its well-capitalized status. As of June 30, 1999 the
Bank continued its position as well-capitalized. Management was also aware,
however, that the Corporation's capital level would temporarily drop below the
minimum required level for capital adequacy purposes. As of June 30, 1999 the
Corporation's consolidated capital level was slightly below the required level
for capital adequacy purposes. Management will continue to monitor the
Corporation's consolidated capital level and is currently analyzing possible
alternatives that would permit the Corporation to meet the minimum required
level for capital adequacy purposes prior to December 31, 1999. The Federal
Reserve Bank considers the holding company capital adequacy in connection with
any application activity which requires their approval. Further, since the
Corporation's capital levels are below the well-capitalized category, the use of
expedited Federal Reserve Bank procedures in any application activity which
requires their approval will not be available to the Corporation until it once
again becomes well-capitalized. Certain statements in this paragraph relating to
future capital levels of the Corporation and Bank are forward-looking which may
or may not be accurate due to the impossibility of predicting future economic
and business events, including the ability of the Corporation to raise
additional capital, if needed, as well as other factors that are beyond the
control of the Corporation.
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, 1999 and 1998. Including net income of $3,169, the net
cash from operating activities for the first six months of 1999 generated $5,492
of available cash. Net cash from investing activities utilized $71,091 of
available cash, primarily as a result of $23,293 in net investment security
purchases, in addition to $45,926 of net loan fundings by the Corporation.
Proceeds from the three branches acquired, in addition to the increase in
short-term borrowings and long-term debt generated $73,206 in net cash from
financing activities.
Total cash inflows for the six month period in 1999 exceeded cash outflows by
$7,607 resulting in a cash and cash equivalent balance of $26,375 at June 30,
1999.
Year 2000
The Corporation's Board of Directors and management is aware of the possible
consequences the Y2K 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. In addition to developing contingency plans, the Corporation has
conducted internal employee training, as well as customer awareness seminars in
an effort to not only communicate the Y2K issue, but also to inform these
individuals of the Corporation's approach to address this issue. Testing of the
Corporation's core processing systems began early in the third quarter of 1998
and was temporarily delayed due to the installation of a new proof system in
conjunction with the time restrictions resulting from the three branch
acquisitions. Testing was completed, however, as of April 30, 1999.
Because the Y2K issue could affect the ability of the Corporation's customers to
conduct their business and operations in a timely and effective manner, any Y2K
disruptions could adversely impact the Corporation. The Corporation's ability to
process loan and deposit transactions could be affected, which could limit
sources of revenues and funding from customers, as well as impact the quality of
the loan portfolio. In order to assess the potential credit risk in the
Corporation's loan portfolio, a comprehensive review of all commercial loan
customers whose aggregate borrowings were $200,000 or greater was performed. No
borrowers were classified as having a high credit risk.
<PAGE>22
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. Approximately $1.3
million of the estimated $1.6 million has been incurred through June 30, 1999.
The expenditures related to this issue are comprised primarily of system
upgrades, consisting both of hardware and software, in addition to dedicated
personnel costs.
The above discussion of Y2K issues includes numerous forward-looking statements
reflecting management's current assessment and estimates with respect to the
Corporation's Y2K compliance efforts and the impact of Y2K issues on the
Corporation's business and operations. Various factors could cause actual
results to differ materially from those contemplated by such assessment,
estimates and forward-looking statements, including many factors that are beyond
the control of the Corporation. These factors included, but are not limited to,
representations by vendors and customers, technological advancements, economic
conditions, and competitive considerations.
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
("ALCO") and the Board of Directors.
The liquidity of the parent company is dependent on the receipt of dividends
from the banking subsidiary. Certain restrictions exist regarding the transfer
of funds from the subsidiary as explained in the "Capital" section of Item 2.
Management expects that in the aggregate, the banking subsidiary will continue
to have the ability to dividend adequate funds to the parent company. The
statements in this paragraph relating to the parent company receiving dividends
from the subsidiary bank are forward-looking statements which may or may not be
accurate due to the impossibility of predicting future economic and business
events.
The banking subsidiary's source of funding is predominantly core deposits
consisting of both commercial and individual deposits, maturities of securities,
repayments of loan principal and interest, federal funds purchased, securities
sold under agreements to repurchase, and long-term borrowings from the FHLBI.
The deposit base is diversified between individual and commercial accounts which
helps avoid dependence on large concentrations of funds. The Corporation does
not solicit certificates of deposit from brokers.
The Corporation's interest rate risk is measured by computing estimated changes
in net interest income and the net portfolio value ("NPV") of its cash flows
from assets and liabilities in the event of adverse movements in interest rates.
Interest rate risk exposure is measured using an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates. Another method also used to enhance the overall process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Corporation's assets and liabilities.
NPV represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities. This particular analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and sustained 1% - 2% increase and decrease in interest rates. The
Corporation's Board of Directors adopted an interest rate risk policy which
established a 45% minimum and maximum increase and decrease in the NPV in the
event of a sudden and sustained 1% - 2% increase or decrease in interest rates.
<PAGE>23
The following table represents the Corporation's projected change in NPV for the
various rate shock levels as of June 30, 1999:
<TABLE>
<CAPTION>
June 30, 1999
----------------------- Net Portfolio Value --------------------
Change Dollar Dollar Percentage
in Rates Amount Change Change
<S> <C> <C> <C>
+ 200 $ 25,205 $ (24,691) (49.48) %
+ 100 37,008 (12,888) (25.83)
Base 49,896 - -
- 100 61,742 11,846 23.74
- 200 73,513 23,617 47.33
</TABLE>
The above table indicates that as of June 30, 1999 the Corporation's estimated
NPV would be expected to decrease in the event of sudden and sustained increases
in prevailing interest rates. Conversely, in the event of sudden and sustained
decreases in prevailing interest rates, the Corporation's estimated NPV would be
expected to increase. In the event of a sudden and sustained increase or
decrease in interest rates of 2% or greater as of June 30, 1999, the
Corporation's estimated net portfolio value ("NPV") would exceed the policy
guidelines established by the Corporation's Board of Directors. Management
believes since the remaining expected life of the Corporation's assets are over
three and one-half times greater than the expected life of the liabilities, any
upward movement in the interest rate environment will result in a larger degree
of change in the value of the assets over that of the liabilities. Management
has reported this policy exception to the Corporation's Board of Directors and
will continue to monitor the results on an on-going basis. As of December 31,
1998, the Corporation's estimated changes in NPV were within the approved
guidelines established by the Board of Directors.
Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate any
actions management may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of discounted cash flows
utilizing certain prepayment assumptions and market interest rates.
Certain shortcomings are inherent in the method of computing the estimated NPV.
Actual results may differ from that information presented in the table above
should market conditions vary from the assumptions used in preparation of the
table information. If interest rates remain or decrease below current levels,
the proportion of adjustable rate loans in the loan portfolio could decrease in
future periods due to refinancing activity. Also, in the event of an interest
rate change, prepayment and early withdrawal levels would likely be different
from those assumed in the table. Lastly, the ability of many borrowers to repay
their adjustable rate debt may decline during a rising interest rate
environment.
Used in conjunction with the NPV analysis is the interest rate sensitivity gap
analysis. This analysis monitors the relationship between the maturity and
repricing of interest-earning assets and interest-bearing liabilities while
maintaining an acceptable interest rate spread. Interest rate sensitivity gap is
defined as the difference between the amount of maturing or repricing of
interest-earning assets and interest-bearing liabilities within specific and
defined time frames. A positive gap occurs when the amount of interest rate
sensitive assets exceed the amount of interest rate sensitive liabilities.
Conversely, a gap is considered negative when the amount of interest rate
sensitive liabilities exceed the interest rate sensitive assets. Generally,
during a time of rising interest rates, a negative gap would adversely affect
net interest income, while a positive gap would enhance net interest income. On
the other hand, during a time period of falling interest rates, a negative gap
would increase net interest income, while a positive gap would decrease net
interest income. It is the ALCO's responsibility to maintain a reasonable
balance between the exposure to interest rate fluctuations and earnings.
<PAGE>24
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 12, 1999.
(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>
2002 W. L. Hancock 2,021,309 43,691 0 0
2002 Roy D. Meeks 2,064,993 7 0 0
</TABLE>
(c) There were no other matters voted upon at the Annual Meeting of
Shareholders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for June 30, 1999
(b) Reports on Form 8-K
No Form 8-K was filed with the SEC during the quarter
ended June 30, 1999.
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, 1999 By /s/ Robert J. Weeder
--------------------------------
Robert J. Weeder
President
Date: August 13, 1999 By /s/ Marvin S. Veatch
--------------------------------
Marvin S. Veatch
Controller
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001035373
<NAME> LAFAYETTE BANCORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 21,075
<INT-BEARING-DEPOSITS> 684
<FED-FUNDS-SOLD> 5,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,732
<INVESTMENTS-CARRYING> 6,859
<INVESTMENTS-MARKET> 6,916
<LOANS> 457,583
<ALLOWANCE> 4,135
<TOTAL-ASSETS> 631,754
<DEPOSITS> 514,691
<SHORT-TERM> 29,690
<LIABILITIES-OTHER> 6,642
<LONG-TERM> 36,922
0
0
<COMMON> 2,399
<OTHER-SE> 41,410
<TOTAL-LIABILITIES-AND-EQUITY> 631,754
<INTEREST-LOAN> 17,777
<INTEREST-INVEST> 2,670
<INTEREST-OTHER> 303
<INTEREST-TOTAL> 20,750
<INTEREST-DEPOSIT> 8,406
<INTEREST-EXPENSE> 10,024
<INTEREST-INCOME-NET> 10,726
<LOAN-LOSSES> 370
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 8,157
<INCOME-PRETAX> 4,744
<INCOME-PRE-EXTRAORDINARY> 4,744
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,169
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.22
<LOANS-NON> 1,318
<LOANS-PAST> 831
<LOANS-TROUBLED> 173
<LOANS-PROBLEM> 4,557
<ALLOWANCE-OPEN> 4,241
<CHARGE-OFFS> 549
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 4,135
<ALLOWANCE-DOMESTIC> 3,736
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 399
</TABLE>
