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 SEPTEMBER 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 November 12, 1999
Common Stock, without par value 3,584,012 shares
<PAGE>
LAFAYETTE BANCORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- September 30, 1999 and December 31, 1998
Consolidated Statements of Income and
Comprehensive Income--Three Months Ended September 30, 1999 and 1998
Consolidated Statements of Income and
Comprehensive Income-Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows -- Nine Months Ended September 30,
1999 and 1998
Notes to Consolidated Financial Statements -- September 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 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
SIGNATURES
<PAGE>
ITEM 1.
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,264 $ 17,368
Federal funds sold - 1,400
-------------- -------------
Total cash and cash equivalents 21,264 18,768
Interest-bearing balances with other financial institutions 696 671
Securities available-for-sale (at market) 91,001 76,956
Securities held-to-maturity (market value $6,744
and $5,063) 6,714 4,879
Loans held for sale 6,614 10,086
Loans 477,368 353,828
Less: Allowance for loan losses (4,354) (4,241)
-------------- -------------
Loans, net 473,014 349,587
Federal Home Loan Bank stock (at cost) 1,897 1,539
Premises, furniture and equipment, net 9,817 7,953
Intangible assets 13,922 827
Accrued interest receivable and other assets 15,902 12,703
-------------- -------------
Total assets $ 640,841 $ 483,969
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 57,877 $ 48,657
Interest-bearing demand and savings deposits 229,781 170,308
Interest-bearing time deposits 233,699 176,581
-------------- -------------
Total deposits 521,357 395,546
Short-term borrowings 30,886 16,402
Long-term debt 36,415 23,854
Accrued interest payable and other liabilities 7,000 5,553
-------------- -------------
Total liabilities 595,658 441,355
Shareholders' equity
Common stock, no par value: 5,000,000 shares authorized;
2,403,806 and 2,394,035 shares issued; and 2,385,219
and 2,390,198 shares outstanding 2,404 2,394
Common stock to be distributed 1,194 -
Additional paid-in capital 32,849 32,620
Retained earnings 10,469 7,747
Unrealized gain / (loss) on securities available-for-sale,
net of tax (($1,068) and ($27)) (1,628) (42)
Less: Treasury stock, at cost (13,608 shares) (105) (105)
-------------- -------------
Total shareholders' equity 45,183 42,614
-------------- -------------
Total liabilities and shareholders' equity $ 640,841 $ 483,969
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended September 30, 1999 and 1998
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans $ 10,216 $ 7,678
Taxable securities 980 813
Tax exempt securities 393 261
Other 104 226
-------------- -------------
Total interest income 11,693 8,794
Interest expense
Deposits 4,748 3,807
Short-term borrowings 330 213
Long-term debt 593 367
-------------- -------------
Total interest expense 5,671 4,387
-------------- -------------
Net interest income 6,022 4,591
Provision for loan losses 270 180
-------------- -------------
Net interest income after provision for loan losses 5,752 4,411
Noninterest income
Income from fiduciary activities 295 225
Service charges on deposit accounts 429 325
Net realized gain on securities 8 -
Net gain on loan sales 200 350
Other service charges and fees 234 70
Other operating income 193 200
-------------- -------------
Total noninterest income 1,359 1,170
-------------- -------------
Noninterest expense
Salaries and employee benefits 2,569 2,056
Occupancy expenses, net 281 229
Equipment expenses 310 250
Intangible asset amortization 183 20
Other operating expenses 1,130 802
-------------- -------------
Total noninterest expense 4,473 3,357
-------------- -------------
Income before income taxes 2,638 2,224
Income taxes 888 758
-------------- -------------
Net income 1,750 1,466
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities (157) 347
--------------- -------------
Comprehensive income $ 1,593 $ 1,813
============== =============
Basic earnings per share $ .49 $ .41
============== ===============
Diluted earnings per share $ .47 $ .40
============== ===============
Dividend per share $ .09 $ .08
============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the nine months ended September 30, 1999 and 1998
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans $ 27,993 $ 22,027
Taxable securities 2,910 2,445
Tax exempt securities 1,133 672
Other 407 576
-------------- -------------
Total interest income 32,443 25,720
Interest expense
Deposits 13,154 11,066
Short-term borrowings 973 545
Long-term debt 1,568 982
-------------- -------------
Total interest expense 15,695 12,593
-------------- -------------
Net interest income 16,748 13,127
Provision for loan losses 640 540
-------------- -------------
Net interest income after provision for loan losses 16,108 12,587
Noninterest income
Income from fiduciary activities 798 677
Service charges on deposit accounts 1,144 983
Net realized gain on securities 20 -
Net gain on loan sales 767 844
Other service charges and fees 656 539
Other operating income 519 560
-------------- -------------
Total noninterest income 3,904 3,603
-------------- -------------
Noninterest expense
Salaries and employee benefits 7,209 5,970
Occupancy expenses, net 790 661
Equipment expenses 939 756
Intangible asset amortization 422 61
Other operating expenses 3,270 2,480
-------------- -------------
Total noninterest expense 12,630 9,928
-------------- -------------
Income before income taxes 7,382 6,262
Income taxes 2,463 2,130
-------------- -------------
Net income 4,919 4,132
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities (1,586) 399
--------------- -------------
Comprehensive income $ 3,333 $ 4,531
============== =============
Basic earnings per share $ 1.37 $ 1.16
============== =============
Diluted earnings per share $ 1.33 $ 1.13
============== =============
Dividend per share $ .28 $ .24
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,919 $ 4,132
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 663 476
Intangible asset and security amortization, net 534 232
of discount accretion
Provision for loan losses 640 540
Net realized gain on securities (20) -
Net realized (gain) loss on sale of :
Other real estate - (43)
Change in assets and liabilities:
Loans originated for sale (56,635) (57,273)
Loans sold 60,107 57,321
Accrued interest receivable and other assets (2,236) (1,291)
Accrued interest payable and other liabilities 1,447 600
----------- -----------
Net cash from operating activities 9,419 4,694
Cash flows from investing activities
Change in interest-bearing balances with other
financial institutions (25) -
Purchase of securities available-for-sale (124,169) (44,935)
Proceeds from sales of securities available-for-sale 7,318 3,286
Proceeds from maturities of securities available-for-sale 100,099 29,573
Purchase of securities held-to-maturity (2,000) (2,532)
Proceeds from maturities of securities held-to-maturity 158 1,908
Loans made to customers, net of payments collected (65,762) (24,520)
Purchase of FHLB stock (358) (297)
Property and equipment expenditures (2,527) (665)
Proceeds from sales of other real estate - 251
----------- -----------
Net cash from investing activities (87,266) (37,931)
Cash flows from financing activities
Net change in deposit accounts 8,796 26,746
Cash received in branch acquisition for liabilities assumed,
net of assets acquired 45,266 -
Net change in short-term borrowings 14,484 (5,113)
Proceeds from long-term debt 14,000 4,800
Payments on long-term debt (1,439) (740)
Common stock issued 238 69
Dividends paid (1,002) (866)
Purchase of treasury stock - (7)
----------- ------------
Net cash from financing activities 80,343 24,889
Net change in cash and cash equivalents 2,496 (8,348)
Cash and cash equivalents at beginning of year 18,768 30,901
----------- -----------
Cash and cash equivalents at end of period $ 21,264 $ 22,553
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 15,155 $ 12,401
Income taxes 2,081 2,081
Non-cash investing activity
Loans transferred to other real estate $ 104 $ -
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(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
In September 1999, the Corporation declared a three-for-two stock split to
shareholders of record September 30, 1999. A total of 1,194,591 common shares
were issued November 1, 1999 in connection with the three-for-two split. These
1,194,591 shares are reflected as common stock to be distributed in the
September 30, 1999 balance sheet.
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
and splits.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Basic earnings per share
Net income $ 4,919 $ 4,132
Weighted average shares outstanding 3,579,547 3,574,148
------------- -------------
Basic earnings per share $ 1.37 $ 1.16
============= =============
Diluted earnings per share
Net income $ 4,919 $ 4,132
Weighted average shares outstanding 3,579,547 3,574,148
Diluted effect of assumed
exercise of Stock Options 111,363 71,313
------------- -------------
Diluted average shares outstanding 3,690,910 3,645,461
--------------- -------------
Diluted earnings per share $ 1.33 $ 1.13
=============== ===============
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Basic earnings per share
Net income $ 1,750 $ 1,466
Weighted average shares outstanding 3,581,221 3,574,262
------------- -------------
Basic earnings per share $ .49 $ .41
============= =============
Diluted earnings per share
Net income $ 1,750 $ 1,466
Weighted average shares outstanding 3,581,221 3,574,262
Diluted effect of assumed
exercise of Stock Options 109,830 76,721
------------- -------------
Diluted average shares outstanding 3,691,051 3,650,983
------------- -------------
Diluted earnings per share $ .47 $ .40
============== ==============
</TABLE>
NOTE 3 - SECURITIES
The amortized cost and estimated market values of securities are as follows at
September 30, 1999:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 14,218 $ 14,062
Obligations of states and political subdivisions 27,576 26,318
Corporate obligations 2,513 2,468
Mortgage-backed and other asset-backed securities 48,359 47,157
Other securities 1,031 996
----------- -----------
$ 93,697 $ 91,001
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 6,714 $ 6,744
=========== ===========
The amortized cost and estimated market values of securities are as follows at
December 31, 1998:
Amortized Estimated
Cost Market Value
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
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
NOTE 4 - LOANS
Loans are comprised of the following:
<S> <C> <C>
September 30, December 31,
1999 1998
Commercial and agricultural loans $ 184,794 $ 115,198
Real estate construction loans 44,275 28,043
Residential real estate loans 188,628 160,655
Installment loans to individuals 59,671 49,932
---------------- ---------------
Total loans $ 477,368 $ 353,828
================ ===============
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Balance, January 1 $ 4,241 $ 3,464
Provision charged to operations 640 540
Loans charged off (658) (267)
Recoveries on loans previously charged off 131 131
------------- --------------
Balance, September 30 $ 4,354 $ 3,868
============= ==============
</TABLE>
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
Repurchase agreements $ 24,086 $ 15,788
Treasury tax and loan open-end note 2,800 614
Federal funds purchased 4,000 -
---------------- ---------------
Total short-term borrowings $ 30,886 $ 16,402
================ ===============
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except 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>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Quarter ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 6,186 $ 55 $ - $ 6,241
Net gain on loan sales - 200 - 200
Other revenue 829 35 295 1,159
Noncash items:
Depreciation 224 11 14 249
Provision for loan loss 270 - - 270
Segment profit 2,719 68 107 2,894
Segment assets 633,388 6,777 211 640,376
1998 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 4,526 $ 56 $ - $ 4,582
Net gain on loan sales - 350 - 350
Other revenue 595 - 225 820
Noncash items:
Depreciation 147 7 6 160
Provision for loan loss 180 - - 180
Segment profit 2,078 243 28 2,349
Segment assets 460,522 7,731 173 468,426
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Significant segment totals are reconciled to the financial statements as
follows:
Quarter ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reportable Consolidated
1999 Segments Other Totals
- ---- -------- ----- ------
Net interest income (expense) $ 6,241 $ (219) $ 6,022
Provision for loan loss 270 - 270
Net gain on loan sales 200 - 200
Other revenue 1,159 - 1,159
Profit 2,894 (1,144) 1,750
Assets 640,376 465 640,841
Reportable Consolidated
1998 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 4,582 $ 9 $ 4,591
Provision for loan loss 180 - 180
Net gain on loan sales 350 - 350
Other revenue 820 - 820
Profit 2,349 (883) 1,466
Assets 468,426 623 469,049
</TABLE>
Amounts included in the "other" column are as follows.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Income:
Holding company net interest
income (expense) $ (219) $ 9
Profit:
Holding company net interest
income (expense) (219) 9
Holding company expenses (37) (134)
Income tax expense (888) (758)
Assets:
Holding company assets 465 623
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Nine months ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 17,034 $ 172 $ - $ 17,206
Net gain on loan sales - 767 - 767
Other revenue 2,260 79 798 3,137
Noncash items:
Depreciation 607 30 26 663
Provision for loan loss 640 - - 640
Segment profit 7,273 423 281 7,977
Segment assets 633,388 6,777 211 640,376
1998 Mortgage Total
Banking Banking Trust Segments
Net interest income $ 12,968 $ 141 $ - $ 13,109
Net gain on loan sales - 844 - 844
Other revenue 2,070 12 677 2,759
Noncash items:
Depreciation 438 20 18 476
Provision for loan loss 540 - - 540
Segment profit 6,004 539 125 6,668
Segment assets 460,522 7,731 173 468,426
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - SEGMENT INFORMATION (Continued)
Significant segment totals are reconciled to the financial statements as
follows:
Nine months ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reportable Consolidated
1999 Segments Other Totals
- ---- -------- ----- ------
Net interest income (expense) $ 17,206 $ (458) $ 16,748
Provision for loan loss 640 - 640
Net gain on loan sales 767 - 767
Other revenue 3,137 - 3,137
Profit 7,977 (3,058) 4,919
Assets 640,376 465 640,841
Reportable Consolidated
1998 Segments Other Totals
- ---- -------- ----- ------
Net interest income $ 13,109 $ 18 $ 13,127
Provision for loan loss 540 - 540
Net gain on loan sales 844 - 844
Other revenue 2,759 - 2,759
Profit 6,668 (2,536) 4,132
Assets 468,426 623 469,049
</TABLE>
Amounts included in the "other" column are as follows.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
Income:
Holding company net interest
income (expense) $ (458) $ 18
Profit:
Holding company net interest
income (expense) (458) 18
Holding company expenses (137) (424)
Income tax expense (2,463) (2,130)
Assets:
Holding company assets 465 623
</TABLE>
<PAGE>
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 $1,750, or $.49 per share for the third quarter of 1999
compared to $1,466, or $.41 per share for the third quarter of 1998. Net income
increased $787, or 19.0% to $4,919 for the nine month period ending September
30, 1999 compared to that same 1998 time period. Basic earnings per share were
$1.37 and $1.16 for the nine month period ending September 30, 1999 and 1998,
respectively. Although actual loan growth of $19,785 occurred during the third
quarter of 1999, it was the successful deployment of deposit funds acquired in
the March 12th Bank One branch acquisition into loans that contributed to the
continued increase in interest income. Higher interest expense along with higher
overhead operating costs associated with the purchase of the Jasper County
branches partially offset this increase in interest income.
Return on average assets (ROA) and return on average equity (ROE) for the three
and nine months ending September 30, 1999 and 1998 are summarized below:
Three months ending Nine months ending
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
ROA 1.10% 1.27% 1.11% 1.23%
ROE 15.68% 14.15% 14.87% 13.68%
<PAGE>
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 nine months ended September 30, 1999 and 1998, net interest income was
$16,748 and $13,127, respectively. This represents a $3,621, or 27.6% increase
over the prior year. Net interest income for the third quarter of 1999 was
$1,431 or 31.2% higher than for that same three month period ending September
30, 1998. The Corporation's continued loan growth during the third quarter, in
addition to the second quarter deployment of the deposit funds obtained in the
Jasper County branch acquisition, accounted for the higher net interest income.
Total interest income for the nine month period ending September 30, 1999 and
1998 was $32,443 and $25,720, respectively. Total interest income for the third
quarter of 1999 was $2,899 or 33.0% greater than for that same quarter in 1998.
Interest and fees on loans increased $5,966, or 27.1%, to $27,993 for the first
nine months of 1999, compared to $22,027 for the first nine months of 1998. For
the third quarter of 1999, interest and fees on loans increased $2,538, or 33.1%
compared to the second quarter of 1998. While investment security income
contributed to increased earnings during 1999 through additional funds
investing, it was, once again, the Corporation's ongoing loan growth that
accounted for the largest portion of the total interest income increase. While
the loan portfolio increased $19,785 during the third quarter of 1999, average
loan balances, including loans acquired in the branch acquisition, increased
$141,334, or 42.5% from September 1998 to September 1999.
Total interest expense for the nine month period ending September 30, 1999 and
1998 was $15,695 and $12,593, respectively. For the third quarter of 1999, total
interest expense increased $1,284, or 29.3%, compared to the same 1998 time
period. Total average interest-bearing liabilities, including short-term and
long-term borrowings, increased $152,816, or 40.0% from September 1998 to
September 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 79% of the increase.
While the increase in average interest-bearing liabilities gave rise to an
increase in overall interest expense, overall cost of funds continue to decline.
Although interest rates experienced a slight upward movement during the period,
certain interest-bearing deposits continued to reprice at a lower rate when
compared to the rates 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>
Nine Months Change from
Ended September 30, Prior Period
1999 1998 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $33,043 $26,141 $6,902 26.4%
Interest expense 15,695 12,593 3,102 24.6%
------ ------ ------
Net interest income $ 17,348 $ 13,548 $ 3,800 28.0%
======== ======== =======
</TABLE>
<PAGE>
<TABLE>
Three Months Change from
Ended September 30, Prior Period
1999 1998 Amount Percent
---- ---- ------ -------
<CAPTION>
<S> <C> <C> <C> <C>
Interest income $11,898 $9,012 $2,886 32.0%
Interest expense 5,671 4,387 1,284 29.3%
----- ----- -----
Net interest income $6,227 $4,625 $1,602 34.6%
====== ====== ======
</TABLE>
Net interest income, on a tax equivalent basis, for the first nine months of
1999 was $3,800 or 28.0% higher than for that same nine month period ending
September 30, 1998. For the third quarter of 1999, net interest income, on a tax
equivalent basis, was $1,602 or 34.6% higher than for the same 1998 time period.
The net interest margin, on a tax equivalent basis for the nine months ending
September 30, 1999 and 1998 was 4.25% and 4.36%, respectively. While the
Corporation has benefited from the decline in the overall cost of funds, it has
also realized lower yields on loans it has funded, primarily due to the
competitive market in which it operates. Although the increase in loan volume
has contributed to higher net interest income, the lower loan yields coupled
with the loan growth more than offset the overall lower cost of funds which
resulted in the lower net interest margin.
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 $640 and $540 for the first nine
months of 1999 and 1998, respectively. The allowance for loan losses was $4,354
and $4,241 at September 30, 1999 and December 31, 1998, respectively. When
adding the credit valuation account amount with the allowance for loan loss
account balance at September 30, 1999, the allowance as a percentage of loans
was 1.03%. This same ratio at December 31, 1998 was 1.20%. Although loan
charge-off's were significantly lower during the third quarter when compared to
the previous two quarters, the loan loss provision kept pace with the third
quarter loan growth, and the allowance as a percentage of loans remained
unchanged, at 1.03%, from the prior quarter-end.
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>
<S> <C> <C>
September 30, December 31,
1999 1998
Loans past due 90 days or more $ 1,437 $ 775
Nonaccrual loans 1,207 1,468
Restructured loans 165 197
---------------- ---------------
Total nonperforming loans $ 2,809 $ 2,440
================ ===============
</TABLE>
<PAGE>
Total nonperforming loans increased during the first nine months of 1999. While
nonaccrual and restructured loans declined $261 and $32, respectively, from the
December 31, 1998 totals, loans past due ninety days or more increased $662,
primarily due to the addition of two credits.
The Corporation continues to have approximately 17% of its outstanding loans to
agricultural-related borrowers. Given the ongoing price issues in both the hog
and grain markets, management is continuously monitoring these specific industry
credits.
Management believes overall credit quality remains good. Despite the increase in
net charge-off's and higher total nonperforming loans, total nonperforming loans
as a percentage of total loans declined to .59% at September 30, 1999, compared
to .69% at December 31, 1998.
Noninterest Income and Expense
Noninterest income totaled $3,904 for the first nine months of 1999, compared to
$3,603 for that same period of 1998, an increase of $301, or 8.4%. Noninterest
income for the third quarter increased $189, or 16.2% to $1,359 compared to the
prior year.
Income from fiduciary activities increased for the first nine months and also
for the third 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 16.4% and 32.0%
increase in revenue for the nine months and the three months ended September 30,
1999, respectively, when compared to that same 1998 time period.
Net gain on loans originated and sold in the secondary mortgage market were $767
and $844 for the first nine months of 1999 and 1998 respectively, a decrease of
$77, or 9.1%. Net gain on loans originated and sold for the third quarter was
$200, a $150, or 42.9% decrease from the 1998 amount posted. Loan sales for the
nine months ended September 30, 1999 increased $2,786, or 4.9% compared to the
prior year, while sales for the three months ended September 30, 1999 declined
$6,463, or 30.5% when compared to that same time period one year earlier.
Although the local economy continues to remain strong, competitive pricing
pressures led to lower margins realized on loans sold. Additionally, the rise in
interest rates impacted the number of fundings, especially refinancings, during
the third quarter of 1999.
Other service charges and fees were $656 and $539 for the first nine months of
1999 and 1998, respectively, an increase of $117, or 21.7%. For the third
quarter of 1999, other service charges and fees increased $164, or 234.3%
compared to the prior year. ATM and safe deposit box fees were responsible for
the majority of the increase, as a result of the expanded Jasper County customer
base.
Noninterest expense totaled $12,630 for the first nine months of 1999, compared
to $9,928 for that same period of 1998, an increase of $2,702, or 27.2%. Total
noninterest expense for the third quarter of 1999 was $1,116, or 33.2% higher
than the prior year.
Salary and employee benefits expense was $7,209 for the first nine months of
1999, an increase of $1,239, or 20.8%, from the $5,970 for the first nine months
of 1998. Total salaries and employee benefits for the third quarter of 1999 was
$2,569, a $513, or 24.9% increase from the 1998 amount. With the addition of
approximately fifty-six employees in connection with the branch acquisitions in
Jasper County, total salaries and benefits, including health insurance costs,
were significantly higher than in previous periods.
Occupancy and equipment expenses were also affected by the branch acquisitions,
as repairs and upgrades continued to be made to the facilities, in addition to
the depreciation recorded on the facilities and equipment acquired.
<PAGE>
Intangible asset amortization increased significantly for both the nine months
and three months ended September 30, 1999 solely as a result of the goodwill and
core deposit amortization related to the acquisition of the Jasper County
branches.
Other operating expenses were $3,270 for the first nine months of 1999, an
increase of $790, or 31.9%, compared to $2,480 for the first nine months of
1998. For the third quarter of 1999, other operating expenses increased $328, or
40.9% from the prior year. The majority of this increase for the nine months and
three months ended September 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 daily operation
of the three Jasper County branches.
Income Taxes
The Corporation's effective tax rate for the three months ending September 30,
1999 and 1998 was 33.7% and 34.1%, respectively. For the nine months ended
September 30, 1999 and 1998, the effective tax rate for the Corporation was
33.4% and 34.0%, respectively. Continued increases in interest on tax-exempt
securities and loans were a significant factor in the lower effective tax rate
realized.
FINANCIAL CONDITION
Total assets were $640,841 at September 30, 1999 compared to $483,969 at
December 31, 1998, an increase of $156,872, or 32.4%. 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 $2,496, $15,880, and $123,427 were realized in cash and cash
equivalents, investment securities, and net loans, respectively, for the nine
months ended September 30, 1999.
Total deposits increased $125,811 to $521,357 at September 30, 1999 compared to
$395,546 at December 31, 1998. Short-term borrowings increased $14,484 during
the first nine months primarily due to increases in repurchase agreements and
federal funds purchased. Long-term debt at September 30, 1999 was $36,415, an
increase of $12,561 when compared to December 31, 1998. Loan proceeds of
$14,000, of which $700 has been repaid, was obtained by the Corporation and
injected into capital of its wholly-owned subsidiary bank. Principal repayments
of $739 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 result in the initiation of 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>
At September 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>
<S> <C> <C>
September 30, December 31,
1999 1998
Tier 1 capital
Shareholders' equity $ 45,183 $ 42,614
Less: Intangibles (13,909) (806)
Add/less: Unrealized loss/(gain) on securities 1,628 42
---------------- ---------------
TOTAL TIER 1 CAPITAL $ 32,902 $ 41,850
================ ===============
Total capital
Tier 1 capital $ 32,902 $ 41,850
Allowable allowance for loan losses 4,354 4,241
---------------- ---------------
TOTAL CAPITAL $ 37,256 $ 46,091
================ ===============
RISK WEIGHTED ASSETS $ 477,916 $ 353,215
================ ===============
AVERAGE ASSETS $ 621,289 $ 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
September 30, December 31, Capital Adequacy Well-Capitalized
1999 1998 Requirement Requirement
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Tier I Capital
(to average assets)
Consolidated 5.3% 8.8% 4.0% 5.0%
Lafayette Bank and Trust 7.2% 8.7% 4.0% 5.0%
Tier I Capital
(to risk weighted assets)
Consolidated 6.9% 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 7.8% 13.1% 8.0% 10.0%
Lafayette Bank and Trust 10.2% 13.0% 8.0% 10.0%
</TABLE>
<PAGE>
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 September 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. Despite improvement during
the third quarter, the Corporation's consolidated capital level as of September
30, 1999 still remained slightly below the required level for capital adequacy
purposes. Management will continue to monitor the Corporation's consolidated
capital level and, based on current projections, anticipates meeting or being
very near the minimum required level for capital adequacy purposes on 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 give
rise to the change in the Corporation's cash and cash equivalents for the nine
months ended September 30, 1999 and 1998. Including net income of $4,919, the
net cash from operating activities for the first nine months of 1999 generated
$9,419 of available cash. Net cash from investing activities utilized $87,266 of
available cash, primarily as a result of $18,594 in net investment security
purchases, in addition to $65,762 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 $80,343 in net cash from
financing activities.
Total cash inflows for the nine month period in 1999 exceeded cash outflows by
$2,496 resulting in a cash and cash equivalent balance of $21,264 at September
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 addressing this issue. Testing of
the Corporation's core processing was completed as of April 30, 1999. Management
will continue to monitor the preparedness of the Corporation's systems and
contingency plans, as well as those of significant vendors and customers,
through year-end.
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.
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 $1.5
million of the estimated $1.6 million has been incurred through September 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.
<PAGE>
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 bank. 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 FHLB of
Indianapolis. 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.
The following table represents the Corporation's projected change in NPV for the
various rate shock levels as of September 30, 1999:
September 30, 1999
<TABLE>
<CAPTION>
----------------------- Net Portfolio Value --------------------
<S> <C> <C> <C>
Change Dollar Dollar Percentage
in Rates Amount Change Change
+ 200 $ 23,002 $ (26,514) (53.55) %
+ 100 35,578 (13,938) (28.15)
Base 49,516 - -
- 100 64,189 14,673 29.63
- 200 75,802 26,286 53.09
</TABLE>
<PAGE>
The above table indicates that as of September 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 September 30,
1999, the Corporation's estimated net portfolio value ("NPV") would exceed the
policy guidelines established by the Corporation's Board of Directors. The
increase in mortgage loan totals during the third quarter extended the expected
asset life, while the expected life of liabilities remained virtually unchanged.
This, along with the higher interest rate environment, caused a larger change in
values than existed at the previous quarter-end. Management believes since the
remaining expected life of the Corporation's assets are over four times greater
than the expected life of the liabilities, any additional upward movement in the
interest rate environment would result in even 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>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for September 30, 1999
(b) Reports on Form 8-K
No Form 8-K was filed with the SEC during the quarter
ended September 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: November 12, 1999 By /s/ Robert J. Weeder
---------------------------------------
Robert J. Weeder
President
Date: November 12, 1999 By /s/ Marvin S. Veatch
---------------------------------------
Marvin S. Veatch
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,264
<INT-BEARING-DEPOSITS> 696
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,001
<INVESTMENTS-CARRYING> 6,714
<INVESTMENTS-MARKET> 6,744
<LOANS> 477,368
<ALLOWANCE> 4,354
<TOTAL-ASSETS> 640,841
<DEPOSITS> 521,357
<SHORT-TERM> 30,886
<LIABILITIES-OTHER> 7,000
<LONG-TERM> 36,415
0
0
<COMMON> 2,404
<OTHER-SE> 42,779
<TOTAL-LIABILITIES-AND-EQUITY> 640,841
<INTEREST-LOAN> 27,993
<INTEREST-INVEST> 4,043
<INTEREST-OTHER> 407
<INTEREST-TOTAL> 32,443
<INTEREST-DEPOSIT> 13,154
<INTEREST-EXPENSE> 15,695
<INTEREST-INCOME-NET> 16,748
<LOAN-LOSSES> 640
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 12,630
<INCOME-PRETAX> 7,382
<INCOME-PRE-EXTRAORDINARY> 7,382
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,919
<EPS-BASIC> 1.37
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 4.25
<LOANS-NON> 1,207
<LOANS-PAST> 1,437
<LOANS-TROUBLED> 165
<LOANS-PROBLEM> 4,875
<ALLOWANCE-OPEN> 4,241
<CHARGE-OFFS> 658
<RECOVERIES> 131
<ALLOWANCE-CLOSE> 4,354
<ALLOWANCE-DOMESTIC> 4,151
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 203
</TABLE>
