U.S. 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, 2000.
[ ] 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 10, 2000
Common Stock, without par value 3,952,131 shares
<PAGE>
LAFAYETTE BANCORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- September 30, 2000 and December 31, 1999
Consolidated Statements of Income and
Comprehensive Income -- Three Months Ended September 30, 2000 and 1999
Consolidated Statements of Income and
Comprehensive Income -- Nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows -- Nine Months Ended September 30,
2000 and 1999
Notes to Consolidated Financial Statements -- September 30, 2000
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 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, except share data)
--------------------------------------------------------------------------------
<TABLE>
(Unaudited)
December 31, September 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,384 $ 28,370
Federal funds sold 6,150 2,200
-------------- -------------
Total cash and cash equivalents 27,534 30,570
Securities available-for-sale (at market) 77,887 79,722
Securities held-to-maturity (market value $4,542
and $4,709) 4,484 4,712
Loans held for sale 3,546 3,174
Loans 534,325 489,070
Less: Allowance for loan losses (5,086) (4,618)
-------------- -------------
Loans, net 529,239 484,452
Federal Home Loan Bank stock (at cost) 2,200 1,897
Premises, furniture and equipment, net 11,575 10,583
Intangible assets 13,192 13,747
Accrued interest receivable and other assets 16,672 16,292
-------------- -------------
Total assets $ 686,329 $ 645,149
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 61,180 $ 63,206
Interest-bearing demand and savings deposits 227,906 229,302
Interest-bearing time deposits 268,595 229,739
-------------- -------------
Total deposits 557,681 522,247
Short-term borrowings 28,064 27,273
FHLB advances 30,823 30,027
Note payable 11,900 12,950
Accrued interest payable and other liabilities 7,309 6,867
-------------- -------------
Total liabilities 635,777 599,364
Shareholders' equity
Common stock, no par value: 20,000,000 shares authorized;
3,593,088 and 3,586,140 shares issued and outstanding 3,593 3,586
Common stock to be distributed; 359,043 shares 359 -
Additional paid-in capital 38,008 32,886
Retained earnings 10,005 11,269
Accumulated other comprehensive income (1,413) (1,956)
-------------- --------------
Total shareholders' equity 50,552 45,785
-------------- -------------
Total liabilities and shareholders' equity $ 686,329 $ 645,149
============== =============
</TABLE>
See accomplanying notes to consolidated financial statements.
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME For the three
months ended September 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Interest income
Loans $ 12,036 $ 10,216
Taxable securities 826 991
Tax exempt securities 413 393
Other 152 93
-------------- -------------
Total interest income 13,427 11,693
Interest expense
Deposits 6,069 4,748
Short-term borrowings 416 330
Other borrowings 716 593
-------------- -------------
Total interest expense 7,201 5,671
-------------- -------------
Net interest income 6,226 6,022
Provision for loan losses 300 270
-------------- -------------
Net interest income after provision for loan losses 5,926 5,752
Noninterest income
Income from fiduciary activities 245 295
Service charges on deposit accounts 507 429
Net realized gain/(loss) on securities (12) 8
Net gain on loan sales 193 200
Other service charges and fees 271 237
Other operating income 199 193
-------------- -------------
Total noninterest income 1,403 1,362
-------------- -------------
Noninterest expense
Salaries and employee benefits 2,776 2,569
Occupancy expenses, net 325 281
Equipment expenses 446 310
Intangible amortization 185 183
Other operating expenses 1,203 1,133
-------------- -------------
Total noninterest expense 4,935 4,476
-------------- -------------
Income before income taxes 2,394 2,638
Income taxes 760 888
-------------- -------------
Net income 1,634 1,750
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 460 (157)
-------------- --------------
Comprehensive income $ 2,094 $ 1,593
============== =============
Basic earnings per share $ .41 $ .44
============== ==============
Diluted earnings per share $ .41 $ .43
============== ==============
Dividends per share $ .09 $ .08
============== ==============
</TABLE>
See accomplanying notes to consolidated financial statements.
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the nine months ended September 30,
2000 and 1999 (Dollar amounts in
thousands, except per share data)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Interest income
Loans $ 34,276 $ 27,993
Taxable securities 2,508 2,921
Tax exempt securities 1,239 1,133
Other 405 396
-------------- -------------
Total interest income 38,428 32,443
Interest expense
Deposits 16,696 13,154
Short-term borrowings 1,241 973
Other borrowings 1,884 1,568
-------------- -------------
Total interest expense 19,821 15,695
-------------- -------------
Net interest income 18,607 16,748
Provision for loan losses 900 640
-------------- -------------
Net interest income after provision for loan losses 17,707 16,108
Noninterest income
Income from fiduciary activities 878 798
Service charges on deposit accounts 1,373 1,144
Net realized gain/(loss) on securities (12) 20
Net gain on loan sales 464 767
Other service charges and fees 796 667
Other operating income 790 519
-------------- -------------
Total noninterest income 4,289 3,915
-------------- -------------
Noninterest expense
Salaries and employee benefits 7,806 7,209
Occupancy expenses, net 907 790
Equipment expenses 1,279 939
Intangible amortization 555 422
Other operating expenses 3,536 3,281
-------------- -------------
Total noninterest expense 14,083 12,641
-------------- -------------
Income before income taxes 7,913 7,382
Income taxes 2,674 2,463
-------------- -------------
Net income 5,239 4,919
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 543 (1,586)
-------------- --------------
Comprehensive income $ 5,782 $ 3,333
============== ==============
Basic earnings per share $ 1.33 $ 1.25
============== ==============
Diluted earnings per share $ 1.31 $ 1.22
============== ==============
Dividends per share $ .28 $ .25
============== ==============
</TABLE>
See accomplanying notes to consolidated financial statements.
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Dollar amounts in thousands)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,239 $ 4,919
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 983 663
Net amortization 546 534
Provision for loan losses 900 640
Net realized (gain)/loss on securities 12 (20)
Net realized (gain) /loss on sale of :
Other real estate (5) -
Change in assets and liabilities:
Loans originated for sale (37,190) (56,635)
Loans sold 36,818 60,107
Accrued interest receivable and other assets (1,206) (2,236)
Accrued interest payable and other liabilities 442 1,447
----------- -----------
Net cash from operating activities 6,539 9,419
Cash flows from investing activities
Change in interest-bearing balances with
other financial institutions - (25)
Purchase of securities available-for-sale (49,160) (124,169)
Proceeds from sales of securities available-for-sale 2,375 7,318
Proceeds from maturities of securities available-for-sale 49,520 100,099
Purchase of securities held-to-maturity - (2,000)
Proceeds from maturities of securities held-to-maturity 229 158
Loans made to customers, net of payments collected (45,687) (65,762)
Purchase of Federal Home Loan Bank stock (303) (358)
Property and equipment expenditures (1,975) (2,527)
Proceeds from sales of other real estate 470 -
----------- -----------
Net cash from investing activities (44,531) (87,266)
Cash flows from financing activities
Net change in deposit accounts 35,434 8,796
Cash received in branch acquisition for liabilities assumed, net
of assets acquired - 45,266
Net change in short-term borrowings 791 14,484
Proceeds from FHLB advances 17,000 -
Payments on FHLB advances (16,204) (739)
Proceeds from note payable - 14,000
Payments on note payable (1,050) (700)
Common stock issued 98 238
Dividends paid (1,113) (1,002)
------------ ------------
Net cash from financing activities 34,956 80,343
Net change in cash and cash equivalents (3,036) 2,496
Cash and cash equivalents at beginning of period 30,570 18,768
----------- -----------
Cash and cash equivalents at end of period $ 27,534 $ 21,264
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 19,386 $ 15,155
Income taxes 2,610 2,081
Non-cash investing activity
Loans transferred to other real estate $ 50 $ 104
</TABLE>
See accomplanying notes to consolidated financial statements.
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Dollar amounts in thousands, except share and 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. Certain
prior period information has been reclassified to correspond with the 2000
presentation.
NOTE 2 - PER SHARE DATA
In September 2000, the Corporation declared a 10% stock dividend to shareholders
of record October 2, 2000. A total of 359,043 common shares were issued November
1, 2000 in connection with the 10% stock dividend. These 359,043 shares are
reflected as common stock to be distributed in the September 30, 2000 balance
sheet, and the stock dividend reduced retained earnings by $5,390 and increased
additional paid-in capital by $5,030.
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 has been retroactively restated for stock dividends and
splits.
<TABLE>
Nine Months Ended
-----------------
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Basic earnings per share
Net income $ 5,239 $ 4,919
Weighted average shares outstanding 3,949,445 3,938,856
------------- --------------
Basic earnings per share $ 1.33 $ 1.25
============= ==============
Diluted earnings per share
Net income $ 5,239 $ 4,919
Weighted average shares outstanding 3,949,445 3,938,856
Dilutive effect of assumed exercise
of Stock Options 40,037 97,724
------------- --------------
Diluted average shares outstanding 3,989,482 4,036,580
-------------- --------------
Diluted earnings per share $ 1.31 $ 1.22
=============== ==============
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
Three Months Ended
------------------
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Basic earnings per share
Net income $ 1,634 $ 1,750
Weighted average shares outstanding 3,952,256 3,940,530
------------- --------------
Basic earnings per share $ .41 $ .44
============= ==============
Diluted earnings per share
Net income $ 1,634 $ 1,750
Weighted average shares outstanding 3,952,256 3,940,530
Dilutive effect of assumed exercise
of Stock Options 25,834 97,761
------------- --------------
Diluted average shares outstanding 3,978,090 4,038,291
-------------- --------------
Diluted earnings per share $ .41 $ .43
============== ===============
</TABLE>
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities are as follows at
September 30, 2000:
<TABLE>
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Securities Available-for-Sale
U.S. Government and its agencies $ 5,202 $ 5,085
Obligations of states and political subdivisions 30,223 29,525
Corporate obligations 2,000 1,996
Mortgage-backed and other asset-backed securities 40,241 38,835
Other securities 2,562 2,446
----------- -----------
$ 80,228 $ 77,887
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 4,484 $ 4,542
=========== ===========
The amortized cost and estimated fair values of securities are as follows at
December 31, 1999:
Amortized Estimated
Cost Fair Value
Securities Available-for-Sale
U.S. Government and its agencies $ 5,207 $ 5,005
Obligations of states and political subdivisions 28,785 27,268
Corporate obligations 2,000 1,973
Mortgage-backed and other asset-backed securities 44,402 42,888
Other securities 2,567 2,588
----------- -----------
$ 82,961 $ 79,722
=========== ===========
Securities Held-to-Maturity
Obligations of states and political subdivisions $ 4,712 $ 4,709
=========== ===========
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
--------------------------------------------------------------------------------
NOTE 4 - LOANS
Loans are comprised of the following:
<TABLE>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Commercial and agricultural loans $ 220,094 $ 192,760
Real estate construction loans 52,214 47,375
Residential real estate loans 210,438 197,181
Installment loans to individuals 51,579 51,754
---------------- ---------------
Total loans $ 534,325 $ 489,070
================ ===============
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
2000 1999
---- ----
Balance, January 1 $ 4,618 $ 4,241
Provision charged to operations 900 640
Loans charged-off (527) (658)
Recoveries on loans previously charged-off 95 132
------------- --------------
Balance, September 30 $ 5,086 $ 4,355
============= ==============
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following:
September 30, December 31,
2000 1999
---- ----
Repurchase agreements $ 25,769 $ 24,645
Treasury tax and loan open-end note 2,295 2,628
---------------- ---------------
Total short-term borrowings $ 28,064 $ 27,273
================ ===============
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
--------------------------------------------------------------------------------
NOTE 7 - SEGMENT INFORMATION
The Corporation's operations include three primary segments: banking, mortgage
banking, and trust. Through its banking subsidiary's seventeen 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. Interest on 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. The difference between segment totals and the consolidated financial
statements are primarily holding company amounts and income tax expense.
Quarter ended September 30:
<TABLE>
2000 Mortgage Total
---- Banking Banking Trust Segments
<S> <C> <C> <C> <C>
Net interest income $ 6,434 $ 35 $ - $ 6,469
Net gain on loan sales - 193 - 193
Other revenue 965 - 245 1,210
Noncash items:
Depreciation 324 13 12 349
Provision for loan loss 300 - - 300
Segment profit/(loss) 2,646 (21) 62 2,687
Segment assets 682,097 3,700 191 685,988
1999 Mortgage Total
---- Banking Banking Trust Segments
Net interest income $ 6,186 $ 55 $ - $ 6,241
Net gain on loan sales - 200 - 200
Other revenue 832 35 295 1,162
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
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
--------------------------------------------------------------------------------
Nine months ended September 30:
<TABLE>
2000 Mortgage Total
---- Banking Banking Trust Segments
<S> <C> <C> <C> <C>
Net interest income $ 19,201 $ 105 $ - $ 19,306
Net gain on loan sales - 464 - 464
Other revenue 2,941 6 878 3,825
Noncash items:
Depreciation 912 35 36 983
Provision for loan loss 900 - - 900
Segment profit 7,993 85 312 8,390
Segment assets 682,097 3,700 191 685,988
1999 Mortgage Total
---- Banking Banking Trust Segments
Net interest income $ 17,034 $ 172 $ - $ 17,206
Net gain on loan sales - 767 - 767
Other revenue 2,271 79 798 3,148
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
</TABLE>
<PAGE>
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001 a new accounting standard will require all derivatives
to be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. Adoption of this pronouncement is not expected to have a
material effect on the Corporation's financial results, but the effect will
depend on derivative holdings when this standard is adopted.
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 seventeen
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.
On March 15, 2000, the Corporation opened a full-service branch located in the
Super Wal-Mart in Monticello, Indiana. Also, on July 19, 2000, a similar
full-service branch was opened in the Super Wal-Mart in Lafayette, Indiana. Both
of these locations are open seven days a week to serve the Corporation's
customers.
The Corporation established a new mortgage line of business during the second
quarter of 2000, which will assist customers in securing financing who do not
meet the qualifications of conventional or traditional mortgage loan programs.
The newly created Mortgage Alternative Department will only offer mortgage
products, such as first and second mortgages and lines of credit that are
secured by real estate. Loans originated in this department are pre-approved for
sale and are sold in the secondary mortgage market with no servicing retained.
RESULTS OF OPERATIONS
Mergers and Acquisitions
On March 12, 1999, the Bank purchased three Bank One, Indiana, branches in
Jasper County, Indiana, located in the towns of DeMotte, Remington, and
Rensselaer.
The fair value of assets acquired was $71,749, which consisted primarily of
commercial loans, the physical facilities, goodwill, and core deposit
intangibles. The fair value of liabilities assumed was $117,015, which consisted
primarily of customer deposits. Since the Bank acquired more liabilities than
assets in the transaction, the Bank received $45,266 of cash as of the
settlement date.
From a year-to-year comparative standpoint, this transaction had a significant
effect on the Corporation's results of operations, as the Corporation had use of
the earning assets and interest-bearing liabilities acquired during the entire
nine months of 2000, and only approximately six and one-half months during the
first nine months of 1999.
<PAGE>
Net Income
The Corporation earned $1,634, or $.41 per share (basic) for the third quarter
of 2000 compared to $1,750, or $.44 per share (basic) for the third quarter of
1999. The $116, or 6.6% decrease in third quarter net income was attributable to
lower fees generated by the Corporation's trust department, in addition to
higher interest rates paid on interest-bearing liabilities and first time
operational costs incurred with the opening of the two new branches and the
Mortgage Alternative Department. Net income increased $320, or 6.5% to $5,239
for the nine month period ending September 30, 2000 compared to the same 1999
time period. Basic earnings per share were $1.33 and $1.25 for the nine month
periods ending September 30, 2000 and 1999, respectively. In general, the
increase in the 2000 year-to-date earnings was attributable not only to the
increase in earning assets and liabilities obtained in the 1999 branch
acquisitions, but also, as mentioned above, the length of time these assets and
liabilities were owned by the Corporation. In addition to the higher net
interest income, gross earnings from the Corporation's trust department and
investment center, along with higher service charges and ATM fees were also
contributing factors in the earnings enhancement. The increase in 2000 profits,
however, was partially offset by lower realized gains on the sale of mortgage
loans, along with higher salaries and benefits expense, provision for loan
losses, and higher operational expenses associated with the two new branch
facilities and the new mortgage department.
Return on average assets (ROA) and return on average equity (ROE) are summarized
below.
Three Months Ending Nine Months Ending
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
ROA .96% 1.10% 1.05% 1.11%
ROE 13.11% 15.68% 14.52% 14.87%
The decrease in ROE for the three and nine months ending September 30, 2000 was
primarily due to start-up and operating expenses associated with the two new
branches and the Mortgage Alternative Department.
<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, 2000 and 1999, net interest income was
$18,607 and $16,748, respectively. This was a $1,859, or 11.1% increase over the
prior year and was primarily the result of the Jasper County branch
acquisitions. Net interest income for the third quarter of 2000 was $204, or
3.4% higher than that same three month period ending September 30, 1999. From
September 1999 to September 2000 the rate of growth in loans was approximately
one and one-half times the rate of growth in deposits experienced by the
Corporation, thereby contributing to the higher net interest income recognized.
During the third quarter, the rate of loan growth slowed and higher interest
rates were paid on interest-bearing liabilities, which led to the Corporation
recognizing only a moderate increase in third quarter net interest income.
Total interest income for the nine month periods ending September 30, 2000 and
1999 was $38,428 and $32,443, respectively, an increase in 2000 of $5,985, or
18.4%. Total interest income for the third quarter of 2000 was $1,734, or 14.8%
greater than that same 1999 quarter. Interest and fees on loans increased
$6,283, or 22.4% to $34,276 for the first nine months of 2000 compared to
$27,993 for the first nine months of 1999. For the third quarter of 2000,
interest and fees on loans increased $1,820, or 17.8% compared to the third
quarter of 1999. From September 1999 to September 2000, average loan balances
increased $55,233, or 11.5%. Investment security income decreased 7.6% for the
nine month period ending September 30, 2000 and also declined 10.5% for the
third quarter of 2000 when compared to the same 1999 time periods. The reduction
of investment security income for both of these periods was the result of a
change in asset mix from the security portfolio to the loan portfolio. From
September 1999 to September 2000, average investment security balances declined
$16,213, or 16.0%.
<PAGE>
Total interest expense for the nine month period ending September 30, 2000 and
1999 was $19,821 and $15,695, respectively. For the third quarter of 2000, total
interest expense increased $1,530, or 27.0%, compared to the third quarter of
1999. From September 1999 to September 2000, total average interest-bearing
liabilities, including short-term and long-term borrowings, increased $35,687,
or 6.8%. While interest expense on the note payable the Corporation obtained in
connection with the Jasper County branch acquisition increased during these time
periods, it was the higher average balance of interest-bearing liabilities
coupled with the higher interest rates paid for the use of these funds which
primarily led to the overall increase in interest expense.
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>
Nine Months Change from
Ended September 30, Prior Period
2000 1999 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $39,094 $33,043 $6,051 18.3%
Interest expense 19,821 15,695 4,126 26.3%
------ ------ ------
Net interest income $19,273 $17,348 $1,925 11.1%
======= ======= =======
</TABLE>
<TABLE>
Three Months Change from
Ended September 30, Prior Period
2000 1999 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Interest income $13,661 $11,898 $1,763 14.8%
Interest expense 7,201 5,671 1,530 27.0%
------ ------ ------
Net interest income $6,460 $6,227 $ 233 3.7%
====== ====== ======
</TABLE>
<PAGE>
The net interest margin, on a tax equivalent basis for the nine months ending
September 30, 2000 and 1999 was 4.24% and 4.25%, respectively.
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
acquisitions. The fair value of loans acquired was net of a fair value
adjustment for credit risk of $563. This credit risk valuation account will be
used to absorb future charge-off's recorded on the acquired loans.
The consolidated provision for loan losses was $900 and $640 for the nine months
ending September 30, 2000 and 1999, respectively. The increase in the provision
was a result of the Corporation's continued loan growth. The allowance for loan
losses was $5,086 and $4,618 at September 30, 2000 and December 31, 1999,
respectively. Adding the established credit valuation account with the allowance
for loan losses, the allowance as a percentage of loans was 1.04% and 1.06% at
September 30, 2000 and December 31, 1999, respectively. The provision for loan
losses increased $260, or 40.6% to $900 for the period ending September 30, 2000
while net charge-off"s decreased approximately $95, or 18.1% during that same
time period. The increase in the provision for loan losses, along with the
decrease in the net loan charge-off activity allowed the allowance to increase
at a similar pace as the Corporation's loan portfolio.
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 indicated the composition of nonperforming loans:
<TABLE>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Loans past due 90 days or more $ 919 $ 584
Nonaccrual loans 2,522 622
Restructured loans 93 114
---------------- ---------------
Total nonperforming loans $ 3,534 $ 1,320
================ ===============
</TABLE>
<PAGE>
Despite the increase in nonperforming loan totals at September 30, 2000,
management continues to believe the overall asset quality to be good.
Historically, the Corporation has experienced relatively low levels of
nonperforming loans. While nonperforming loan totals were significantly higher
at the end of the third quarter, the current level of nonperforming loans is
considered to be manageable, and efforts are underway to collect these loans. As
a percentage of the loan portfolio, nonperforming loans totaled .66% and .27%,
respectively. Loans past due 90 days or more increased $335, or 57.4% since
year-end, primarily due to the increases in mortgage and installment loan
delinquencies. The $1,900, or 305.5% increase in nonaccrual loan totals since
December 31, 1999 was attributable to five large new commercial loans being
added to the nonaccrual list.
Noninterest Income and Expense
Noninterest income totaled $4,289 for the first nine months of 2000, compared to
$3,915 for the same period in 1999, an increase of $374, or 9.6%. Noninterest
income for the second quarter of 2000 increased $41, or 3.0%, to $1,403 compared
to the prior year.
Income from fiduciary activities was $878 and $798 for the nine months ending
September 30, 2000 and 1999, respectively. This $80, or 10% increase was
attributable to the increase in the base fee structure related to trust
activities and services. For the third quarter of 2000, trust fees declined $50,
or 16.9% to $245. The performance of the stock market, which also effects fees
assessed on certain trust accounts, was generally higher during the first two
quarters of 2000 than it was during the third quarter of 2000.
Service charges on deposit accounts comprise the largest component of
noninterest income. The $229, or 20.0% increase in revenue for the first nine
months of 2000 was attributed to the larger deposit base being assessed fees as
a result of the March 1999 branch acquisitions. For the third quarter of 2000,
service charges on deposit accounts increased $78, or 18.2%, compared to the
prior year. Higher NSF volume along with an increase in the fee structure in
mid-June accounted for the majority of the increase.
Net gain on loans originated and sold in the secondary mortgage market were $464
and $767 for the nine months ending September 30, 2000 and 1999, respectively, a
decrease of $303, or 39.5%. For the third quarter of 2000, net gain on loans
sold in the secondary mortgage market was $7, or 3.5%, lower than the 1999 time
period. The general increase in the interest rate environment has had a
significant negative impact on mortgage banking activities, especially in the
area of refinancings. Loans sold for the nine months ended September 30, 2000
decreased $23,289, or 38.7% compared to the prior year, while sales for the
three months ended September 30, 2000 declined $864, or 5.6% when compared to
that same time period one year earlier.
Other service charges and fees were $796 and $667 for the nine months ended
September 30, 2000 and 1999, respectively, an increase of $129, or 19.3%. For
the third quarter of 2000, other service charges and fees rose $34, or 14.3%
compared to the prior year. An increase in non-customer ATM transaction volumes
accounted for the majority of the increases posted in each time period.
Other operating income increased $271, or 52.2%, to $790 for the first nine
months of 2000, while also increasing $6, or 3.1% for the third quarter of 2000
when compared to the corresponding prior year time periods. The Corporation's
Investment Center, a full service brokerage operation offered through Raymond
James Financial Services, Inc., member NASD/SIPC, continued to take advantage of
the investing opportunities the stock market offered. As a result, revenues grew
$368, or 178.6% for the first nine months of 2000, while also increasing $55, or
68.8% for the three month period ending September 20, 2000. Slightly offsetting
these increases in Investment Center income is decreased volume incentive income
in the secondary mortgage market department, largely due to the lower sales
volumes already discussed.
Noninterest expense totaled $14,083 for the first nine months of 2000, compared
to $12,641 for that same 1999 period, an increase of $1,442, or 11.4%. Total
noninterest expense for the third quarter of 2000 was $459, or 10.3% higher than
the prior year.
Salaries and employee benefits expense was $7,806 for the nine months ending
September 30, 2000, an increase of $597, or 8.3% from the $7,209 recorded in the
first nine months of 1999. Total salaries and benefits expense for the third
quarter of 2000 increased $207, or 8.1%, to $2,776 compared to $2,569 recorded
for the three months ending September 30, 1999. In addition to the staffing
needs of the two new branches and the start-up of the Mortgage Alternative
Department, the majority of the increase was attributable to the personnel
acquired in the 1999 Jasper County branch acquisitions. The Corporation employed
the Jasper County branch staff during the entire nine months of 2000, compared
to only six and one-half months in 1999. A decrease of $368 in the valuation of
the stock appreciation rights granted to certain senior executives partially
offset the increase in salary and employee benefits for the nine months ending
September 30, 2000.
<PAGE>
Occupancy and equipment expenses increased $117, or 14.8% and $340, or 36.2%,
respectively for the nine months ending September 30, 2000. For the three months
ending September 30, 2000, occupancy and equipment expenses increased $44, or
15.7% and $136, or 43.9%, respectively. While a certain amount of these
increases relate to the opening of the two new branches as well as the Mortgage
Alternative Department, the majority of the total increase in occupancy and
equipment expenses is related to higher depreciation expense. This is a result
of not only the items acquired in the branch acquisitions, but also the
investment the Corporation is making in new technology. A new communication
system, along with a wide- area network, teller system and proof imaging system,
has been installed to enable the Corporation to remain competitive within the
market area while also improving overall operational efficiencies.
The $133, or 31.5% increase in intangible amortization is solely attributable to
the purchase of the Jasper County branches.
Other operating expenses increased $255, or 7.8% to $3,536 for the first nine
months of 2000 compared to the same 1999 time period and $70, or 6.2% for the
three months ending September 30, 2000. The majority of the increase in this
category for each of these time periods is attributable to the ongoing
operational expenses of the branches acquired and new branches opened for items
such as telephone, employee education, in addition to increased fees associated
with higher ATM volumes.
Income Taxes
The Corporation's effective tax rate for the nine months ended September 30,
2000 and 1999 was 33.8% and 33.4%, respectively. For the three months ended
September 30, 2000 and 1999, the effective tax rate for the Corporation was
31.7% and 33.7% respectively.
FINANCIAL CONDITION
Total assets were $686,329 at September 30, 2000 compared to $645,149 at
December 31, 1999, an increase of $41,180. Loans held for sale increased $372
while net loans and net premises, furniture, and equipment increased $44,787 and
$922, respectively. Conversely, cash and cash equivalents, total investment
securities, and intangible assets decreased $3,036, $2,063, and $555,
respectively.
Total deposits increased $35,434 to $557,681 at September 30, 2000 compared to
$522,247 at December 31, 1999. Short-term borrowings, consisting primarily of
repurchase agreements, and FHLB advances increased $791 and $796, respectively.
The $796 net increase in FHLB advances was a result of $17,000 in new advances
obtained by the Corporation, offset by $16,204 of repayments throughout the
first nine months of 2000. Accrued interest payable and other liabilities
increased $442, while quarterly principal repayments on the note payable totaled
$1,050.
Capital
<PAGE>
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 may be limited, and the institution may be required to submit a
capital restoration plan.
At September 30, 2000, 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>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Tier 1 capital
Shareholders' equity $ 50,552 $ 45,785
Less: Intangibles (13,190) (13,737)
Net unrealized losses on available-for-sale
equity securities (116) -
Add/less: Unrealized loss/(gain) on securities 1,413 1,956
---------------- ---------------
TOTAL TIER 1 CAPITAL $ 38,659 $ 34,004
================ ===============
Total capital
Tier 1 capital $ 38,659 $ 34,004
Allowable allowance for loan losses 5,086 4,618
---------------- ---------------
TOTAL CAPITAL $ 43,745 $ 38,622
================ ===============
RISK WEIGHTED ASSETS $ 522,554 $ 483,307
================ ===============
AVERAGE ASSETS $ 669,292 $ 627,045
================ ===============
</TABLE>
<PAGE>
The Corporation and Bank's actual capital ratios and minimum required levels are
presented in the following table.
<TABLE>
Actual ratios as of Minimum
September 30, December 31, Capital Adequacy Well-Capitalized
2000 1999 Requirement Requirement
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Tier I Capital
(to average assets)
Consolidated 5.78% 5.42% 4.00% 5.00%
Lafayette Bank and Trust 7.37% 7.22% 4.00% 5.00%
Tier I Capital
(to risk weighted assets)
Consolidated 7.40% 7.04% 4.00% 6.00%
Lafayette Bank and Trust 9.36% 9.38% 4.00% 6.00%
Total Capital
(to risk weighted assets)
Consolidated 8.37% 7.99% 8.00% 10.00%
Lafayette Bank and Trust 10.33% 10.33% 8.00% 10.00%
</TABLE>
Management believes the Bank met all the capital requirements as of September
30, 2000 and December 31, 1999, and was well-capitalized under the regulatory
framework for prompt corrective action. The Corporation, however, was
categorized as undercapitalized as of December 31, 1999 due to the Jasper County
branch acquisitions, with a total capital ratio of 7.99%, slightly below the
8.00% minimum. The Corporation returned to adequately capitalized status as of
March 31, 2000 and has maintained that status through September 30, 2000.
Although the Corporation's capital was slightly below the minimum at December
31, 1999, no corrective regulatory action was initiated by the banking
regulatory authorities, and management anticipates maintaining its adequately
capitalized status in the foreseeable future. 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.
<PAGE>
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 nine
months ended September 30, 2000 and 1999. Including net income of $5,239, the
net cash from operating activities for the first nine months of 2000 generated
$6,539 of available cash. Net cash from investing activities utilized $44,531 of
available cash primarily as a result of $45,687 of net loan fundings by the
Corporation. Net cash from financing activities generated $34,956 of available
cash as a result of an $35,434 increase in deposits, along with a $791 increase
in short-term borrowings and net proceeds of $796 of FHLB advances, offset by
$1,050 of note payable principal repayments and $1,113 in dividends paid.
Total cash outflows for the nine month period in 2000 exceeded cash inflows by
$3,036 resulting in a cash and cash equivalent balance of $27,534 at September
30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk of the Corporation encompasses exposure to both liquidity and
interest rate risk and is reviewed quarterly by the Asset/Liability Committee
and the Board of Directors. There have been no material changes in the
quantitative and qualitative disclosures about market risks as of September 30,
2000 from the analysis and disclosures provided in the Corporation's Form 10-K
for the year ended December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for September 30, 2000
(b) Reports on Form 8-K
No Form 8-K was filed with the SEC during the quarter ended
September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 2000 By /s/ Robert J. Weeder
---------------------------------------
Robert J. Weeder
President and CEO
Date: November 10, 2000 By /s/ Marvin S. Veatch
---------------------------------------
Marvin S. Veatch
Vice President and Controller
