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 JUNE 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 August 11, 2000
Common Stock, without par value 3,593,088 shares
<PAGE>
LAFAYETTE BANCORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets -- June 30, 2000 and December 31, 1999
Consolidated Statements of Income and
Comprehensive Income -- Three Months Ended June 30, 2000 and 1999
Consolidated Statements of Income and
Comprehensive Income -- Six Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 2000 and 1999
Notes to Consolidated Financial Statements -- June 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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
SIGNATURES
<PAGE>
ITEM 1.
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share data)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
---- ----
ASSETS
Cash and due from banks $ 24,768 $ 28,370
Federal funds sold 17,300 2,200
-------------- -------------
Total cash and cash equivalents 42,068 30,570
Securities available-for-sale (at market) 79,167 79,722
Securities held-to-maturity (market value $4,500
and $4,709) 4,484 4,712
Loans held for sale 5,415 3,174
Loans 521,732 489,070
Less: Allowance for loan losses (5,045) (4,618)
-------------- -------------
Loans, net 516,687 484,452
Federal Home Loan Bank stock (at cost) 2,200 1,897
Premises, furniture and equipment, net 11,173 10,583
Intangible assets 13,377 13,747
Accrued interest receivable and other assets 15,720 16,292
-------------- -------------
Total assets $ 690,291 $ 645,149
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 67,119 $ 63,206
Interest-bearing demand and savings deposits 225,246 229,302
Interest-bearing time deposits 263,993 229,739
-------------- -------------
Total deposits 556,358 522,247
Short-term borrowings 35,719 27,273
FHLB advances 30,471 30,027
Note payable 12,250 12,950
Accrued interest payable and other liabilities 6,649 6,867
-------------- -------------
Total liabilities 641,447 599,364
--------------------------------------------------------------------------------
--------------------
See accompanying notes to consolidated financial statements
<PAGE>
Shareholders' equity
Common stock, no par value: 20,000,000 shares authorized;
3,592,368 and 3,586,140 shares issued and outstanding 3,592 3,586
Additional paid-in capital 32,970 32,886
Retained earnings 14,157 11,269
Unrealized loss on securities available-for-sale,
net of tax (($1,229) and ($1,283)) (1,875) (1,956)
-------------- --------------
Total shareholders' equity 48,844 45,785
-------------- -------------
Total liabilities and shareholders' equity $ 690,291 $ 645,149
============== =============
</TABLE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended June 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Interest income
Loans $ 11,496 $ 9,647
Taxable securities 822 1,040
Tax exempt securities 414 379
Other 146 201
-------------- -------------
Total interest income 12,878 11,267
Interest expense
Deposits 5,513 4,505
Short-term borrowings 486 368
Other borrowings 582 579
-------------- -------------
Total interest expense 6,581 5,452
-------------- -------------
Net interest income 6,297 5,815
Provision for loan losses 300 190
-------------- -------------
Net interest income after provision for loan losses 5,997 5,625
Noninterest income
Income from fiduciary activities 317 250
Service charges on deposit accounts 461 408
Net realized gain on securities - 12
Net gain on loan sales 159 259
Other service charges and fees 272 248
Other operating income 425 176
-------------- -------------
Total noninterest income 1,634 1,353
-------------- -------------
-------------------------------------------------------------------------------
------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
Noninterest expense
Salaries and employee benefits 2,712 2,474
Occupancy expenses, net 301 266
Equipment expenses 444 343
Intangible amortization 185 184
Other operating expenses 1,203 1,237
-------------- -------------
Total noninterest expense 4,845 4,504
-------------- -------------
Income before income taxes 2,786 2,474
Income taxes 979 824
-------------- -------------
Net income 1,807 1,650
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 100 (1,347)
-------------- --------------
Comprehensive income $ 1,907 $ 303
============== =============
Basic earnings per share $ .50 $ .46
=================== ===============
Diluted earnings per share $ .50 $ .45
=================== ===============
Dividend per share $ .10 $ .09
================ ===============
</TABLE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the six months ended June 30, 2000 and 1999
(Dollar amounts in thousands, except per share data)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Interest income
Loans $ 22,240 $ 17,777
Taxable securities 1,682 1,930
Tax exempt securities 826 740
Other 253 303
-------------- -------------
Total interest income 25,001 20,750
-------------------------------------------------------------------------------
--------------------
See accompanying notes to consolidated financial statements
<PAGE>
Interest expense
Deposits 10,627 8,406
Short-term borrowings 825 643
Other borrowings 1,168 975
-------------- -------------
Total interest expense 12,620 10,024
-------------- -------------
Net interest income 12,381 10,726
Provision for loan losses 600 370
-------------- -------------
Net interest income after provision for loan losses 11,781 10,356
Noninterest income
Income from fiduciary activities 633 503
Service charges on deposit accounts 866 715
Net realized gain on securities - 12
Net gain on loan sales 271 567
Other service charges and fees 525 430
Other operating income 591 326
-------------- -------------
Total noninterest income 2,886 2,553
-------------- -------------
Noninterest expense
Salaries and employee benefits 5,030 4,640
Occupancy expenses, net 582 509
Equipment expenses 833 629
Intangible amortization 370 239
Other operating expenses 2,333 2,148
-------------- -------------
Total noninterest expense 9,148 8,165
-------------- -------------
Income before income taxes 5,519 4,744
Income taxes 1,914 1,575
-------------- -------------
Net income 3,605 3,169
-------------- -------------
Other comprehensive income, net of tax:
Change in unrealized gains / (losses) on securities 81 (1,429)
-------------- --------------
Comprehensive income $ 3,686 $ 1,740
============== =============
Basic earnings per share $ 1.00 $ .88
Diluted earnings per share $ 1.00 $ .86
Dividend per share $ .20 $ .18
=============== ==============
</TABLE>
--------------------------------------------------------------------------------
---------------------
See accompanying notes to consolidated financial statements
<PAGE>
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(Dollar amounts in thousands)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
2000 1999
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 3,605 $ 3,169
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 634 414
Net amortization 366 307
Provision for loan losses 600 370
Net realized gain on securities - (12)
Net realized (gain) loss on sale of :
Other real estate (11) -
Change in assets and liabilities:
Loans originated for sale (25,171) (43,513)
Loans sold 22,930 45,355
Accrued interest receivable and other assets 412 (1,687)
Accrued interest payable and other liabilities (218) 1,089
------------ -----------
Net cash from operating activities 3,147 5,492
Cash flows from investing activities
Change in interest-bearing balances with other financial institutions - (13)
Purchase of securities available-for-sale (46,790) (121,173)
Proceeds from sales of securities available-for-sale - 5,333
Proceeds from maturities of securities available-for-sale 47,486 94,531
Purchase of securities held-to-maturity - (2,000)
Proceeds from maturities of securities held-to-maturity 228 16
Loans made to customers, net of payments collected (32,835) (45,926)
Purchase of Federal Home Loan Bank stock (303) (358)
Property and equipment expenditures (1,224) (1,501)
Proceeds from sales of other real estate 115 -
----------- -----------
Net cash from investing activities (33,323) (71,091)
Cash flows from financing activities
Net change in deposit accounts 34,111 2,130
Cash received in branch acquisition for liabilities assumed, net
of assets acquired - 45,266
Net change in short-term borrowings 8,446 13,288
Proceeds from FHLB advances 10,000 -
Payments on FHLB advances (9,556) (582)
Proceeds from note payable - 14,000
Payments on note payable (700) (350)
Common stock issued 90 122
Dividends paid (717) (668)
------------ ------------
Net cash from financing activities 41,674 73,206
Net change in cash and cash equivalents 11,498 7,607
Cash and cash equivalents at beginning of period 30,570 18,768
----------- -----------
Cash and cash equivalents at end of period $ 42,068 $ 26,375
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 12,378 $ 9,298
Income taxes 1,525 1,478
Non-cash investing activity
Loans transferred to other real estate $ - $ 104
</TABLE>
--------------------------------------------------------------------------------
---------------------
See accompanying notes to consolidated financial statements.
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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
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>
Six Months Ended
----------------
<S> <C> <C>
June 30, June 30,
2000 1999
---- ----
Basic earnings per share
Net income $ 3,605 $ 3,169
Weighted average shares outstanding 3,588,714 3,585,692
------------- --------------
Basic earnings per share $ 1.00 $ .88
=============== ===============
Diluted earnings per share
Net income $ 3,605 $ 3,169
Weighted average shares outstanding 3,588,714 3,585,692
Dilutive effect of assumed exercise
of Stock Options 30,943 92,808
------------- --------------
Diluted average shares outstanding 3,619,657 3,678,500
-------------- --------------
Diluted earnings per share $ 1.00 $ .86
=============== ===============
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
Three Months Ended
------------------
<S> <C> <C>
June 30, June 30,
2000 1999
---- ----
Basic earnings per share
Net income $ 1,807 $ 1,650
Weighted average shares outstanding 3,591,170 3,585,957
------------- --------------
Basic earnings per share $ .50 $ .46
================ ===============
Diluted earnings per share
Net income $ 1,807 $ 1,650
Weighted average shares outstanding 3,591,170 3,585,957
Dilutive effect of assumed exercise
of Stock Options 6,883 93,300
------------- --------------
Diluted average shares outstanding 3,598,053 3,679,257
-------------- --------------
Diluted earnings per share $ .50 $ .45
=============== ================
</TABLE>
NOTE 3 - SECURITIES
The amortized cost and estimated fair values of securities are as follows at
June 30, 2000:
<TABLE>
Amortized Estimated
Cost Fair Value
---- ----------
Securities Available-for-Sale
-----------------------------
<S> <C> <C>
U.S. Government and its agencies $ 5,202 $ 5,027
Obligations of states and political subdivisions 30,560 29,547
Corporate obligations 2,000 1,947
Mortgage-backed and other asset-backed securities 41,945 40,190
Other securities 2,564 2,456
----------- -----------
$ 82,271 $ 79,167
=========== ===========
<PAGE>
Securities Held-to-Maturity
---------------------------
Obligations of states and political subdivisions $ 4,484 $ 4,500
=========== ===========
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>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
-------------------------------------------------------------------------------
------------
NOTE 4 - LOANS
Loans are comprised of the following:
<TABLE>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Commercial and agricultural loans $ 214,650 $ 192,760
Real estate construction loans 48,585 47,375
Residential real estate loans 206,777 197,181
Installment loans to individuals 51,720 51,754
---------------- ---------------
Total loans $ 521,732 $ 489,070
================ ===============
</TABLE>
<PAGE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
2000 1999
---- ----
<S> <C> <C> <C>
Balance, January 1 $ 4,618 $ 4,241
Provision charged to operations 600 370
Loans charged-off (219) (549)
Recoveries on loans previously charged-off 46 73
------------- --------------
Balance, June 30 $ 5,045 $ 4,135
============= ==============
</TABLE>
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following:
<TABLE>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Repurchase agreements $ 32,943 $ 24,645
Treasury tax and loan open-end note 2,776 2,628
---------------- ---------------
Total short-term borrowings $ 35,719 $ 27,273
================ ===============
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 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. 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.
<TABLE>
Quarter ended June 30:
---------------------
2000 Mortgage Total
---- Banking Banking Trust Segments
------- ------- ----- --------
<S> <C> <C> <C> <C>
Net interest income $ 6,496 $ 37 $ - $ 6,533
Net gain on loan sales - 159 - 159
Other revenue 1,158 - 317 1,475
Noncash items:
Depreciation 307 10 12 329
Provision for loan loss 300 - - 300
Segment profit 2,400 66 113 2,579
Segment assets 684,125 5,546 202 689,873
1999 Mortgage Total
---- Banking Banking Trust Segments
------- ------- ----- --------
<S> <C> <C> <C> <C>
Net interest income $ 5,966 $ 56 $ - $ 6,022
Net gain on loan sales - 259 - 259
Other revenue 822 22 250 1,094
Noncash items:
Depreciation 202 12 6 220
Provision for loan loss 190 - - 190
Segment profit 2,445 142 87 2,674
Segment assets 622,432 8,419 163 631,014
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
-------------------------------------------------------------------------------
Significant segment totals are reconciled to the financial statements as
follows:
<TABLE>
Reportable Consolidated
2000 Segments Other Totals
---- -------- ----- ------
<S> <C> <C> <C>
Net interest income (expense) $ 6,533 $ (236) $ 6,297
Provision for loan loss 300 - 300
Net gain on loan sales 159 - 159
Other revenue 1,475 - 1,475
Profit 2,579 (772) 1,807
Assets 689,873 418 690,291
Reportable Consolidated
1999 Segments Other Totals
---- -------- ----- ------
Net interest income $ 6,022 $ (207) $ 5,815
Provision for loan loss 190 - 190
Net gain on loan sales 259 - 259
Other revenue 1,094 - 1,094
Profit 2,674 (1,024) 1,650
Assets 631,014 740 631,754
Amounts included in the "other" column are as follows:
2000 1999
---- ----
Income:
Holding company net interest
income (expense) $ (236) $ (207)
Profit:
Holding company net interest
income (expense) (236) (207)
Holding company income (expense) 443 7
Income tax expense (979) (824)
Assets:
Holding company assets 418 740
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
Six months ended June 30:
2000 Mortgage Total
---- Banking Banking Trust Segments
------- ------- ----- --------
<S> <C> <C> <C> <C>
Net interest income $ 12,767 $ 70 $ - $ 12,837
Net gain on loan sales - 271 - 271
Other revenue 1,976 6 633 2,615
Noncash items:
Depreciation 588 22 24 634
Provision for loan loss 600 - - 600
Segment profit 5,347 106 250 5,703
Segment assets 684,125 5,546 202 689,873
1999 Mortgage Total
---- Banking Banking Trust Segments
------- ------- ----- --------
Net interest income $ 10,848 $ 117 $ - $ 10,965
Net gain on loan sales - 567 - 567
Other revenue 1,439 44 503 1,986
Noncash items:
Depreciation 383 19 12 414
Provision for loan loss 370 - - 370
Segment profit 4,554 355 174 5,083
Segment assets 622,432 8,419 163 631,014
</TABLE>
Significant segment totals are reconciled to the financial statements as
follows:
<TABLE>
Reportable Consolidated
2000 Segments Other Totals
---- -------- ----- ------
<S> <C> <C> <C>
Net interest income (expense) $ 12,837 $ (456) $ 12,381
Provision for loan loss 600 - 600
Net gain on loan sales 271 - 271
Other revenue 2,615 - 2,615
Profit 5,703 (2,098) 3,605
Assets 689,873 418 690,291
Reportable Consolidated
1999 Segments Other Totals
---- -------- ----- ------
Net interest income $ 10,965 $ (239) $ 10,726
Provision for loan loss 370 - 370
Net gain on loan sales 567 - 567
Other revenue 1,986 - 1,986
Profit 5,083 (1,914) 3,169
Assets 631,014 740 631,754
</TABLE>
<PAGE>
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
--------------------------------------------------------------------------------
Amounts included in the "other" column are as follows:
<TABLE>
2000 1999
---- ----
Income:
Holding company net interest
<S> <C> <C>
income (expense) $ (456) $ (239)
Profit:
Holding company net interest
income (expense) (456) (239)
Holding company income (expense) 272 (100)
Income tax expense (1,914) (1,575)
Assets:
Holding company assets 418 740
</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 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
six months of 2000, and only approximately three and one-half months during the
first six months of 1999.
<PAGE>
Net Income
The Corporation earned $1,807, or $.50 per share (basic) for the second quarter
of 2000 compared to $1,650, or $.46 per share (basic) for the second quarter of
1999. Net income increased $436, or 13.8% to $3,605 for the six month period
ending June 30, 2000 compared to the same 1999 time period. Basic earnings per
share were $1.00 and $.88 for the six month periods ending June 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 on the Corporation's books. 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, in addition to higher salaries and benefits
expense, provision for loan losses, and other operational expenses incurred with
the opening of a new branch facility and the Mortgage Alternative Department.
Return on average assets (ROA) and return on average equity (ROE) are summarized
below.
<TABLE>
Three Months Ending Six Months Ending
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
ROA 1.08% 1.06% 1.10% 1.12%
ROE 15.08% 14.95% 15.28% 14.48%
The increase in ROE for the six months ending June 30 was due to higher net
interest income, primarily as a result of the Corporation's 1999 acquisition of
the Jasper County branches.
</TABLE>
Net Interest Income
Net interest income is the most significant component of the Corporation's
earnings. Net interest income is the difference between interest and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed funds. The net interest margin is this difference
expressed as a percentage of average earning assets. Net interest income is
determined by several factors, including the volume of earning assets and
liabilities, the mix of earning assets and liabilities, and interest rates. For
the six months ended June 30, 2000 and 1999, net interest income was $12,381 and
$10,726, respectively. This was a $1,655, or 15.4% increase over the prior year
and was primarily the result of the Jasper County branch acquisitions. Net
interest income for the second quarter of 2000 was $482, or 8.3% higher than
that same three month period ending June 30, 1999. From June 1999 to June 2000,
average loan balances increased $64,197, or 14.0%, which contributed to the
aforementioned increases.
<PAGE>
Total interest income for the six month periods ending June 30, 2000 and 1999
was $25,001 and $20,750, respectively, an increase in 2000 of $4,251, or 20.5%.
Total interest income for the second quarter of 2000 was $1,611, or 14.3%
greater than that same 1999 quarter. Interest and fees on loans increased
$4,463, or 25.1% to $22,240 for the first six months of 2000 compared to $17,777
for the first six months of 1999. For the second quarter of 2000, interest and
fees on loans increased $1,849, or 19.2% compared to the second quarter of 1999.
As previously mentioned, the Corporation's continued loan growth contributed to
the results posted. Investment security income decreased 6.1% for the six month
period ending June 30, 2000 and also declined 12.9% for the second 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 June 1999 to June
2000, average investment security balances declined $22,273, or 22.3%.
Total interest expense for the six month period ending June 30, 2000 and 1999
was $12,620 and $10,024, respectively. For the second quarter of 2000, total
interest expense increased $1,129, or 20.7%, compared to the second quarter of
1999. From June 1999 to June 2000, total average interest-bearing liabilities,
including short-term and long-term borrowings, increased $39,038, or 7.4%. 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 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>
Six Months Change from
Ended June 30, Prior Period
<S> <C> <C> <C> <C>
2000 1999 Amount Percent
---- ---- ------ -------
Interest income $25,433 $21,145 $4,288 20.3%
Interest expense 12,620 10,024 2,596 25.9%
------ ------ ------
Net interest income $12,813 $11,121 $1,692 15.2%
======= ======= =======
Three Months Change from
Ended June 30, Prior Period
2000 1999 Amount Percent
---- ---- ------ -------
Interest income $13,096 $11,471 $1,625 14.2%
Interest expense 6,581 5,452 1,129 20.7%
----- ----- -----
Net interest income $6,515 $6,019 $ 496 8.2%
====== ====== ======
</TABLE>
<PAGE>
The net interest margin, on a tax equivalent basis for the six months ending
June 30, 2000 and 1999 was 4.32% and 4.22%, 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 $600 and $370 for the six months
ending June 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 $5,045 and $4,618 at June 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 1.07% and 1.06% at June 30,
2000 and December 31, 1999, respectively. The provision for loan loss increased
$230, or 62.2% to $600 for the period ending June 30, 2000 while net
charge-off"s decreased approximately $303, or 63.7% during that same time
period. This activity was more than offset by the Corporation's loan growth as
the loan loss reserve ratio experienced only a slight increase.
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>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Loans past due 90 days or more $ 906 $ 584
Nonaccrual loans 808 622
Restructured loans 96 114
---------------- ---------------
Total nonperforming loans $ 1,810 $ 1,320
================ ===============
</TABLE>
<PAGE>
Management believes overall asset quality has not declined despite the increase
in nonperforming loan totals. While loans past due 90 days or more have
increased $322, or 55.1% since year-end, the large majority of that increase was
the addition of three large commercial loans. Likewise, nonaccrual loans
increased $186, or 29.9% since December 31, 1999. A total of six new commercial
loans, accounting for approximately 82% of the balance increase, have been added
to nonaccrual status.
Noninterest Income and Expense
Noninterest income totaled $2,886 for the first six months of 2000, compared to
$2,553 for the same period in 1999, an increase of $333, or 13.0%. Noninterest
income for the second quarter of 2000 increased $281, or 20.8%, to $1,634
compared to the prior year.
Income from fiduciary activities increased for the first six months and also for
the second quarter of 2000 when compared to the same 1999 time periods. An
increase in the base fee structure related to trust activities in conjunction
with an increase in the number of larger-dollar accounts contributed to the
higher fees recorded.
Service charges on deposit accounts comprise the largest component of
noninterest income. The $151, or 21.1% increase in revenue for the first six
months of 2000 was attributed to the larger deposit base being assessed fees as
a result of the March 1999 branch acquisitions. For the second quarter of 2000,
service charges on deposit accounts increased $53, or 13.0%, 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 $271
and $567 for the six months ending June 30, 2000 and 1999, respectively, a
decrease of $296, or 52.2%. For the second quarter of 2000, net gain on loans
sold in the secondary mortgage market was $100, or 38.6%, 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. Loan fundings for the six months ended June 30, 2000
decreased $22,425, or 49.4% compared to the prior year, while fundings for the
three months ended June 30, 2000 declined $8,537, or 39.6% when compared to that
same time period one year earlier.
Other service charges and fees were $525 and $430 for the six months ended June
30, 2000 and 1999, respectively, an increase of $95, or 22.1%. For the second
quarter of 2000, other service charges and fees rose $24, or 9.7% compared to
the prior year. An increase in foreign ATM transaction volumes accounted for the
majority of the increases posted in each time period.
Other operating income increased $265, or 81.3%, to $591 for the first six
months of 2000, while also increasing $249, or 141.5% for the second 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 $313, or 250.4% for the first six months of 2000, while
also increasing $272, or 353.2% for the three month period ending June 20, 2000.
Slightly offsetting these increases in Investment Center income was decreased
volume incentive income in the secondary mortgage market department, largely due
to the lower funding volumes already discussed.
<PAGE>
Noninterest expense totaled $9,148 for the first six months of 2000, compared to
$8,165 for that same 1999 period, an increase of $983, or 12.0%. Total
noninterest expense for the second quarter of 2000 was $341, or 7.6% higher than
the prior year.
Salaries and employee benefits expense was $5,030 for the six months ending June
30, 2000, an increase of $390, or 8.4% from the $4,640 recorded in the first six
months of 1999. Total salaries and benefits expense for the second quarter of
2000 increased $238, or 9.6%, to $2,712 compared to $2,474 recorded for the
three months ending June 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 six months of 2000, compared to only three and
one-half months in 1999. The valuation of the stock appreciation rights granted
to certain senior executives partially offset the increases reported in each of
these periods, as a decrease of $377 and $80 was recorded for the six months and
three months ending June 30, 2000, respectively.
Occupancy and equipment expenses increased $73, or 14.3% and $204, or 32.4%,
respectively for the six months ending June 30, 2000. For the three months
ending June 30, 2000, occupancy and equipment expenses increased $35, or 13.2%
and $101, or 29.4%, respectively. 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 $131, or 54.8% increase in intangible amortization is solely attributable to
the purchase of the Jasper County branches.
Other operating expenses increased $185, or 8.6% to $2,333 for the first six
months of 2000 compared to the same 1999 time period. The majority of the
increase in this category was attributable to the ongoing operational expenses
of the branches acquired for items such as telephone, employee education, in
addition to increased fees associated with higher ATM volumes. For the second
quarter, other operating expenses declined $34, or 2.7%, primarily as a result
of not incurring the initial overhead expenses in connection with the 1999
Jasper County branch acquisition.
Income Taxes
The Corporation's effective tax rate for the six months ended June 30, 2000 and
1999 was 34.7% and 33.2%, respectively. For the three months ended June 30, 2000
and 1999, the effective tax rate for the Corporation was 35.1% and 33.3%
respectively.
<PAGE>
FINANCIAL CONDITION
Total assets were $690,291 at June 30, 2000 compared to $645,149 at December 31,
1999, an increase of $45,142. Cash and cash equivalents increased $11,498 while
loans held for sale and net loans increased $2,241 and $32,235, respectively.
Conversely, total investment securities, intangible assets, and accrued interest
receivable and other assets decreased $783, $370, and $572, respectively.
Total deposits increased $34,111 to $556,358 at June 30, 2000 compared to
$522,247 at December 31, 1999. Short-term borrowings, consisting primarily of
repurchase agreements, and FHLB advances also increased $8,446 and $444,
respectively. The $444 net increase in FHLB advances was a result of $10 million
in new advances obtained by the Corporation during the second quarter, offset by
$9,556 of repayments throughout the first six months of 2000. Quarterly
principal repayments on the note payable totaled $700, while accrued interest
payable and other liabilities declined $218.
Capital
The Corporation and Bank are subject to various regulatory capital guidelines as
required by federal and state banking agencies. These guidelines define the
various components of core capital and assign risk weights to various categories
of assets.
Tier 1 capital consists of shareholders' equity less goodwill and core deposit
intangibles, as defined by bank regulators. The definition of Tier 2 capital
includes the amount of allowance for loan losses which does not exceed 1.25% of
gross risk weighted assets. Total capital is the sum of Tier 1 and Tier 2
capital.
The minimum requirements under the capital guidelines are a 4.00% leverage ratio
(Tier 1 capital divided by average assets less intangible assets and unrealized
gains/losses), a 4.00% Tier 1 risk-based capital ratio (Tier 1 capital divided
by risk-weighted assets), and an 8.00% total capital ratio (Tier 1 capital plus
Tier 2 capital divided by risk-weighted assets).
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires federal regulatory agencies to define capital tiers. These are:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, a total capital ratio of at least 10.00%, and a leverage ratio
of at least 5.00% and not be under a capital directive order. Failure to meet
capital requirements can initiate regulatory action. If an institution is only
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions, asset growth, and
expansion may be limited, and the institution may be required to submit a
capital restoration plan.
At June 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
<PAGE>
The Corporation's actual consolidated capital amounts are presented in the
following table.
<TABLE>
June 30, December 31,
2000 1999
---- ----
Tier 1 capital
<S> <C> <C>
Shareholders' equity $ 48,844 $ 45,785
Less: Intangibles (13,372) (13,737)
Net unrealized losses on available-for-sale
equity securities (108) -
Add/less: Unrealized loss/(gain) on securities 1,875 1,956
---------------- ---------------
TOTAL TIER 1 CAPITAL $ 37,239 $ 34,004
================ ===============
Total capital
Tier 1 capital $ 37,239 $ 34,004
Allowable allowance for loan losses 5,045 4,618
---------------- ---------------
TOTAL CAPITAL $ 42,284 $ 38,622
================ ===============
RISK WEIGHTED ASSETS $ 515,149 $ 483,307
================ ===============
AVERAGE ASSETS $ 652,884 $ 627,045
================ ===============
</TABLE>
The Corporation and Bank's actual capital ratios and minimum required levels are
presented in the following table.
<TABLE>
Actual ratios as of Minimum
<S> <C> <C> <C> <C>
June 30, December 31, Capital Adequacy Well-Capitalized
2000 1999 Requirement Requirement
---- ---- ----------- -----------
Tier I Capital
(to average assets)
Consolidated 5.70% 5.42% 4.00% 5.00%
Lafayette Bank and Trust 7.35% 7.22% 4.00% 5.00%
Tier I Capital
(to risk weighted assets)
Consolidated 7.23% 7.04% 4.00% 6.00%
Lafayette Bank and Trust 9.25% 9.38% 4.00% 6.00%
Total Capital
(to risk weighted assets)
Consolidated 8.21% 7.99% 8.00% 10.00%
Lafayette Bank and Trust 10.22% 10.33% 8.00% 10.00%
</TABLE>
<PAGE>
Management believes the Bank met all the capital requirements as of June 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 as of June 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.
Liquidity
The consolidated statement of cash flows illustrates the elements which gave
rise to the change in the Corporation's cash and cash equivalents for the six
months ended June 30, 2000 and 1999. Including net income of $3,605, the net
cash from operating activities for the first six months of 2000 generated $3,147
of available cash. Net cash from investing activities utilized $33,323 of
available cash primarily as a result of $32,835 of net loan fundings by the
Corporation. Net cash from financing activities generated $41,674 of available
cash as a result of an $34,111 increase in deposits and an $8,446 increase in
short-term borrowings, offset by $700 of note payable principal repayments and
$717 in dividends paid.
Total cash inflows for the six-month period in 2000 exceeded cash outflows by
$11,498 resulting in a cash and cash equivalent balance of $42,068 at June 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 June 30, 2000
from the analysis and disclosures provided in the Corporation's Form 10-K for
the year ended December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation's Annual Meeting of Shareholders was held Monday,
April 10, 2000.
(b) The following member was elected to the Corporation's Board of
Directors to hold office as indicated by the term expiration, or until
their successors are duly chosen and qualified.
<TABLE>
Term Against or Broker
Expiration Nominee For Withheld Abstain Non-Votes
---------- ------- --- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
2003 Robert J. Weeder 2,581,618 0 847 0
</TABLE>
(c) Other matters voted upon at the Annual Meeting of Shareholders
included an amendment to the Articles of Incorporation to increase the
number of shares authorized to 20,000,000.
<TABLE>
Against or Broker
For Withheld Abstain Non-Votes
--- ---------- ------- ---------
<S> <C> <C> <C> <C>
2,390,027 265,836 4,585 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for June 30, 2000
(b) Reports on Form 8-K
No Form 8-K was filed with the SEC during the quarter ended June 30,
2000.
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: August 11, 2000 By /s/ Robert J. Weeder
---------------------------
Robert J. Weeder
President and CEO
Date: August 11, 2000 By /s/ Marvin S. Veatch
---------------------------
Marvin S. Veatch
Vice President and Controller
