SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
March 31, 1995 Number 0-11487
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1559596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
202 East Center Street
P.O. Box 1387, Warsaw, Indiana 46581-1387
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219)267-6144
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 close of the period covered by this report.
Class Outstanding at March 31, 1995
Common Stock, $1 Stated Value 1,438,496
<PAGE>
<TABLE>
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 1995 and December 31, 1994
(Unaudited)
(Page 1 of 2)
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents
Cash and due from banks $ 21,873,000 $ 21,346,000
Short-term investments 4,157,000 2,801,000
------------- -------------
Total cash and cash equivalents 26,030,000 24,147,000
Securities available for sale
U. S. Treasury securities 26,426,000 25,916,000
Mortgage-backed securities 30,589,000 29,987,000
State and municipal securities 631,000 933,000
Other debt securities 2,063,000 1,026,000
Equity securities 1,724,000 1,738,000
------------- -------------
Total securities available for sale
(carried at fair value at March 31, 1995
and December 31, 1994) 61,433,000 59,600,000
Securities held to maturity
U. S. Treasury securities 14,686,000 14,714,000
Mortgage-backed securities 87,318,000 80,815,000
State and municipal securities 13,543,000 13,608,000
Other debt securities 3,051,000 1,015,000
------------- -------------
Total securities held to maturity
(fair value of $116,966,000 at
March 31, 1995, and $103,723,000
at December 31, 1994) 118,598,000 110,152,000
Real estate mortgages held for sale 236,000 175,000
Loans:
Total loans 292,124,000 287,956,000
Less: Allowance for loan losses 4,894,000 4,866,000
------------- -------------
Net loans 287,230,000 283,090,000
Land, premises and equipment, net 11,548,000 11,295,000
Accrued income receivable 3,776,000 3,464,000
Other assets 4,436,000 5,040,000
------------- -------------
Total assets $ 513,287,000 $ 496,963,000
============= =============
(Continued)
</TABLE>
<PAGE>
<TABLE>
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 1995 and December 31, 1994
(Unaudited)
(Page 2 of 2)
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
Deposits:
Noninterest bearing deposits $ 60,555,000 $ 62,830,000
Interest bearing deposits 335,360,000 333,910,000
------------- -------------
Total deposits 395,915,000 396,740,000
Short-term borrowings
Federal funds purchased 6,225,000 4,000,000
U.S. Treasury demand notes 933,000 2,573,000
Securities sold under agreements
to repurchase 56,232,000 41,750,000
------------- -------------
Total short-term borrowings 63,390,000 48,323,000
Accrued expenses payable 3,863,000 3,280,000
Other liabilities 828,000 1,299,000
Long-term debt 17,432,000 17,432,000
------------- -------------
Total liabilities 481,428,000 467,074,000
Commitments, off-balance sheet risks
and contingencies
STOCKHOLDERS' EQUITY
--------------------
Common stock: $1.00 stated value, 2,750,000 shares
authorized, 1,438,496 shares issued and outstanding
as of March 31, 1995 and December 31, 1994 1,438,000 1,438,000
Additional paid-in capital 7,827,000 7,827,000
Retained earnings 23,339,000 22,279,000
Unrealized net gain (loss) on securities available for sale (745,000) (1,655,000)
------------- -------------
Total stockholders' equity 31,859,000 29,889,000
Total liabilities and stockholders' equity $ 513,287,000 $ 496,963,000
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1995, and 1994
(Unaudited)
(Page 1 of 2)
<CAPTION>
Three Months Ended
March 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
----------------------------
Interest and fees on loans: Taxable $ 6,817,000 $ 5,343,000
Tax exempt 65,000 72,000
------------- -------------
Total loan income 6,882,000 5,415,000
Short-term investments 65,000 13,000
Securities:
U.S. Treasury and Government agency securities 599,000 526,000
Mortgage-backed securities 1,785,000 1,507,000
Obligations of state and political subdivisions 226,000 186,000
Other debt securities 101,000 49,000
Equity investments 33,000 21,000
------------- -------------
Total interest and dividend income 9,691,000 7,717,000
INTEREST EXPENSE
-----------------
Interest on deposits 3,732,000 2,772,000
Interest on short-term borrowings 832,000 351,000
Interest on long-term debt 245,000 153,000
------------- -------------
Total interest expense 4,809,000 3,276,000
------------- -------------
NET INTEREST INCOME 4,882,000 4,441,000
-------------------
Provision for loan losses 30,000 270,000
------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,852,000 4,171,000
------------------------- ------------- -------------
NONINTEREST INCOME
------------------
Trust fees 225,000 200,000
Service charges on deposit accounts 522,000 447,000
Other income (net) 269,000 622,000
Net gains on the sale of real estate mortgages held for sale 17,000 76,000
Net investment securities gains (losses) (16,000) (6,000)
------------- -------------
Total noninterest income 1,017,000 1,339,000
(Continued)
</TABLE>
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1995, and 1994
(Unaudited)
(Page 2 of 2)
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1995 1994
------------- -------------
<S> <C> <C>
NONINTEREST EXPENSE
-------------------
Salaries and employee benefits 1,965,000 1,750,000
Occupancy and equipment expenses 620,000 499,000
Other expenses 1,241,000 1,022,000
------------- -------------
Total noninterest expense 3,826,000 3,271,000
INCOME BEFORE INCOME TAX EXPENSE 2,043,000 2,239,000
--------------------------------
Income tax expense 737,000 834,000
------------- -------------
NET INCOME $ 1,306,000 $ 1,405,000
---------- ============= =============
AVERAGE COMMON SHARES OUTSTANDING 1,438,496 1,438,496
EARNINGS PER COMMON SHARE
-------------------------
Net Income $ 0.91 $ 0.98
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
Unrealized
Net Gain (Loss)
Common Stock on Securities Total
------------------------ Paid in Retained Available Stockholders'
Shares Amount Capital Earnings For Sale Equity
----------- ------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 1,438,496 $ 1,438,000 $ 7,827,000 $ 18,001,000 $ 646,000 $ 27,912,000
Net income for three months
ended March 31, 1994 1,405,000 1,405,000
Net change in unrealized net gain
on securities available for sale (602,000) (602,000)
Cash dividends declared -
$.14 per share (201,000) (201,000)
----------- ------------ ------------ ------------- -------------- --------------
Balances, March 31, 1994 1,438,496 $ 1,438,000 $ 7,827,000 $ 19,205,000 $ 44,000 $ 28,514,000
=========== ============ ============ ============= ============== ==============
Balances, January 1, 1995 1,438,496 $ 1,438,000 $ 7,827,000 $ 22,279,000 $ (1,655,000) $ 29,889,000
Net income for three months
ended March 31, 1995 1,306,000 1,306,000
Net change in unrealized net gain (loss)
on securities available for sale 910,000 910,000
Cash dividends declared -
$.17 per share (246,000) (246,000)
----------- ------------ ------------ ------------- -------------- --------------
Balances, March 31, 1995 1,438,496 $ 1,438,000 $ 7,827,000 $ 23,339,000 $ (745,000) $ 31,859,000
=========== ============ ============ ============= ============== ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(Page 1 of 2)
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,306,000 $ 1,405,000
------------- -------------
Adjustments to reconcile net income to net cash
from operating activites:
Depreciation 283,000 235,000
Provision for loan losses 30,000 270,000
Loans originated for sale (3,067,000) (4,449,000)
Net (gain) loss on sale of loans (17,000) (76,000)
Proceeds from sale of loans 3,023,000 4,146,000
Net (gain) loss on sale of premises and equipment 0 1,000
Net (gain) loss on sale of securities available for sale 16,000 0
Net (gain) loss on sale of securities held to maturity 0 6,000
Net investment amortization (accretion) 66,000 119,000
Increase (decrease) in taxes payable 612,000 685,000
(Increase) decrease in income receivable (312,000) (318,000)
Increase (decrease) in accrued expenses payable (29,000) (344,000)
(Increase) decrease in other assets 7,000 1,917,000
Increase (decrease) in other liabilities (471,000) (744,000)
------------- -------------
Total adjustments 141,000 1,448,000
------------- -------------
Net cash from operating activities 1,447,000 2,853,000
------------- -------------
Cash flows from investing activities:
Proceeds from maturities and calls of securities held to maturity 1,461,000 3,737,000
Proceeds from maturities and calls of securities available for sale 207,000 597,000
Purchases of securities available for sale (959,000) 0
Purchases of securities held to maturity (9,900,000) 0
Proceeds from sales of securities available for sale 337,000 0
Net (increase) decrease in total loans (4,170,000) (1,805,000)
Purchases of premises and equipment (536,000) (120,000)
------------- -------------
Net cash from investing activities (13,560,000) 2,409,000
------------- -------------
(Continued)
</TABLE>
<PAGE>
<TABLE>
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
(Page 2 of 2)
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in total deposits $ (825,000) $ (12,353,000)
Proceeds from short-term borrowings 126,592,000 97,144,000
Payments on short-term borrowings (111,525,000) (98,467,000)
Proceeds from long-term borrowings 0 8,132,000
Dividends paid (246,000) (201,000)
------------- -------------
Net cash from financing activities 13,996,000 (5,745,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents 1,883,000 (483,000)
Cash and cash equivalents at beginning of the period 24,147,000 12,869,000
------------- -------------
Cash and cash equivalents at end of the period $ 26,030,000 $ 12,386,000
============= =============
Cash paid during the period for:
Interest $ 4,408,000 $ 3,276,000
============= =============
Income taxes $ 175,000 $ 148,000
============= =============
Loans transferred to real estate mortgages held for sale $ 0 $ 0
============= =============
Loans transferred to other real estate $ 0 $ 0
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
This report is filed for Lakeland Financial Corporation (the
Corporation) and its wholly owned subsidiary, Lake City Bank (the Bank).
All significant intercompany balances and transactions have been eliminated
in consolidation.
In 1993, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114) and Statements of Financial Standards
No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures (SFAS No. 118), which are effective for fiscal
years beginning after December 15, 1994. The Corporation adopted these
statements as of January 1, 1995. Under these standards, a loan is
considered impaired, based upon current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are
measured for impairment based upon the fair value of the collateral. At
March 31, 1995, the Bank did not have any loans classified as impaired
under SFAS No. 114.
The condensed consolidated financial statements included herein have
been prepared by the Corporation, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Corporation believes that the disclosures are adequate and do not make the
information presented misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Corporation's latest annual
report and Form 10-K. In the opinion of management, all adjustments which
are necessary for a fair statement of the results for interim periods are
reflected in the quarterly statements included herein.
<PAGE>
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
March 31, 1995
FINANCIAL CONDITION
The financial statements reflect the Corporation s continued growth
within the Bank s traditional markets, and expansion into contiguous market
areas. In the fourth quarter of 1994 the Bank opened its Elkhart East and
Shipshewana offices, bringing the total number of locations, including free
standing ATM s, to twenty-seven. In March, 1995, the Bank opened a new
office at 712 Wayne Avenue, Middlebury, Indiana. The Bank has also received
regulatory approval to open an office (Elkhart Concord) at 4202 Elkhart
Road, Goshen, Indiana. It is anticipated construction of this office will
be completed in the Fall of 1995.
Total assets of the Corporation totaled $513,287,000 as of March 31,
1995. This is an increase of $16,324,000 or 3.3 percent from $496,963,000
reported at December 31, 1994. This also represented an increase of
$63,333,000 or 14.1 percent over December 31, 1993 assets of $449,954,000.
Total loans were $292,124,000 at March 31, 1995. This is an increase of
$4,168,000 or 1.4 percent from December 31, 1994 balances, and an increase
of $31,939,000 or 12.3 percent from December 31, 1993. Total securities
(including available for sale (AFS) and held to maturity (HTM)) increased
$10,279,000 or 6.1 percent to $180,031,000 as of March 31, 1995, from
$169,752,000 at December 31, 1994. This total also represents a $19,328,000
increase over total securities held at December 31, 1993. Earning assets
increased to $471,701,000 at March 31, 1995. This is an increase of
$15,883,000 or 3.5 percent from the December 31, 1994 total of
$455,818,000, and a $51,723,000 or 12.3 percent increase over the December
31, 1993 total.
Total deposits and securities sold under agreements to repurchase
(repurchase agreements) consist primarily of funds generated within the
Bank's primary market area as defined by its Community Reinvestment Act
(CRA) statement. At March 31, 1995 these funds totaled $452,147,000. This
represented a $13,657,000 or 3.1 percent increase from December 31, 1994,
and a $52,743,000 or 13.2 percent increase over December 31, 1993. The
growth has been primarily in certificates of deposit and repurchase
agreements. Certificates of deposit increased $13,956,000 or 6.4 percent
and $32,382,000 or 16.1 percent from the balances at December 31, 1994 and
1993 respectively. The repurchase agreement balances increased $14,482,000
or 34.7 percent and $26,860,000 from the balances at December 31, 1994 and
1993 respectively. In addition to these local funding sources, the Bank
borrows modestly through the Treasury, Tax and Loan program, occasionally
through federal fund lines with correspondent banks and through term
advances from the Federal Home Loan Bank of Indianapolis (FHLB). Including
these non-local sources, funding totaled $476,737,000 at March 31, 1995.
This is a $14,242,000 or 3.1 percent increase from $462,495,000 reported at
December 31, 1994, and a 14.3 percent or $59,468,000 increase from December
31, 1993.
On an average daily basis, total earning assets increased 10.7 percent
for the three month period ended March 31, 1995, as compared to similar
period ended March 31, 1994. On an average daily basis, total deposits and
purchased funds increased 12.0 percent for the three month period ended
March 31, 1995, as compared to the three month period ended March 31, 1994.
The Bank s AFS portfolio is managed with consideration given to
factors such as the Bank's capital levels, growth prospects,
asset/liability structure and liquidity needs. At March 31, 1995 the AFS
portfolio constituted 34.1 percent of the total investment security
portfolio. During the first three months of 1995 purchases for the HTM and
AFS portfolios were $9,900,000 and $959,000 respectively. At March 31,
1995, the net after-tax unrealized loss in the AFS portfolio included in
stockholders' equity was $745,000, a reduction of $910,000 from the
unrealized loss included in stockholders equity at December 31, 1994.
Future investment activity is difficult to predict, as it is dependent upon
loan and deposit trends; but the Bank anticipates activity in both the AFS
and HTM portfolios. All mortgage-backed securities are purchased in
compliance with the FFIEC high risk security tests.
As previously indicated, total loans increased $4,168,000 to
$292,124,000 as of March 31, 1995, from $287,956,000 at December 31, 1994,
and increased $31,939,000 from $260,185,000 at December 31, 1993. Loan
growth is net of loans reclassified to other real estate. The Bank
continues to experience good commercial loan demand, particularly in
Elkhart and LaGrange Counties. Commercial loans at March 31, 1995 represent
1.3 percent and 22.2 percent increases from levels at December 31, 1994 and
December 31, 1993, respectively. Retail loans at March 31, 1995 increased
3.5 percent from December 31, 1994, and increased 7.7 percent over December
31, 1993. Real estate loans (excluding mortgages held for sale) increased
1.7 percent from December 31, 1994, but decreased 3.5 percent from December
31, 1993, as a general slowing in real estate activity and the sale of real
estate mortgages into the secondary market continue to impact this
portfolio's growth.
The Bank continues to actively serve the mortgage needs of its CRA
defined market area by originating both conforming and nonconforming real
estate mortgages. The Bank is experiencing slower demand for new mortgage
loans and refinancings in its service area. During the first three months
of 1995 the Bank originated mortgages for sale totaling $1,035,000. This
program of mortgage sales continues to produce the liquidity needed to meet
the mortgage needs of the markets served by the Bank, and to generate a
long term servicing portfolio. As a part of the CRA commitment to making
real estate financing available in all markets, the Bank continues to
originate non-conforming loans which are held to maturity or prepayment.
Loans renegotiated as troubled debt restructuring are those loans for
which either the contractual interest rate has been reduced and/or other
concessions are granted to the borrower because of a deterioration in the
financial condition of the borrower which results in the inability of the
borrower to meet the terms of the loan. Loans renegotiated as troubled debt
restructuring totaled $1,470,000 at March 31, 1995 as compared to
$1,406,000 at December 31, 1994. The loans classified as troubled debt
restructuring at March 31, 1995 are performing in accordance with the
modified terms.
The Indiana State legislature has enacted laws relating to a state
chartered bank's legal lending limit, by adopting the basic regulations
applied by the Office of the Comptroller of the Currency (OCC) to national
banks. These guidelines set overall limits on lending activity, but actual
bank limits are subject to Board of Director approval. Based upon these new
regulations, the Bank's March 31, 1995 legal loan limit was approximately
$5,602,000. The legal loan limit will continue to increase as the Bank's
combined equity and allowance for loan losses continues to increase. At its
January 10, 1995 meeting, the Bank's Board of Directors modestly increased
the Bank's policy limit by $250,000, to $3,500,000 for any one borrower.
With a relatively low administrative loan limit of $3,500,000, it appears
that most of the Bank's loan portfolios consist primarily of loans to
consumers and small businesses, and that the Bank's lending practices and
policies support national economic policies.
As a result of these loan and deposit trends, the Bank's average daily
loans/deposits ratio amounted to 74.7 percent at March 31, 1995, an
increase from 72.6 percent at year-end 1994, and 74.3 percent at March 31,
1994. The Bank's average daily loans/total deposits and repurchase
agreements ratio amounted to 66.9 percent at March 31, 1995. This is a
decrease from 67.3 percent at year-end 1994, and from the 68.3 percent
reported at March 31, 1994.
The Bank, through its Asset/Liability Committee (ALCO), manages
interest rate risk by monitoring both its GAP position and the computer
simulated earnings impact of various rate scenarios. The Bank then modifies
its long term risk parameters by attempting to generate the type of loans,
investments, and deposits that currently fit ALCO needs. The current long
term guideline approved by the Board of Directors defines a neutral rate
sensitivity ratio (GAP/Total Assets) as plus or minus 20 percent. However,
the ALCO is authorized to manage this ratio outside these limits on a short
term basis, as the committee's expectation of interest rates dictates.
Management has estimated that as of March 31, 1995, the Bank's GAP/Total
Assets ratios were (10.4) percent, (14.8) percent, and (21.4) percent for
the three, six, and twelve month time periods respectively. For this
analysis, savings accounts have been assumed to be immediately repriceable,
and therefore are included as repriceable liabilities in each of these
ratios. The December 31, 1994, three, six, and twelve month GAP ratios were
(10.5) percent, (14.5) percent, and (18.2) percent respectively.
Management supplements the GAP analysis with a computer simulation
approach to manage the interest rate risk of the Bank. This computer
simulation analysis measures the net interest income impact of a 300 basis
point change in interest rates during the next 12 months. If the change in
net interest income is less than 3 percent of primary capital, the balance
sheet structure is considered to be within acceptable risk levels. At March
31, 1995, the Bank's potential pretax exposure was well within the Bank's
policy limit. This policy was last reviewed and approved by the Board of
Directors in May, 1994.
The Bank is a member of the FHLB of Indianapolis. Membership has
enabled the Bank to participate in the housing programs sponsored by the
FHLB, thereby enhancing the Bank's ability to offer additional programs
throughout its trade area. The Bank first borrowed under this program in
December, 1992. This advance was $8,000,000 payable in three years. The
Bank's second advance was made on June 25, 1993. This advance was
$1,300,000 to be paid June 24, 2003. The most recent borrowing was
$8,132,000 in March, 1994, to be paid January 14, 1997. All borrowings are
collateralized by residential real estate mortgages. Membership in the FHLB
requires an equity investment in FHLB stock. The amount required is
computed annually, and is based upon a formula which considers the Bank's
total investment in residential real estate loans, mortgage-backed
securities and any FHLB advances outstanding at year-end. This investment
in FHLB stock is classified in the AFS portfolio. The Bank's current
investment totals $1,724,000.
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banks maintain an 8.0 percent Tier II risk
based capital ratio. The FDIC has also established definitions of "well
capitalized" as a 5.0 percent Tier I leverage capital ratio, a 6.0 percent
Tier I risk based capital ratio and a 10.0 percent Tier II risk based
capital ratio. As of March 31, 1995, the Bank's ratios were 6.3 percent,
10.2 percent and 11.4 percent respectively, excluding the SFAS No. 115
adjustment. These are comparable to the ratios of 6.3 percent, 10.1 percent
and 11.3 percent reported at December 31, 1994, and ratios of 6.3 percent,
10.1 percent and 11.4 percent reported at March 31, 1994. The SFAS No. 115
equity adjustment at March 31, 1995 reduced the Tier I leverage ratio, Tier
I risk based capital and Tier II risk based capital ratios to 6.1 percent,
9.9 percent and 11.2 percent. However, all ratios continue to be above
"well capitalized" regardless of whether SFAS No. 115 is included or
excluded from the calculation.
The Bank was examined by the Indiana Department of Financial
Institutions (DFI) as of September 30, 1993, in November, 1993. The Bank
was also examined by the FDIC as of March 31, 1994, in June, 1994.
Total stockholders' equity increased $1,970,000 or 6.6 percent from
December 31, 1994 to $31,859,000 at March 31, 1995. Net income of
$1,306,000, less cash dividends paid of $246,000, and plus the change in
the unrealized net loss on securities available for sale of $910,000 were
responsible for this overall increase. Total stockholders' equity increased
$602,000 or 2.2 percent from December 31, 1993 to $28,514,000 at March 31,
1994. Net income of $1,405,000 less cash dividends paid of $201,000 less an
unrealized net loss of $602,000 on securities available for sale comprised
this overall increase.
(Intentionally left blank)
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased 9.9 percent or $441,000 to $4,882,000
for the three months ended March 31, 1995, from $4,441,000 reported during
the three month period ended March 31, 1994.
For the three month period ended March 31, 1995, total interest and
dividend income increased $1,974,000 or 25.6 percent to $9,691,000, from
$7,717,000 during the first quarter of 1994. Daily average earning assets
for the first quarter of 1995 increased to $467,222,000, a 10.8 percent
increase over the same period in 1994. The tax equivalent yields on average
earning assets increased by 109 basis points for the three month period
ended March 31, 1995 when compared to the same respective period of 1994.
The three month tax equivalent yield comparison reflects the interest
rate environment experienced during 1995 and 1994. In 1994, interest rates
in general, and the prime rate in particular, increased substantially. This
increase in rates during 1994 has continued during the first quarter of
1995.
Local lending activity and demand for the Bank's deposit products have
impacted the composition of earning assets and the related interest and
dividend income. Total loan income amounted to $6,882,000 for the three
month period ended March 31, 1995, as compared to $5,415,000 for a similar
period in 1994. This is a 27.1 percent increase. Comparing average daily
loan balances during the first quarter of 1995 to the same period in 1994
indicates a 9.7 percent increase in loan balances. The higher rate of
growth in loan income as compared to growth in loan balances, reflects
increased yields on the predominately prime rate based commercial
portfolio.
Total investment income from all security accounts amounted to
$2,744,000 for the three month period ended March 31, 1995. This compares
to the $2,289,000 recorded for the same period in 1994. This $455,000
increase in income reflects an increase in average daily balances of 11.1
percent. The positive impact of the growth in average daily securities was
enhanced by an increase in the three month investment income tax equivalent
yields in 1995, as compared to 1994, which increased 48 basis points.
The yield on equity investments is the result of the dividend paid on
the FHLB stock. The dividend rate was 5.0 percent for the first quarter of
1994. The dividend rate rose consistently during 1994 and was 7.75 percent
for the first quarter of 1995.
Income from short-term investments amounted to $65,000 for the three
month period ended March 31, 1995. This compares to $13,000 for the same
period in 1994. This increase is the result of higher balances being
maintained in short-term instruments plus a 264 basis point increase in the
average daily tax equivalent yield during the first three months of 1995,
as compared to the similar period in 1994.
Total interest expense increased $1,533,000 or 46.8 percent to
$4,809,000 for the three month period ended March 31, 1995, from $3,276,000
for the three month period ended March 31, 1994. The Corporation's daily
cost of funds during the three month period ended March 31, 1995 increased
99 basis points, as compared to the same period of 1994.
The increase in the average daily cost of funds was accompanied by an
increase in total deposit and purchased funds. On an average daily basis,
total deposits (including demand deposits) and purchased funds increased
12.0 percent for the three month period ended March 31, 1995, as compared
to the similar period ended March 31, 1994.
The net effect of all factors affecting total interest and dividend
income and total interest expense was to increase net interest income. For
the three month period ended March 31, 1995, net interest income totaled
$4,882,000, an increase of 9.9 percent or $441,000 over the first three
months of 1994.
The variation in net interest income reflects both local and national
market conditions as well as the ALCO's efforts to manage the margin and
asset growth.
Provision for Loan Losses
It is the policy of the Bank to maintain the allowance for loan losses
at a level that is deemed appropriate based upon loan loss experience, the
nature of the portfolio, the growth expected for the portfolio and the
evaluation of the economic outlook for the current year and subsequent
years. Special consideration is given to nonperforming and nonaccrual loans
as well as factors that management feels deserve recognition during the
entire life of the portfolio. For several years the Bank has maintained a
quarterly loan review program designed to provide reasonable assurance that
the allowance is maintained at a reasonable level and that changes in the
status of loans are reflected in the financial statements in a timely
manner. The adherence to this policy has resulted in fluctuations in the
provision for loan losses. Consequently, the increase in net interest
income before provision for loan losses, discussed above, may not
necessarily flow through to the net interest income after provision for
loan losses. The provision amounted to $30,000 for the three month period
ended March 31, 1995, as compared to $270,000 for the similar period of
1994.
As of March 31, 1995, the allowance for loan losses totaled
$4,894,000. This total included specific allocations for potential problem
credits in each loan portfolio (commercial, agriculture, residential real
estate, consumer and lines of credit). The current allowance of $4,894,000
represents a $28,000 increase over the December 31, 1994 balance, and an
$884,000 increase over the December 31, 1993 balance. During the first
three months of 1995 the provision for loan loss was $30,000, with net
charge-offs of $2,000. The growth in the allowance for loan losses reflects
several factors. These factors include the overall growth of the portfolio,
management's estimate of the long term risk inherent in the portfolio, and
the expansion into new market areas. Although peer group information is not
available for a presentation of the Bank's March 31, 1995 results, the
Uniform Bank Performance Report (UBPR) is available for December 31, 1994,
information. This report indicates that the Bank's allowance for loan
losses as a percentage of total loans was 1.7 percent at December 31, 1994.
This compares to an average of 1.5 percent for all insured commercial banks
having assets between $300 and $500 million. This ratio was 1.7 percent at
December 31, 1994 and 1.5 at December 31, 1993. If deemed appropriate, a
general reserve may be allocated to each loan portfolio. At March 31, 1995,
the unallocated reserve was approximately $3,694,000. The unallocated
reserves at December 31, 1994 and December 31, 1993 were $3,694,000 and
$2,385,000 respectively.
As of March 31, 1995, loans delinquent 30 days or more that were
included in the accompanying financial statements as accrual loans totaled
approximately $853,000. At March 31, 1995, there were no loans on
nonaccrual. It is management's opinion that the $4,894,000 allowance for
loan losses is adequate to cover loan losses currently anticipated to be
inherent in the portfolio.
Net interest income after provision for loan losses totaled $4,852,000
for the three month period ended March 31, 1995. This represents a 16.3
percent increase over the same period ended March 31, 1994.
Noninterest Income
Total noninterest income decreased $322,000 or 24.0 percent to
$1,017,000 for the three month period ended March 31, 1995, from $1,339,000
recorded for the three month period ended March 31, 1994.
Trust fees, which represent basic recurring service fee income,
increased $25,000 or 12.5 percent to $225,000 for the three month period
ended March 31, 1995, as compared to $200,000 for the first three months of
1994. The major fee increases were in employee benefit plans and investment
services fees.
Service charges on deposit accounts increased 16.8 percent or $75,000
during the three month period ended March 31, 1995, totaling $522,000, as
compared to the same period in 1994. The fees on the LCB Club account (the
Bank's low cost checking account service), savings account fees and account
analysis fees increased 28.3 percent, 41.3 percent and 20.3 percent
respectively, during the three month period ended March 31, 1995, as
compared to the same period in 1994.
Other income (net) consists of normal recurring fee income, as well as
other income that management classifies as nonrecurring. Other income (net)
decreased 56.8 percent or $353,000 to $269,000 for the three month period
ended March 31, 1995, as compared to the same period in 1994. Recurring
components of other income increased 19.5 percent during the first three
months of 1995, as compared to the first three months of 1994. The major
increases were in safe deposit rent, mortgage service fees, loan insurance
income and credit card fees.
The nonrecurring components of other income decreased $393,000 or 93.7
percent as compared to the same period in 1994. In the first quarter of
1994 ORE gains amounted to $404,000. The majority of this was related to
the reversal of previously established valuation reserves and accrued
liquidation reserves which were originally established to reflect the
estimated disposition cost of assets classified as ORE. No transactions of
the same magnitude occurred in 1995 resulting in the decrease in the
nonrecurring other income.
The profits from the sale of mortgages during the three month period
ended March 31, 1995 totaled $17,000, as compared to $76,000 during the
same period in 1994. This decline from the prior period is a reflection of
the rising rate environment which has reduced the volume of mortgages
originated.
Net investment security gains (losses) amounted to $(16,000) for the
three month period ended March 31, 1995, as compared to $(6,000) for the
three month period ended March 31, 1994. In the first three months of 1995
and 1994, special calls of zero coupon bonds were responsible for these
small losses. Additional calls are expected in future periods. In addition,
in the first three months of 1995 there were sales of municipal securities
which were approaching maturity from the available for sale portfolio.
Noninterest Expense
Noninterest expense increased $555,000 or 17.0 percent to $3,826,000
for the three month period ended March 31, 1995, as compared to the first
three months of 1994.
For the three months ended March 31, 1995, salaries and employee
benefits increased to $1,965,000, a $215,000 increase or 12.3 percent as
compared to the first three months of 1994. These increases reflect the new
Elkhart East and Shipshewana locations, as well as normal salary increases.
Full-time equivalent employees increased to 267 at March 31, 1995, from 251
at March 31, 1994.
For the three month period ended March 31, 1995, occupancy and
equipment expenses were $620,000, a $121,000 increase or 24.2 percent from
the same period one year ago. This three month performance reflects the
ordinary timing differences incurred with these types of expenses, as well
as additional occupancy expense related to the two new locations added in
1994. These expenses are expected to continue to increase in 1995 with the
opening of the Middlebury and Elkhart Concord locations.
For the three month period ended March 31, 1995, other expenses
totaled $1,241,000 as compared to $1,022,000 during the same period in
1994. This is an increase of 21.4 percent or $219,000. The addition of the
two new locations in 1994 contributed to the $51,000 or 22.8 percent
increase in telephone, postage, and supplies expense, a component of other
expense. Another factor in the increase in other expenses was data
processing fees and supplies which increased $54,000 or 32.5 percent.
Income Before Income Tax Expense
As a result of the above factors, income before income tax expense
decreased to $2,043,000 for the first three months of 1995, as compared to
$2,239,000 for the same period in 1994. This is a decrease of $196,000 or
8.8 percent.
Income Tax Expense
Income tax expense decreased to $737,000 for the first three months of
1995, as compared to $834,000 for the same period in 1994. This is a
$97,000 or 11.6 percent decrease.
The combined State franchise tax expense and the Federal income tax
expense as a percent of income before income tax expense decreased to 36.1
percent during the first three months of 1995, as compared to 37.2 percent
during the same period in 1994. Currently the State franchise tax rate is
8.5 percent and is a deductible expense for computing Federal income tax.
Net Income
As a result of all factors indicated above, net income decreased to
$1,306,000 for the first three months of 1995, a decrease of $99,000 or 7.0
percent from the $1,405,000 recorded over the same period in 1994. Earnings
per share for the first three months of 1995 were $.91 per share as
compared to $.98 per share for the first three months of 1994.
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1995
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
There were no submissions of matters to a vote by security holders
during the quarter ended March 31, 1995.
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1995
Part II - Other Information
Item 5 - Other Information
The Bank has reached an agreement for the acquisition of Gateway Bank,
LaGrange, Indiana. It is anticipated the Bank will acquire approximately
$9,000,000 of loans and $18,000,000 of deposits in this acquisition. The
definitive agreement was signed on April 27, 1995 and the regulatory
applications have been filed.
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1995
Part II - Other Information
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LAKELAND FINANCIAL CORPORATION
(Registrant)
Date: May 8, 1995 R. Douglas Grant
------------------------------------------
R. Douglas Grant - President
Date: May 8, 1995 Terry M. White
------------------------------------------
Terry M. White - Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 21,826
<INT-BEARING-DEPOSITS> 47
<FED-FUNDS-SOLD> 4,157
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,433
<INVESTMENTS-CARRYING> 118,598
<INVESTMENTS-MARKET> 116,966
<LOANS> 292,124
<ALLOWANCE> 4,894
<TOTAL-ASSETS> 513,287
<DEPOSITS> 395,915
<SHORT-TERM> 63,390
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<COMMON> 1,438
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0
<OTHER-SE> 30,421
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<EPS-PRIMARY> .91
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<YIELD-ACTUAL> 4.24
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