UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________
Commission File No. 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 Identification No.)
Incorporation or organization)
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 1-219-267-6144
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON
(Title of Class)
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 other 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein and will not be contained,
to the best of the Registrant's knowledge, in definitive Proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed solely for the purposes of this requirement on the basis
of the book value at February 29, 1996, and assuming solely for the purposes
of this calculation that all Directors and executive officers of the
Registrant are "affiliates": $35,131,538.
Number of shares of common stock outstanding at February 29, 1996:
1,448,496.
Cover page 1 of 2 pages
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the Part
of 10-K indicated:
Part Document
I, II & IV Lakeland Financial Corporation's Annual Report to
Shareholders for year ended December 31, 1995,
parts of which are incorporated into Parts I, II
and IV of this Form 10-K.
III Proxy statement mailed to Shareholders on March
11, 1996, which is incorporated into Part III
of this Form 10-K.
Cover page 2 of 2 pages
<PAGE>
PART I.
ITEM 1. BUSINESS
The registrant was incorporated under the laws of the State of Indiana on
February 8, 1983. As used herein, the term "Registrant" refers to Lakeland
Financial Corporation or, if the context dictates, the Lakeland Financial
Corporation and its wholly owned subsidiary, Lake City Bank, Warsaw, Indiana.
GENERAL
REGISTRANT'S BUSINESS. The Registrant is a bank holding company as
defined in the Bank Holding Company Act of 1956, as amended. Registrant owns
all of the outstanding stock of Lake City Bank, Warsaw, Indiana, a full
service commercial bank organized under Indiana law (the "Bank"). Registrant
conducts no business except that incident to its ownership of the outstanding
stock of the Bank and the operation of the Bank.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation. The Bank's activities cover all phases of commercial banking,
including checking accounts, savings accounts, time deposits, the sale of
securities under agreements to repurchase, discount brokerage services,
commercial and agricultural lending, direct and indirect consumer lending,
real estate mortgage lending, safe deposit box service and trust services.
The Bank's main banking office is located at 202 East Center Street,
Warsaw, Indiana. As of December 31, 1995, the Bank had nine branch offices and
one drive-up facility in Kosciusko County, seven branch offices in Elkhart
County, three branch offices in Noble County, three branch offices in Wabash
County, two branch offices in LaGrange County, two branch offices in Marshall
County, one branch office in Whitley County and two branch offices and one
drive-up facility in Fulton County. The Bank's operations center is located at
113 East Market Street, Warsaw, Indiana.
SUPERVISION AND REGULATION. The Registrant is a bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended ("BHC
Act"). As a bank holding company, the registrant is required to file with the
Federal Reserve Board (the "FRB") annual reports and such additional
information as the FRB may require. The FRB may also make an examination or
inspection of the Registrant.
The BHC Act prohibits a bank holding company from engaging in, or
acquiring direct or indirect control of more than five percent of the voting
shares of any company engaged in non-banking activities. One of the principal
exceptions to this prohibition is for activities deemed by the FRB to be
"closely related to banking". Under current regulations, bank holding
companies and their subsidiaries may engage in such bank related business
ventures as consumer finance, equipment leasing, computer service bureau and
software operations and mortgage banking.
The BHC Act also governs banking expansion by bank holding companies.
Before a bank holding company acquires more than five percent of the voting
shares of any other bank it must receive the prior written approval of the FRB
or its delegate. Furthermore, the BHC Act does not permit a bank holding
company to acquire a bank located outside the State of Indiana unless the
acquisition is specifically authorized by the laws of the State in which such
bank is located.
1
<PAGE>
The acquisition of banking subsidiaries by bank holding companies is
subject to the jurisdiction of, and requires the prior approval of, the
Federal Reserve, and for institutions resident in Indiana, the Indiana
Department of Financial Institutions. Bank holding companies located in
Indiana are permitted to acquire banking subsidiaries throughout the state,
subject to limitations based upon the percentage of total state deposits of
the holding company's subsidiary banks. Indiana law permits the Registrant to
acquire banks, and be acquired by bank holding companies, located in any state
in the country which permits reciprocal entry by Indiana bank holding
companies.
The Registrant is an "affiliate" of the Bank within the meaning of
Section 23A of the Federal Reserve Act (as made applicable to the Bank by the
Federal Deposit Insurance Act) and Indiana Code 28-1-18.1. As a result, the
Bank is restricted in making loans to, investments in, or loans secured by
securities of, the Registrant. The BHC Act also prohibits the Registrant and
its subsidiaries from imposing "tie-in" requirements in connection with
extensions of credit and other services.
Under the provisions of Indiana law, the registrant may not acquire more
than twenty-five percent of the voting stock in any banks other than the Bank
without the approval of the Indiana Department of Financial Institutions. In
any such event, the Registrant would be required to obtain the prior approval
of the FRB as described above to purchase interest of five percent or more in
another bank.
The Bank is under supervision of and subject to examination by the
Indiana Department of Financial Institutions and the Federal Deposit Insurance
Corporation. Regulation and examination by banking regulatory agencies are
primarily for the benefit of depositors and not shareholders.
The earnings of commercial banks are affected not only by general
economic conditions, but also by the policies of various governmental
regulatory authorities. In particular, the FRB regulates money and credit
conditions and interest rates in order to influence general economic
conditions, primarily through open-market operations in U.S. Government
securities, the discount rate on bank borrowing, setting the reserves that
banks must maintain against certain bank deposits and the regulation of
interest rates payable by banks on certain time and savings deposits. These
policies have a significant effect on the overall growth and distribution of
bank loans, investments and deposits. They influence interest rates charged on
loans, earned on investments and paid for time and savings deposits. FRB
monetary policies have had significant effect on the operating results of
commercial banks in the past, and are expected to exert similar influence in
the future. The general effect, if any, of such policies upon the future
business and earnings of the Registrant and the Bank cannot be reasonably
predicted.
MATERIAL CHANGES AND BUSINESS DEVELOPMENTS
From the date of the Registrant's incorporation, February 8, 1983, until
October 31, 1983, the Registrant conducted no business and had no assets
(except nominal assets necessary to complete the acquisition of the Bank). The
Registrant has conducted no business since October 31, 1983, except that
incident to its ownership of the stock of the Bank, the collection of
dividends from the Bank, and the disbursement of dividends to the Registrant's
shareholders. During the period from 1985 to 1987, the Registrant owned all of
the outstanding shares of Lakeland Mortgage Corp., a mortgage lending and
servicing corporation doing business in Indiana. Lakeland Mortgage Corp.
discontinued business operations on December 15, 1987. The Registrant
continued to own all of the stock of Lakeland Mortgage Corp.
2
<PAGE>
until 1992, during which year, Lakeland Mortgage Corp. was liquidated and all
stock was redeemed.
COMPETITION
The Bank was originally organized in 1872 and has continuously operated
under the laws of the State of Indiana since its organization. The Bank is a
full service bank providing both commercial and personal banking services.
Bank products offered include interest and noninterest bearing demand
accounts, savings and time deposit accounts, sale of securities under
agreements to repurchase, discount brokerage, commercial loans, mortgage
loans, consumer loans, letters of credit, and a wide range of trust services.
The interest rates for both deposits and loans, as well as the range of
services provided, are nearly the same for all banks competing within the
Bank's service area.
The Bank's service area is described as all of Kosciusko, Elkhart, and
Wabash Counties and portions of St. Joseph, Marshall, Fulton, Miami,
Huntington, Whitley, Noble, and LaGrange Counties. Within this area the Bank
competes with 22 other banks, 7 of which are larger than the Bank. Of the 15
which are smaller than the Bank, 2 are members of Bank Holding Companies which
are larger than the Registrant. Eight of these institutions have home offices
outside the Bank's defined business area but operate branches within this
area.
In addition to the banks located within its service area, the Bank also
competes with savings and loan associations, credit unions, farm credit
services, finance companies, personal loan companies, insurance companies,
money market funds, and other non-depository financial intermediaries. In
addition, financial intermediaries such as money market mutual funds and large
retailers are not subject to the same regulations and laws that govern the
operation of traditional depository institutions and accordingly may have an
advantage in competing for funds.
In addition to the banks within its service area, the Bank competes with
other major banks for the large commercial deposit and loan accounts. The Bank
is presently subject to an aggregate maximum loan limit to any single account
in the amount of $6,232,000 pursuant to Indiana law. This maximum prohibits
the Bank from providing a full range of banking services to those businesses
or personal accounts whose borrowing periodically exceed this amount. In order
to retain at least a portion of the bank business of these large borrowers,
the Bank maintains correspondent relationships with: Norwest Bank, Indiana,
N.A., Fort Wayne, Indiana; NBD, N.A., Indianapolis, Indiana; Northern Trust
Company, Chicago, Illinois; Bank One, N.A., Indianapolis, Indiana; and Mellon
Bank, N.A., Pittsburgh, Pennsylvania. The Bank also participates with local
and other banks in the placement of large borrowings in excess of its lending
limit. The Bank is also a member of the Federal Home Loan Bank of Indianapolis
in order to broaden its mortgage lending and investment activities and to
provide additional funds, if necessary, to support these activities.
FOREIGN OPERATIONS
The Bank has no investments with any foreign entity other than a nominal
demand deposit account which is maintained with a Canadian bank in order to
facilitate the clearing of checks drawn on banks located in that country.
There are no foreign loans.
3
<PAGE>
EMPLOYEES
At December 31, 1995, the Registrant, including its subsidiary
corporation, had approximately 292 full time equivalent employees. Benefit
programs include a pension plan, 401(k) plan, group medical insurance, group
life insurance and paid vacations. The bank is not a party to any collective
bargaining agreement, and employee relations are considered good.
INDUSTRY SEGMENTS
The Registrant and the Bank are engaged in a single industry and perform
a single service -- commercial banking. On the pages that follow are tables
which set forth selected statistical information relative to the business of
the Registrant.
(Intentionally Left Blank)
4
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands of dollars)
<CAPTION>
1995 1994
------------------------------------ -------------------------------------
Average Interest Average Interest
Balance Income Yield* Balance Income Yield*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Trading account investments $ 0 $ 0 0.00% $ 0 $ 0 0.00%
Loans:
Taxable ** 305,806 29,859 9.76 267,604 23,658 8.84
Tax Exempt * 3,435 389 11.32 3,787 413 10.91
Investments:
Taxable 170,788 10,723 6.28 149,049 8,842 5.93
Tax Exempt * 16,724 1,572 9.40 11,436 1,102 9.64
Short-term investment 3,293 192 5.83 3,551 152 4.28
Interest bearing deposits 108 10 9.26 98 3 3.06
----------- ----------- ----------- ----------- ----------- -----------
Total Earning Assets $ 500,154 $ 42,745 8.55% $ 435,525 $ 34,170 7.85%
=========== ===========
Nonearning assets:
Cash and due from banks 20,725 0 18,164 0
Premises and equipment 12,386 0 10,104 0
Other assets 7,668 0 7,508 0
Less: allowance for loan losses (5,238) 0 (4,417) 0
----------- ----------- ----------- -----------
Total assets $ 535,695 $ 42,745 $ 466,884 $ 34,170
=========== =========== =========== ===========
<FN>
Tax exempt income converted to fully taxable equivalent basis at a 34 percent tax rate for 1995 and 1994. Tax equivalent rate
for tax exempt loans and tax exempt securities acquired after January 1, 1983, includes TEFRA adjustment applicable to
nondeductible interest expenses. Nonaccrual loans are included in the above analysis as earning assets - loans.
**Loan fees, which are immaterial in relation to total taxable loan interest income for the years ended December 31, 1995,
and 1994, are included as taxable loan interest income.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (cont.)
(in thousands of dollars)
<CAPTION>
1994 1993
-------------------------------------- --------------------------------------
Average Interest Average Interest
Balance Income Yield* Balance Income Yield*
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Trading account investments $ 0 $ 0 0.00% $ 72 $ 2 3.31%
Loans:
Taxable ** 267,604 23,658 8.84 235,352 19,946 8.47
Tax Exempt * 3,787 413 10.91 5,114 529 10.34
Investments:
Taxable 149,049 8,842 5.93 100,507 6,459 6.43
Tax Exempt * 11,436 1,102 9.610.26 9,463 971
Short-term investment 3,551 152 4.28 3,111 93 2.99
Interest bearing deposits 98 3 3.06 3,116 92 2.95
----------- ----------- ---------- ----------- ----------- ----------
Total earning assets $ 435,525 $ 34,170 7.85% $ 356,735 $ 28,092 7.87%
========== ==========
Nonearning assets:
Cash and due from banks 18,164 0 12,505 0
Premises and equipment 10,104 0 8,119 0
Other assets 7,508 0 8,308 0
Less: allowance for loan losses (4,417) 0 (3,419) 0
----------- ----------- ----------- -----------
Total assets $ 466,884 $ 34,170 $ 382,248 $ 28,092
=========== =========== =========== ===========
<FN>
* Tax exempt income converted to fully taxable equivalent basis at a 34 percent tax rate for 1994 and 1993. Tax equivalent
rate for tax exempt loans and tax exempt securities acquired after January 1, 1983, includes TEFRA adjustment applicable to
nondeductible interest expenses. Nonaccrual loans are included in the above analysis as earning assets - loans.
**Loan fees, which are immaterial in relation to total taxable loan interest income for the years ended December 31, 1994,
and 1993, are included as taxable loan interest income.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (cont.)
(in thousands of dollars)
<CAPTION>
1995 1994
------------------------------------- -------------------------------------
Average Interest Average Interest
Balance Expense Rate Balance Expense Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities
Savings deposits $ 46,123 $ 1,069 2.32% $ 55,855 $ 1,517 2.72%
Interest bearing checking accounts 55,355 1,333 2.41 58,945 1,394 2.36
Time deposits
In denominations under $100,000 177,992 10,035 5.64 148,251 6,837 4.61
In denominations over $100,000 73,449 4,410 6.00 54,389 2,360 4.34
Miscellaneous short-term borrowings 66,610 3,803 5.71 47,220 1,879 3.98
Long-term borrowings 17,432 992 5.69 15,806 900 5.69
Capital notes 0 0 0.00 0 0 0.00
----------- ----------- ----------- ----------- ----------- -----------
Total interest bearing liabilities $ 436,961 $ 21,642 4.95% $ 380,466 $ 14,887 3.91%
=========== ===========
Non-interest bearing liabilities
and stockholders' equity
Demand deposits 60,753 0 52,893 0
Other liabilities 4,897 0 4,606 0
Stockholders' equity 33,084 0 28,919 0
----------- ----------- ----------- -----------
Total liabilities and stock-
holders' equity $ 535,695 $ 21,642 4.04% $ 466,884 $ 14,887 3.19%
=========== =========== =========== =========== =========== ===========
Net interest differential - yield on average
daily earning assets $ 21,103 4.22% $ 19,283 4.43%
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (cont.)
(in thousands of dollars)
<CAPTION>
1994 1993
------------------------------------- -------------------------------------
Average Interest Average Interest
Balance Expense Rate Balance Expense Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Interest bearing liabilities
Savings deposits $ 55,855 $ 1,517 2.72% $ 38,263 $ 1,059 2.77%
Interest bearing checking accounts 58,945 1,394 2.36 54,197 1,380 2.55
Time deposits
In denominations under $100,000 148,251 6,837 4.61 128,520 6,074 4.73
In denominations over $100,000 54,389 2,360 4.34 42,458 1,588 3.74
Miscellaneous short-term borrowings 47,220 1,879 3.98 42,919 1,428 3.33
Long-term borrowings 15,806 900 5.69 8,677 493 5.68
Capital notes 0 0 0.00 0 0 0.00
----------- ----------- ----------- ----------- ----------- -----------
Total interest bearing liabilities $ 380,466 $ 14,887 3.91% $ 315,034 $ 12,022 3.82%
=========== ===========
Non-interest bearing liabilities
and stockholders' equity
Demand deposits 52,893 0 37,709 0
Other liabilities 4,606 0 3,847 0
Stockholders' equity 28,919 0 25,658 0
----------- ----------- ----------- -----------
Total liabilities and stock-
holders' equity $ 466,884 $ 14,887 3.19% $ 382,248 $ 12,022 3.15%
=========== =========== =========== =========== =========== ==========
Net interest differential - yield on
average daily earning assets $ 19,283 4.43% $ 16,070 4.50%
=========== =========== =========== ==========
</TABLE>
8
<PAGE>
<TABLE>
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIALS
(Fully Taxable Equivalent Basis)
(in thousands of dollars)
YEAR ENDED DECEMBER 31,
<CAPTION>
1995 Over (under) 1994(1) 1994 Over (under) 1993(1)
------------------------------------- -------------------------------------
Volume Rate Total Volume Rate Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST AND LOAN FEE INCOME(2)
Loans:
Taxable $ 3,581 $ 2,620 $ 6,201 $ 2,823 $ 889 $ 3,712
Tax exempt (39) 15 (24) (143) 27 (116)
Investments:
Taxable 1,344 537 1,881 2,912 (529) 2,383
Tax exempt 496 (26) 470 193 (61) 132
Trading account investments 0 0 0 (1) (1) (2)
Short-term investment (12) 52 40 14 45 59
Interest bearing deposits 0 7 7 (100) 10 (90)
----------- ----------- ----------- ----------- ----------- -----------
Total interest income 5,370 3,205 8,575 5,698 380 6,078
----------- ----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Savings deposits (243) (205) (448) 478 (20) 458
Interest bearing checking accounts (86) 25 (61) 116 (102) 14
Time deposits
In denominations under $100,000 1,517 1,681 3,198 914 (150) 764
In denominations over $100,000 979 1,071 2,050 492 280 772
Miscellaneous short-term borrowings 935 989 1,924 152 298 450
Long-term borrowings 93 (1) 92 406 1 407
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense 3,195 3,560 6,755 2,558 307 2,865
----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
INTEREST DIFFERENTIALS $ 2,175 $ (355) $ 1,820 $ 3,140 $ 73 $ 3,213
=========== =========== =========== =========== =========== ===========
<FN>
(1) The earning assets and interest bearing liabilities used to calculate interest differentials are based on average daily
balances for 1995, 1994 and 1993. The changes in volume represent "changes in volume times the old rate". The changes in rate
represent "changes in rate times old volume". The change in rate/volume were also calculated by "change in rate times change
in volume" and allocated consistently based upon the relative absolute values of the changes in volume and changes in rate.
(2) Tax exempt income converted to fully taxable equivalent basis at a 34 percent tax rate for 1995, 1994 and 1993. Tax
equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983, includes TEFRA adjustment
applicable to nondeductible interest expense.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
ANALYSIS OF SECURITIES
(in thousands of dollars)
The amortized cost and the fair value of securities as of December 31, 1995, 1994 and 1993 are as follows:
<CAPTION>
1995 1994 1993
------------------------ ------------------------ ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities $ 27,549 $ 27,844 $ 26,960 $ 25,916 $ 29,701 $ 30,446
Government agencies and corporations 2,150 2,191 1,000 1,000 0 0
Mortgage-backed securities 48,302 48,843 30,734 28,987 26,798 26,810
Obligations of state and political
subdivisions 2,076 2,176 887 933 882 975
Other securities 999 1,066 999 1,026 999 1,128
----------- ----------- ----------- ----------- ----------- -----------
Total debt securities available-for-sale 81,076 82,120 60,580 57,862 58,380 59,359
=========== =========== =========== =========== =========== ===========
Securities held-to-maturity:
U.S. Treasury securities $ 13,611 $ 13,576 $ 14,714 $ 13,876 $ 10,544 $ 10,559
Government agencies and corporations 2,898 3,033 2,034 2,037 99 99
Mortgage-backed securities 77,319 77,471 78,781 73,673 77,085 77,067
Obligations of state and political
subdivisions 19,047 20,077 13,608 13,061 10,825 11,457
Other securities 1,013 1,171 1,015 1,076 1,017 1,195
----------- ----------- ----------- ----------- ----------- -----------
Total debt securities held-to-maturity 113,888 115,328 110,152 103,723 99,570 100,377
Equity securities 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Total securities held to maturity $ 113,888 $ 115,328 $ 110,152 $ 103,723 $ 99,570 $ 100,377
=========== =========== =========== =========== =========== ===========
</TABLE>
10
<PAGE>
<TABLE>
ANALYSIS OF SECURITIES (cont.)
(Fully Tax Equivalent Basis)
(in thousands of dollars)
The maturity distribution (2) and weighted average yields (1) for debt securities portfolio at December 31, 1995, are as
follows:
<CAPTION>
After One After Five
Within Year Years Over
One Within Five Within Ten Ten
Year Years Years Years
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities
Book value 100 27,449 0 0
Yield 6.56 5.97
Government agencies and corporations
Book value 1,000 1,050 100 0
Yield 7.70 7.91 9.02
Mortgage-backed securities
Book value 0 5,327 20,577 22,398
Yield 7.11 6.34 6.51
Obligations of state and political
subdivisions
Book value 0 591 0 1,485
Yield 11.55 8.57
Other debt securities
Book value 0 999 0 0
Yield 9.34
----------- ----------- ----------- -----------
Total debt securities available-for-sale:
Book value 1,100 35,416 20,677 23,883
Yield 7.60 6.39 6.35 6.64
=========== =========== =========== ===========
Securities held-to-maturity:
U.S. Treasury securities
Book value 2,549 11,062 0 0
Yield 4.39 5.28
Government agencies and corporations
Book value 0 2,598 300 0
Yield 7.52 6.42
Mortgage-backed securities
Book value 0 15,050 39,028 23,241
Yield 6.81 6.21 5.67
Obligations of state and political
subdivisions
Book value 7 586 758 17,696
Yield 4.27 9.92 10.53 9.12
Other debt securities
Book value 0 1,013 0 0
Yield 9.73
----------- ----------- ----------- -----------
Total debt securities held-to-maturity:
Book value 2,556 30,309 40,086 40,937
Yield 4.38 6.47 6.30 7.16
=========== =========== =========== ===========
<FN>
(1) Tax exempt income converted to a fully taxable equivalent basis at a 34% rate.
(2) The maturity distribution of mortgage-backed securities is based upon anticipated payments as
computed by using the historic average repayment speed from date of issue.
(3) There are no investments in securities of any one issuer that exceed 10% of stockholders' equity.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
ANALYSIS OF LOAN PORTFOLIO
Analysis of Loans Outstanding
(in thousands of dollars)
The Registrant segregates its loan portfolio into four basic segments: commercial (including agri-business and agricultural
loans), real estate mortgages, installment and credit cards (including personal line of credit loans). The loan portfolio as of
December 31, 1995, 1994, 1993, 1992, and 1991 is as follows:
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial loans:
Taxable $ 192,359 $ 173,325 $ 144,274 $ 128,268 $ 97,510
Tax exempt 3,636 3,207 4,501 5,594 6,521
Total commercial loans 195,995 176,532 148,775 133,862 104,031
Real estate mortgage loans 55,948 47,296 49,816 50,413 50,697
Installment loans 58,175 48,228 46,914 36,111 33,312
Credit card and line of credit loans 17,499 15,900 14,680 13,816 11,986
----------- ----------- ----------- ----------- -----------
Total loans 327,617 287,956 260,185 234,202 200,026
Less allowance for loan losses 5,472 4,866 4,010 3,095 2,612
----------- ----------- ----------- ----------- -----------
Net loans $ 322,145 $ 283,090 $ 256,175 $ 231,107 $ 197,414
=========== =========== =========== =========== ===========
<FN>
The real estate mortgage loan portfolio includes construction loans totaling $1,224, $426, $223, $1,164, and $885 as of
December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The above loan classifications are based on the nature of the loans as
of the loan origination date, and are independent as to the use of the funds by the borrower. There are no foreign loans included
in the above analysis.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
ANALYSIS OF LOAN PORTFOLIO (cont.)
Analysis of Loans Outstanding (cont.)
(in thousands of dollars)
Repricing opportunities of the loan portfolio occur either according to predetermined adjustable rate schedules included in
the related loan agreements or upon scheduled maturity of each principal payment. The following table indicated the rate
sensitivity of the loan portfolio as of December 31, 1995. The table includes the real estate loans held-for-sale and assumes
these loans will not be sold during the various time horizons.
<CAPTION>
Credit
Card
Real and Line
Commercial Estate Installment of Credit Total Percent
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Immediately adjustable interest rates
or original maturity of one day $ 155,694 $ 2,071 $ 3,503 $ 14,574 $ 175,842 53.6%
Other within one year 8,761 25,515 22,932 0 57,208 17.4
After one year, within five years 25,551 22,753 31,070 2,925 82,299 25.1
Over five years 5,533 5,677 670 0 11,880 3.6
Nonaccrual loans 456 77 0 0 533 0.2
----------- ----------- ----------- ----------- ----------- -----------
Total loans $ 195,995 $ 56,093 $ 58,175 $ 17,499 $ 327,762 100.0%
=========== =========== =========== =========== =========== ===========
<FN>
A portion of the Bank's loans are short-term maturities. At maturity, credits are reviewed, and if renewed, are renewed at
rates and conditions that prevail at the time of maturity.
Loans due after one year which have a predetermined interest rate and loans due after one year which have floating or
adjustable interest rates as of December 31, 1995 amounted to $76,568 and $109,332 respectively.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
ANALYSIS OF LOAN PORTFOLIO (cont.)
Review of Nonperforming Loans
(in thousands of dollars)
The following is a summary of nonperforming loans as of December 31, 1995, 1994, 1993, 1992 and 1991.
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PART A - PAST DUE ACCRUING LOANS (90 DAYS OR MORE)
Real estate mortgage loans $ 122 $ 0 $ 1 $ 79 $ 27
Commercial and industrial loans 69 16 315 100 1,127
Loans to individuals for household,
family and other personal expenditures 18 19 346 42 55
Loans to finance agriculture production
and other loans to farmers 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total past due loans 209 35 662 221 1,209
----------- ----------- ----------- ----------- -----------
PART B - NONACCRUAL LOANS
Real estate mortgage loans 76 18 0 0 22
Commercial and industrial loans 456 0 0 0 198
Loans to individuals for household,
family and other personal expenditures 0 0 0 0 5
Loans to finance agriculture production
and other loans to farmers 0 0 0 0 628
----------- ----------- ----------- ----------- -----------
Total nonaccrual loans 532 18 0 0 853
----------- ----------- ----------- ----------- -----------
PART C - TROUBLED DEBT RESTRUCTURED LOANS 1,432 1,484 0 86 4
----------- ----------- ----------- ----------- -----------
Total nonperforming loans $ 2,173 $ 1,537 $ 662 $ 307 $ 2,066
=========== =========== =========== =========== ===========
<FN>
Nonearning assets of the Corporation include nonaccrual loans (as indicated above), nonaccrual investments, other real
estate, and repossessions which amounted to $1,207 at December 31, 1995.
</FN>
</TABLE>
14
<PAGE>
ANALYSIS OF LOAN PORTFOLIO (cont.)
Comments Regarding Nonperforming Assets
PART A - CONSUMER LOANS
Consumer installment loans, except those loans that are secured by real
estate, are not placed on a nonaccrual status since these loans are
charged-off when they have been delinquent from 90 to 180 days, and when the
related collateral, if any, is not sufficient to offset the indebtedness.
Advances under Mastercard and Visa programs, as well as advances under all
other consumer lines of credit programs, are charged-off when collection
appears doubtful.
PART B - NONPERFORMING LOANS
When a loan is classified as a nonaccrual loan, interest on the loan is
no longer accrued and all accrued interest receivable is charged off. It is
the policy of the Bank that all unsecured loans (i.e. loans for which the
collateral is insufficient to cover all principal and accrued interest) will
be reclassified as nonperforming loans to the extent they are unsecured, on or
before the loan becomes 90 days delinquent. Thereafter, interest is recognized
and included in income only when received.
As of December 31, 1995, loans totaling $532,000 were on nonaccrual
status.
PART C - TROUBLED DEBT RESTRUCTURED LOANS
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 $1,432,000 as
of December 31, 1995. Interest income of $96,000 was recognized in 1995. Had
these loans been performing under the original contract terms, an additional
$53,000 would have been reflected in interest income during 1995. The Bank is
not committed to lend additional funds to debtors whose loans have been
modified.
PART D - OTHER NONPERFORMING ASSETS
The Bank adopted SFAS No. 114 and SFAS No. 118, 'Accounting by Creditors
for Impairment of a Loan' at January 1, 1995. Under these standards, loans
considered to be impaired are reduced to the present value of future cash
flows or to the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is reported as
bad debt expense. As part of the loan review process, management reviews all
loans classified as 'special mention' or below, as well as other loans that
might warrant application of SFAS No. 114 and SFAS No. 118. The effect of
adopting these accounting standards on January 1, 1995 was immaterial and at
December 31, 1995, no loans were considered as impaired.
The management of the Bank is of the opinion that there are no
significant foreseeable losses relating to substandard or nonperforming
assets, except as discussed above.
15
<PAGE>
PART E - LOAN CONCENTRATIONS
There were no loan concentrations within industries which exceeded ten
percent of total assets. It is estimated that over 98% of all the Bank's
commercial, industrial, agri-business and agricultural real estate mortgage,
real estate construction mortgage and consumer loans are made within its basic
trade area.
Basis For Determining Allowance For Loan Losses
Management is charged with the responsibility of determining the adequacy
of the allowance for loan losses. This responsibility is fulfilled by
management in the following ways:
1. Management reviews the larger individual loans for unfavorable
collectibility factors and assesses the requirement for specific reserves on
such credits. For those loans not subject to specific reviews, management
reviews previous loan loss experience to establish historical ratios and
trends in charge-offs by loan category. The ratios of net charge-offs to
particular types of loans enable management to estimate charge-offs in future
periods by loan category and thereby establish appropriate reserves for loans
not specifically reviewed.
2. Management reviews the current and anticipated economic conditions of
its lending market to determine the effects on future loan charge-offs by loan
category, in addition to the effects on the loan portfolio as a whole.
3. Management reviews delinquent loan reports to determine risk of future
loan charge-offs. High delinquencies are generally indicative of an increase
in future loan charge-offs.
Based upon the above described policy and objectives, $120,000, $795,000
and $790,000 were charged to the provision for loan losses and added to the
allowance for loan losses in 1995, 1994 and 1993, respectively.
The allocation of the allowance for loan losses to the various lending
areas is performed by management in relation to perceived exposure to loss in
the various loan portfolios. However, the allowance for loan losses is
available in its entirety to absorb losses in any particular loan category.
(Intentionally Left Blank)
16
<PAGE>
<TABLE>
ANALYSIS OF LOAN PORTFOLIO (cont.)
Summary of Loan Loss
(in thousands of dollars)
Following is a summary of the loan loss experience for the years ended December 31, 1995, 1994, 1993, 1992, and 1991.
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding, December 31, $ 327,617 $ 287,956 $ 260,185 $ 234,202 $ 200,026
=========== =========== =========== =========== ===========
Average daily loans outstanding during the
year ended December 31, $ 309,241 $ 271,391 $ 240,466 $ 213,599 $ 178,619
=========== =========== =========== =========== ===========
Allowance for loan losses, January 1, $ 4,866 $ 4,010 $ 3,095 $ 2,612 $ 1,777
----------- ----------- ----------- ----------- -----------
Loans charged-off
Commercial 137 27 99 446 1,016
Real Estate 48 0 4 258 20
Installment 112 93 97 217 221
Credit cards and personal credit lines 58 15 28 39 66
----------- ----------- ----------- ----------- -----------
Total loans charged-off 355 135 228 960 1,323
----------- ----------- ----------- ----------- -----------
Recoveries of loans previously charged-off
Commercial 26 107 40 11 18
Real Estate 0 1 1 0 0
Installment 63 81 56 85 106
Credit cards and personal credit lines 6 7 6 7 5
----------- ----------- ----------- ----------- -----------
Total recoveries 95 196 103 103 129
----------- ----------- ----------- ----------- -----------
Net loans charged-off 260 (61) 125 857 1,194
Purchase loan adjustment 746 0 250 0 59
Provision for loan loss charged to expense 120 795 790 1,340 1,970
----------- ----------- ----------- ----------- -----------
Balance December 31, $ 5,472 $ 4,866 $ 4,010 $ 3,095 $ 2,612
=========== =========== =========== =========== ===========
Ratio of net charge-offs during the period to
average daily loans outstanding
Commercial 0.03% (0.03)% 0.02% 0.20% 0.56%
Real Estate 0.01 0.00 0.00 0.12 0.01
Installment 0.02 0.01 0.02 0.06 0.07
Credit cards and personal credit lines 0.02 0.00 0.01 0.02 0.03
----------- ----------- ----------- ----------- -----------
Total 0.08% (0.02)% 0.05% 0.40% 0.67%
=========== =========== =========== =========== ===========
</TABLE>
17
<PAGE>
<TABLE>
ANALYSIS OF LOAN PORTFOLIO (cont.)
Allocation of Allowance for Loan Losses
(in thousands of dollars)
The following is a summary of the allocation for loan losses as of December 31, 1995, 1994, 1993, 1992 and 1991.
<CAPTION>
1995 1994 1993
------------------------ ------------------------ ------------------------
Allowance Loans as Allowance Loans as Allowance Loans as
For Percentage For Percentage For Percentage
Loan of Gross Loan of Gross Loan of Gross
Losses Loans Losses Loans Losses Loans
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allocated allowance for loan losses
Commercial $ 811 59.82 $ 665 61.31 $ 1,120 57.18
Real Estate 112 17.08 95 16.42 108 19.15
Installment 376 17.76 311 16.75 302 18.04
Credit cards and personal credit lines 112 5.34 101 5.52 95 5.63
----------- ----------- ----------- ----------- ----------- -----------
Total allocated allowance for loan losses 1,411 100.00 1,172 100.00 1,625 100.00
=========== =========== ===========
4,061 3,694 2,385
----------- ----------- -----------
Total allowance for loan losses $ 5,472 $ 4,866 $ 4,010
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1992 1991
------------------------ ------------------------
Allowance Loans as Allowance Loans as
For Percentage For Percentage
Loan of Gross Loan of Gross
Losses Loans Losses Loans
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allocated allowance for loan losses
Commercial $ 864 57.16 $ 1,168 52.01
Real Estate 105 21.52 90 25.35
Installment 230 15.42 214 16.65
Credit cards and personal credit lines 87 5.90 76 5.99
----------- ----------- ----------- -----------
Total allocated allowance for loan losses 1,286 100.00 1,548 100.00
=========== ===========
1,809 1,064
----------- -----------
Total allowance for loan losses $ 3,095 $ 2,612
=========== ===========
</TABLE>
18
<PAGE>
<TABLE>
ANALYSIS OF DEPOSITS
(in thousands of dollars)
The average daily deposits for the years ended December 31, 1995, 1994 and 1993, and the average rates paid on those deposits
are summarized in the following table:
<CAPTION>
1995 1994 1993
------------------------ ------------------------ -----------------------
Average Average Average Average Average Average
Daily Rate Daily Rate Daily Rate
Balance Paid Balance Paid Balance Paid
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 60,753 0.00 $ 52,893 0.00 $ 37,709 0.00
Savings accounts:
Regular savings 46,123 2.32 55,855 2.72 38,263 2.77
Interest bearing checking 55,355 2.41 58,945 2.36 54,197 2.55
Time deposits:
Deposits of $100,000 or more 73,449 6.00 54,389 4.34 42,458 3.74
Other time deposits 177,992 5.64 148,251 4.61 128,520 4.73
----------- ----------- ----------- ----------- ----------- -----------
Total deposits $ 413,672 4.07 $ 370,333 3.27 $ 301,147 3.35
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
As of December 31, 1995, time certificates of deposit in denominations of $100,000 or more will mature as follows:
<S> <C>
Within three months $ 33,382
Over three months, within six months 12,922
Over six months, within twelve months 9,237
Over twelve months 6,822
-----------
Total time certificates of deposit in
denominations of $100,000 or more $ 62,363
===========
</TABLE>
19
<PAGE>
RETURN ON EQUITY AND ASSETS
The rates of return on average daily assets and stockholders' equity, the
dividend payout ratio, and the average daily stockholders' equity to average
daily assets for the years ended December 31, 1995, 1994 and 1993 are as
follows:
1995 1994 1993
--------- --------- ---------
Percent of net income to:
Average daily total assets 1.05 1.10 1.11
Average daily stockholders' equity 17.06 17.73 16.51
Percentage of dividends declared per
common share to net income per
weighted average number of common
shares outstanding (1,438,496
shares in 1995, 1994 and 1993) 18.88 16.57 17.01
Percentage of average daily
stockholders' equity to average
daily total assets 6.18 6.19 6.71
20
<PAGE>
SHORT-TERM BORROWINGS
The following is a schedule of statistical information relating to
securities sold under agreement to repurchase maturing within one year and are
secured by either U.S. Government agency securities or mortgage-backed
securities classified as other debt securities. There were no other categories
of short-term borrowings for which the average balance outstanding during the
period was 30 percent or more of shareholders' equity at the end of the
period.
1995 1994 1993
--------- --------- ---------
Outstanding at year end $ 58,151 $ 41,750 $ 29,372
Approximate average interest rate at
year end 5.35 5.11 3.22
Highest amount outstanding as of any
month end during the year $ 79,334 $ 50,460 $ 42,485
Approximate average outstanding
during the year $ 61,398 $ 42,584 $ 38,299
Approximate average interest rate
during the year 5.69 3.96 3.34
Securities sold under agreement to repurchase include both transactions
initiated by the investment division of the Bank, as well as the automatic
borrowings from selected demand deposit customers who had excess balances in
their accounts.
21
<PAGE>
ITEM 2. PROPERTIES
The Bank conducts its operations from the following locations:
Main Office Ligonier
202 E. Center St. 1470 U.S. Highway 33 South
Warsaw, IN Ligonier, IN
Warsaw Drive-Up Mentone
East Center St. 202 East Main St.
Warsaw, IN Mentone, IN
Akron Middlebury
102 East Rochester 712 Wayne Ave.
Akron, IN Middlebury, IN
Argos Milford
100 North Michigan Indiana State Road 15 North
Argos, IN Milford, IN
Bremen Nappanee
1600 Indiana State Rod 331 202 West Market St.
Bremen, IN Nappanee, IN
Columbia City North Webster
507 North Main St. 644 North Main St.
Columbia City, IN North Webster, IN
Concord Pierceton
4202 Elkhart Rd. 202 South First St.
Goshen, IN Pierceton, IN
Cromwell Roann
111 North Jefferson St. 110 Chippewa
Cromwell, IN Roann, IN
Elkhart Rochester
864 East Beardsley St. 507 East 9th St.
Elkhart, IN Rochester, IN
Elkhart East Shipshewana
22050 State Road 120 895 North Van Buren St.
Elkhart, IN Shipshewana, IN
Goshen Downtown Silver Lake
102 North Main St. 102 Main St.
Goshen, IN Silver Lake, IN
Goshen South Syracuse
2513 South Main St. 502 South Huntington
Goshen, IN Syracuse, IN
LaGrange Wabash North
901 South Detroit 1004 North Cass St.
LaGrange, IN Wasbash, IN
22
<PAGE>
Wabash South Winona Lake
1940 South Wabash St. 99 Chestnut St.
Wabash, IN Winona Lake, IN
Warsaw East Free-standing ATM
3601 Commerce Dr. 2101 East Center St.
Warsaw, IN Warsaw, IN
Warsaw West
1221 West Lake St.
Warsaw, IN
The Bank leases from third parties the real estate and buildings for its
offices in Akron and Milford. In addition, the Bank leases the real estate for
its Wabash North office and its free-standing ATM. All the other branch
facilities are owned by the Bank. The Bank also owns parking lots in downtown
Warsaw for the use and convenience of Bank employees and customers, as well as
leasehold improvements, equipment, furniture and fixtures necessary and
appropriate to operate the banking facilities.
In addition, the Bank owns a building at 110 South High St., Warsaw,
Indiana, which it uses for various offices and a building at 113 East Center
St., Warsaw, Indiana, which it uses for office and computer facilities. The
Bank also leases from third parties facilities in Warsaw, Indiana, for the
storage of supplies and for employee training.
None of the Bank's assets are the subject of any material encumbrances.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business to which the Registrant and the
Bank are a party or of which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders from October 1,
1992 to December 31, 1995.
(Intentionally Left Blank)
23
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information relating to the principal market for and the prices of the
Registrant's common stock, and information as to dividends declared by the
Registrant, are contained under the caption "Stock and Dividend Information"
in the 1995 Annual Report and are incorporated herein by reference in response
to this item. On December 31, 1995, the Registrant had 870 shareholders,
including those employees who participate in the Registrant's 401(K) plan.
ITEM 6. SELECTED FINANCIAL DATA
A five year consolidated financial summary, containing the required
selected financial data, appears under the caption "Selected Financial Data"
in the 1995 Annual Report and is incorporated herein by reference in response
to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations appears under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the 1995 Annual Report
and is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements appear in the 1995 Annual
Report and are incorporated herein by reference in response to this item.
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended December 31, 1995, 1994
and 1993.
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the Registrant's definitive Proxy Statement
dated March 11, 1996, is incorporated herein by reference in response to this
item.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Registrant's definitive Proxy Statement
dated March 11, 1996, is incorporated herein by reference in response to this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Registrant's definitive Proxy Statement
dated March 11, 1996, is incorporated herein by reference in response to this
item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Registrant's definitive Proxy Statement
dated March 11, 1996, is incorporated herein by reference in response to this
item.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The documents listed below are filed as a part of this report:
(1) Financial Statements.
---------------------
The following financial statements of the Registrant and its
subsidiaries appear in the 1995 Annual Report and are specifically incorporated
by reference under Item 8 of this Form 10-K, or are a part of this Form 10-K,
as indicated and at the pages set forth below.
Reference
---------
1995 Annual
Form 10-K Report
--------- -----------
Consolidated Balance Sheets at December 31,
1995 and 1994. 7
Consolidated Statements of Income for the
years ended December 31, 1995, 1994 and 1993. 8
Consolidated Statements of Changes in
Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993. 9
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993. 10
Notes to Consolidated Financial Statements. 11 - 20
Report of Independent Auditors. 20
(2) Financial Statement Schedules
-----------------------------
The financial statement schedules of the Registrant and its subsidiary
have been omitted because of the absence of conditions under which they are
required or because the required information is given in the financial
statements or notes thereto.
[Intentionally Left Blank]
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 15(d) 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.
LAKELAND FINANCIAL CORPORATION
Date: March 12, 1996 By R. Douglas Grant
(R. Douglas Grant) President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 12, 1996 R. Douglas Grant
(R. Douglas Grant) Principal Executive
Officer and Director
Date: March 12, 1996 Terry M. White
(Terry M. White) Principal Financial and
Accounting Officer
Date: March 12, 1996 Anna K. Duffin
(Anna K. Duffin) Director
Date:
(Eddie Creighton) Director
Date: March 12, 1996 L. Craig Fulmer
(L. Craig Fulmer) Director
Date: March 12, 1996 Jerry L. Helvey
(Jerry L. Helvey) Director
Date: March 12, 1996 Homer A. Kent
(Dr. Homer A. Kent) Director
Date: March 12, 1996 J. Alan Morgan
(J. Alan Morgan) Director
Date: March 12, 1996 Richard L. Pletcher
(Richard L. Pletcher) Director
Date:
(Joseph P. Prout) Director
Date: March 12, 1996 Philip G. Spear
(Philip G. Spear) Director
Date:
(Terry L. Tucker) Director
Date:
(G.L. White) Director
27
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed as part of this Report and not
incorporated by reference from another document:
Exhibit 13 - 1995 Report to Shareholders with Report of Independent
Auditors.
Exhibit 21 - Subsidiaries
28
<PAGE>
EXHIBIT 13
1995 Report to Shareholders with Report of Independent Auditors.
29
<PAGE>
EXHIBIT 21
Subsidiaries. The Registrant has one wholly owned subsidiary, Lake City Bank,
Warsaw, Indiana, a banking corporation organized under the laws of the State
of Indiana.
30
<PAGE>
ANNUAL MEETING
The annual meeting of the shareholders of Lakeland Financial Corporation
will be held at noon, April 9, 1996, at the Shrine Building, Kosciusko County
Fair Grounds, Warsaw, Indiana. As of December 31, 1995, there were 870
shareholders.
SPECIAL NOTICE: FORM 10-K AVAILABLE
The Corporation will provide without charge to each shareholder, Lakeland
Financial Corporation's Annual Report on Form 10-K, including financial
statements and schedules thereto required to be filed with the Securities and
Exchange Commission for the Corporation's most recent fiscal year upon written
request of Mr. Terry M. White, Secretary and Treasurer, P.O. Box 1387, Warsaw,
Indiana 46581-1387. The Form 10-K and related exhibits are also available on
the Internet at http://www.sec.gov.
REGISTRAR AND TRANSFER AGENT
Lake City Bank
Trust Department
P.O. Box 1387
Warsaw, Indiana 46581-1387
<PAGE>
PRESIDENT'S LETTER
Your corporation earned $5,645,000, or $3.92 per share in 1995. This is a
10 percent increase over 1994, when we reported earnings of $5,126,000, or
$3.56 per share. This is the eighth consecutive year of increased earnings.
One of the keys to increasing earnings is growth. Total assets grew
$71,616,000, or 14 percent, to end the year at $568,579,000. This increase
reflects an on-going geographical expansion and continued growth throughout
the markets the Corporation has traditionally served. These assets were funded
by a record level of deposits and repurchase agreements. Each office offers a
wide variety of deposit products and repurchase agreements to provide core
funding for loan demand. During 1995, total deposits and repurchase agreements
grew $51,595,000, or 12 percent to end the year at $490,085,000. Loan demand
continued strong in 1995, as loans grew $39,661,000, or about 14 percent, to
finish the year at $327,617,000.
[Picture of R. Douglas Grant - President, Lakeland Financial Corporation]
Another important component of profitability is growth in net interest
income. This fundamental measure of performance is the difference between the
interest earned on our assets and the interest paid on our liabilities. As
with most financial institutions, intense competition and the interest rate
environment in 1995, resulted in a reduced interest spread during the year.
However, this reduced spread was more than offset by our strong asset growth.
As a result, net interest income in 1995 rose $1,669,000, or 9 percent, to
$20,437,000. We are also pleased that asset quality remains excellent.
Deteriorating asset quality reduces the earnings of the Corporation by
creating nonearning assets, and necessitating a larger provision for loan
losses. The quality of your Corporation's assets allowed for a $675,000
reduction in the provision for loan losses, to $120,000 in 1995.
Noninterest income in 1995 increased $367,000, or about 9 percent, to end
the year at $4,636,000. Recurring noninterest fees such as Trust, service
charges on deposit accounts, mortgage servicing, loan and insurance fees all
contributed to this increase. Noninterest income was also enhanced by security
gains of $315,000 during the year. Noninterest expense increased $2,152,000,
or 15 percent, to finish 1995 at $16,244,000. This increase reflects the
ordinary expenses associated with the new offices added in late 1994 and
throughout 1995. It also reflects the Corporation's continuing commitment to
offer high quality customer service by implementing the most current banking
technology.
The Corporation's stock price reflects our strong financial performance.
At year-end 1995, the Corporation's stock was being bought for about $41.50
per share. This represents a 20 percent increase during 1995. Higher earnings
enabled your Board of Directors to authorize an increase in the cash dividend
during 1995. The annual dividend rate is now $.80 per share, an 18 percent
increase.
1
<PAGE>
PRESIDENT'S LETTER (continued)
Trust income increased by 16 percent in 1995. Customer interest in our
Trust services continues strong, particularly for retirement and estate
planning. Our six "BANNER" Investment Portfolios performed exceptionally in
1995, reflecting their investments in high quality stocks and bonds. We
continue to experience keen interest from our commercial customers for our
40l(k) product and have seen significant growth in the number of plans we
manage.
[ Picture of Directors Phillip G. Spear, Terry L. Tucker, Anna K. Duffin,
Richard L. Pletcher and Jerry L. Helvey]
In late 1994 the Corporation opened its first branch office in LaGrange
County, in the town of Shipshewana. Expansion into LaGrange County is both a
natural extension of the Corporation's market area to the east of Elkhart
County, and is necessary if the Corporation is to capitalize on the
expectation that LaGrange County will be one of the fastest growing counties
in Indiana over the next few years. In 1995, the Corporation had the
opportunity to acquire another location. After careful review and negotiation,
your Corporation purchased for cash, the outstanding shares of Gateway Bank, a
$20 million bank located in LaGrange, Indiana. The Gateway Bank was merged
into Lake City Bank on July 15, 1995, and now operates as a branch office.
This location extends our market coverage to the east of our office in
Shipshewana, and gives us market coverage in the two primary towns in the
county. The assets acquired in this transaction included about $9 million of
loans and $10 million of securities. The loans were mostly real estate. The
Corporation also acquired approximately $18 million of deposits. These funds
were primarily time deposits. Although this acquisition is small in relation
to the overall size of our Corporation, the deposits we acquired represent
about 6% of the LaGrange County market. These two locations will provide the
necessary market presence to capitalize on the expected economic growth in
this county in the coming years, and will have a positive impact on your
Corporation's earnings.
2
<PAGE>
PRESIDENT'S LETTER (continued)
We opened new offices in Middlebury, Concord and Rochester. The
previously announced Kendallville office will open this spring. Current plans
call for an expansion of the Elkhart office on Beardsley Avenue as well as the
construction of a third full service Elkhart office located at Hubbard Hill.
This brings our total to 31 full service offices throughout Northeast Indiana.
Twenty-one of these locations have 24 Hour Tellers that permit customer access
to their accounts around the clock. The convenience of Lake City Bank
locations staffed with well known local people supported by the latest
technology enables your bank to provide full service competitively while
remaining small enough to keep the local personal touch.
[Picture of Directors G. L. White, Eddie Creighton, J. Alan Morgan, L.
Craig Fulmer, Joseph P. Prout and Dr. Homer A. Kent]
Technology trends in the industry are continuously monitored as we
carefully choose to add those services that will enhance our existing product
line while offering the greatest opportunity for increased income and growth.
We strive to remain competitive and to deliver our services in the most
efficient way in an ever changing marketplace.
In January 1995 we provided customers with an improved bank statement.
Simultaneously, we introduced check "imaging" as a way to reduce the bulky
storage of checks for customers while still providing all the necessary
information. The imaging system has enabled us to simplify our research
process and provide customers with information on their accounts more quickly.
In 1996, imaging will be used to further simplify and update our check
processing, making our daily operations more efficient.
The 24 Hour Visa Check Card was added as an enhancement to our checking
account products. It enables a customer to pay for goods and services
3
<PAGE>
PRESIDENT'S LETTER (continued)
from their checking account without writing a check anywhere Visa is accepted.
This product has been popular with our customers. There is no charge to the
customer to have or use the card. It is a new source of revenue to the bank
via the interchange income from Visa. Everyone wins with a 24 Hour Visa Check
Card!
In the fall, our new Telephone Banking service was introduced. Through
Telephone Banking a customer can check balances, inquire on cleared checks,
transfer funds, stop payment on a check, access a line of credit, check the
status of a loan, or any of a variety of other banking activities at any time.
And all this from the convenience of the home, office or virtually anywhere
there is a telephone. A special Voice Recognition feature allows customers
with rotary telephones to enjoy the benefits of this new service by speaking
directly to the service.
In 1996, we look forward to adding an electronic bill payment service.
This will enable a customer to pay their bills without writing a check through
either the Telephone Banking service or by personal computer. We are also
developing a product to provide other home and business banking services via
the personal computer.
We are committed to the communities in which we live. Lake City Bank and
Creighton Brothers co-host the annual Egg Breakfast, which celebrates the
important egg industry in our area. The annual Harvest Breakfast with Amish
Acres in Elkhart County is an equally popular occasion. Both are attended by
hundreds of our customers and friends. The Bank also honors our valued,
retired friends with a Valentine party each year. A Leading Ladies Luncheon,
fashioned for our female customers is a dynamic, innovative and popular event.
It provides an opportunity for guests to interact and to benefit from the
economic expertise of the guest speaker.
Lake City Bank hosted two Economic Briefings in 1995. Christopher
Chocola, President, Choretime-Brock, Inc., and Wes Stouder, President, Penguin
Point Franchise Systems were the local speakers for the Spring and Fall
briefings, respectively, which also included a panel of distinguished
economists from Indiana University. Business leaders have expressed their
appreciation of these economic forecast briefings.
The Lake City Bank has been a successful locally owned and operated
financial institution for 124 years. We have about 870 shareholders, most of
whom have connections with this area. We have remained independent because of
the strong contribution from our employees in satisfying local customers'
needs. We have built a strong partnership with our customers. Through
convenient locations, local personal touch, and innovative technology, we have
resisted the mega-bank impersonal approach to franchise banking. We look
forward to future opportunities.
R. Douglas Grant
President
4
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (in thousands except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 42,079 $ 33,655 $ 27,607 $ 27,683 $ 28,245
Interest expense 21,642 14,887 12,022 13,622 16,408
----------- ----------- ----------- ----------- -----------
Net interest income 20,437 18,768 15,585 14,061 11,837
Provision for loan losses 120 795 790 1,340 1,970
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 20,317 17,973 14,795 12,721 9,867
Other noninterest income 4,162 4,099 2,813 2,735 1,866
Net gains on sale of real estate
mortgages held-for-sale 159 177 676 176 174
Net trading gains (losses) 0 0 0 (2) 36
Net securities gains (losses) 315 (7) 175 323 1,283
Noninterest expense (16,244) (14,092) (12,378) (10,832) (9,238)
----------- ----------- ----------- ----------- -----------
Income before income tax expense and cumulative
effect of change in accounting principle 8,709 8,150 6,081 5,121 3,988
Income tax expense 3,064 3,024 2,171 1,762 1,281
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of change
in accounting principle 5,645 5,126 3,910 3,359 2,707
Cumulative effect of adopting SFAS No. 109 0 0 325 0 0
----------- ----------- ----------- ----------- -----------
Net income $ 5,645 $ 5,126 $ 4,235 $ 3,359 $ 2,707
=========== =========== =========== =========== ===========
Average shares outstanding* 1,438,496 1,438,496 1,438,496 1,438,496 1,438,496
=========== =========== =========== =========== ===========
Per average common share outstanding:*
Income before cumulative effect of change
in accounting principle $ 3.92 $ 3.56 $ 2.72 $ 2.34 $ 1.88
=========== =========== =========== =========== ===========
Net income $ 3.92 $ 3.56 $ 2.94 $ 2.34 $ 1.88
=========== =========== =========== =========== ===========
Cash dividends declared $ 0.74 $ 0.59 $ 0.50 $ 0.42 $ 0.37
=========== =========== =========== =========== ===========
Balances at December 31:
Total assets $ 568,579 $ 496,963 $ 449,954 $ 362,497 $ 339,458
=========== =========== =========== =========== ===========
Total deposits $ 431,934 $ 396,740 $ 370,032 $ 284,308 $ 265,524
=========== =========== =========== =========== ===========
Long-term debt $ 17,432 $ 17,432 $ 9,300 $ 8,000 $ 0
=========== =========== =========== =========== ===========
Total stockholders' equity $ 36,754 $ 29,889 $ 27,912 $ 23,750 $ 20,991
=========== =========== =========== =========== ===========
<FN>
* Adjusted for a 10 percent stock dividend July 31, 1992.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
SELECTED QUARTERLY DATA (in thousands except for per share data) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995
-----------------------------------------------------
Quarter 4 Quarter 3 Quarter 2 Quarter 1
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 11,138 $ 10,961 $ 10,289 $ 9,691
Interest expense 5,796 5,805 5,232 4,809
----------- ----------- ----------- -----------
Net interest income 5,342 5,156 5,057 4,882
Provision for loan losses 30 30 30 30
Noninterest income 1,420 1,144 1,055 1,017
Noninterest expense 4,315 4,016 4,087 3,826
Income tax expense 865 814 648 737
----------- ----------- ----------- -----------
Net income $ 1,552 $ 1,440 $ 1,347 $ 1,306
=========== =========== =========== ===========
Net income per common share $ 1.08 $ 1.00 $ 0.93 $ 0.91
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------------
Quarter 4 Quarter 3 Quarter 2 Quarter 1
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 9,192 $ 8,647 $ 8,099 $ 7,717
Interest expense 4,220 3,920 3,471 3,276
----------- ----------- ----------- -----------
Net interest income 4,972 4,727 4,628 4,441
Provision for loan losses 180 270 75 270
Noninterest income 911 969 1,050 1,339
Noninterest expense 3,926 3,450 3,445 3,271
Income tax expense 653 724 813 834
----------- ----------- ----------- -----------
Net income $ 1,124 $ 1,252 $ 1,345 $ 1,405
=========== =========== =========== ===========
Net income per common share $ 0.78 $ 0.87 $ 0.93 $ 0.98
=========== =========== =========== ===========
</TABLE>
STOCK AND DIVIDEND INFORMATION
The following companies have reported to the Corporation the bid-ask
prices for the common stock of Lakeland Financial Corporation as set forth in
the table below.
Roney & Company, P.O. Box 130, Elkhart, Indiana, 46515, 1-800-43-Roney
McDonald and Company Securities, Inc., 214 South Main Street, Elkhart,
Indiana, 46516, 219-294-2526
Edward D. Jones & Co., P.O. Box 1097, Warsaw, Indiana, 46581,
1-800-441-2914
Such bid-ask prices are not a definite indication that sales transactions
occurred at these prices or that sales transactions did not occur outside of
these prices. The trading volume of the Corporation's stock continues to be
limited; as a result, these quotations do not necessarily reflect the price at
which the Corporation's stock would trade in a more active market.
<TABLE>
<CAPTION>
Quarter 4 Quarter 3 Quarter 2 Quarter 1
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Trading Range (per share):
1995 - Bid $ 39.50 $ 36.00 $ 34.00 $ 33.00
Ask 41.50 39.50 37.50 35.50
1994 - Bid $ 32.50 $ 31.00 $ 29.50 $ 26.00
Ask 34.50 32.50 31.50 29.00
Dividends Declared (per share):
1995 $ 0.20 $ 0.20 $ 0.17 $ 0.17
1994 0.17 0.14 0.14 0.14
</TABLE>
6
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,185 $ 21,346
Short-term investments 710 2,801
----------- -----------
Total cash and cash equivalents 26,895 24,147
Securities available-for-sale (Note 3) (carried at fair value) 82,120 57,876
Securities held-to-maturity (Note 3) (fair value of $115,328 at 1995
and $103,723 at 1994) 113,888 110,152
Real estate mortgages held-for-sale 145 175
Total loans (Note 4) 327,617 287,956
Less allowance for loan losses (Note 5) 5,472 4,866
----------- -----------
Net loans 322,145 283,090
Land, premises and equipment, net (Note 6) 13,736 11,295
Accrued income receivable 4,003 3,464
Other assets 5,647 6,764
----------- -----------
Total assets $ 568,579 $ 496,963
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits $ 67,856 $ 62,830
Interest bearing deposits (Note 7) 364,078 333,910
----------- -----------
Total deposits 431,934 396,740
Short-term borrowings
Federal funds purchased 17,100 4,000
Securities sold under agreements to repurchase (Note 8) 58,151 41,750
U.S. Treasury demand notes 1,880 2,573
----------- -----------
Total short-term borrowings 77,131 48,323
Accrued expenses payable 4,481 3,280
Other liabilities 847 1,299
Long-term debt (Note 9) 17,432 17,432
----------- -----------
Total liabilities 531,825 467,074
Commitments, off-balance sheet risks and contingencies (Note 15)
STOCKHOLDERS' EQUITY
Common stock: $1.00 stated value, 2,750,000 shares authorized, 1,438,496
shares outstanding as of December 31, 1995 and 1994 (Note 1) 1,438 1,438
Additional paid-in capital (Note 1) 7,827 7,827
Retained earnings 26,858 22,279
Unrealized net gain (loss) on securities available-for-sale (Note 1) 631 (1,655)
----------- -----------
Total stockholders' equity 36,754 29,889
----------- -----------
Total liabilities and stockholders' equity $ 568,579 $ 496,963
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (in thousands except for share data)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET INTEREST INCOME
Interest and fees on loans
Taxable $ 29,859 $ 23,658 $ 19,946
Tax exempt 257 273 371
Interest and dividends on securities
Taxable 10,723 8,842 6,459
Tax exempt 1,038 727 644
Interest on short-term investments 202 155 185
Interest on trading account securities 0 0 2
------------- ------------ ------------
Total interest income 42,079 33,655 27,607
Interest on deposits 16,847 12,108 10,101
Interest on borrowings 4,795 2,779 1,921
------------ ------------ ------------
Total interest expense 21,642 14,887 12,022
NET INTEREST INCOME 20,437 18,768 15,585
Provision for loan losses (Note 5) 120 795 790
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 20,317 17,973 14,795
NONINTEREST INCOME
Trust income 709 609 524
Service charges on deposits 2,262 2,078 1,775
Other income 1,191 1,412 514
Net gains on the sale of real estate mortgages held-for-sale 159 177 676
Net securities gains (losses) (Note 3) 315 (7) 175
------------ ------------ ------------
Total noninterest income 4,636 4,269 3,664
NONINTEREST EXPENSE
Salaries and employee benefits (Note 10) 8,521 7,278 6,236
Net occupancy expense 1,229 1,057 996
Equipment costs 1,375 1,001 780
Other expense (Note 11) 5,119 4,756 4,366
------------ ------------ ------------
Total noninterest expense 16,244 14,092 12,378
------------ ------------ ------------
Income before income tax expense and cumulative effect
of change in accounting principle 8,709 8,150 6,081
Income tax expense (Note 12) 3,064 3,024 2,171
------------ ------------ ------------
Income before cumulative effect of change in accounting principle 5,645 5,126 3,910
Cumulative effect of adopting SFAS No. 109 (Notes 1 and 12) 0 0 325
------------ ------------ ------------
NET INCOME $ 5,645 $ 5,126 $ 4,235
============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING (Note 1) 1,438,496 1,438,496 1,438,496
============ ============ ============
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE PER COMMON SHARE (Notes 1 and 12) $ 3.92 $ 3.56 $ 2.72
============ ============ ============
CUMULATIVE EFFECT OF ADOPTING SFAS No. 109
PER COMMON SHARE (Notes 1 and 12) $ 0.00 $ 0.00 $ 0.22
============ ============ ============
NET INCOME PER COMMON SHARE (Note 1) $ 3.92 $ 3.56 $ 2.94
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands except for share data)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unrealized
Net Gain (Loss)
Common Stock Additional 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, 1993 1,438,496 $ 1,438 $ 7,827 $ 14,485 $ 0 $ 23,750
Net income for 1993 4,235 4,235
Net change in unrealized gain (loss)
on securities available-for-sale
(Note 1) 646 646
Cash dividend declared
($.50 per share) (719) (719)
------------ ------------ ------------ ------------ ---------------- --------------
Balances, December 31, 1993 1,438,496 1,438 7,827 18,001 646 27,912
Net income for 1994 5,126 5,126
Net change in unrealized gain (loss)
on securities available-for-sale
(Note 1) (2,301) (2,301)
Cash dividend declared
($.59 per share) (848) (848)
------------ ------------ ------------ ------------ ---------------- --------------
Balances, December 31, 1994 1,438,496 1,438 7,827 22,279 (1,655) 29,889
Net income for 1995 5,645 5,645
Net change in unrealized gain (loss)
on securities available-for-sale
(Note 1) 2,286 2,286
Cash dividend declared
($.74 per share) (1,066) (1,066)
------------ ------------ ------------ ------------ ---------------- --------------
Balances, December 31, 1995 1,438,496 $ 1,438 $ 7,827 $ 26,858 $ 631 $ 36,754
============ ============ ============ ============ ================ ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 5,645 $ 5,126 $ 4,235
Adjustments to reconcile net income to
net cash from operating activities
Cumulative effect of change in accounting principle 0 0 325
Depreciation 1,209 928 797
Provision for loan losses 120 795 790
Write down of other real estate owned 0 0 262
Loans originated for sale (29,679) (9,426) (20,810)
Net gain on sale of loans (159) (177) (676)
Proceeds from sale of loans 29,868 11,619 23,509
Net loss on sale of premises and equipment 0 1 6
Purchases of trading account securities 0 0 (485)
Proceeds from sales of trading account securities 0 0 487
Net gain on sale of securities available-for-sale (331) 0 (53)
Net (gain) loss on calls of securities held-to-maturity 16 7 (122)
Net securities amortization 180 444 369
Increase (decrease) in taxes payable (822) (15) (969)
(Increase) decrease in income receivable (539) (606) (541)
Increase (decrease) in accrued expenses payable 1,227 340 434
(Increase) decrease in other assets 411 1,735 (94)
Increase (decrease) in other liabilities 888 (495) 246
----------- ----------- -----------
Total adjustments 2,389 5,150 3,475
----------- ----------- -----------
Net cash from operating activities 8,034 10,276 7,710
Cash flows from investing activities
Proceeds from sale of securities held-to-maturity 0 0 6,588
Proceeds from sale of securities available-for-sale 7,563 0 1,613
Proceeds from maturities and calls of securities held-to-maturity 6,268 8,899 17,683
Proceeds from maturities and calls of securities available-for-sale 5,022 6,409 1,123
Purchases of securities available-for-sale (20,014) (9,033) 0
Purchases of securities held-to-maturity (22,900) (19,494) (84,976)
Net (increase) decrease in total loans (39,174) (27,709) (8,240)
Purchases of new premises and equipment (3,650) (2,490) (1,602)
Net proceeds (payments) from acquisitions (Note 13) (1,380) 0 29,839
----------- ----------- -----------
Net cash from investing activities (68,265) (43,418) (37,972)
Cash flows from financing activities
Net increase in total deposits 35,194 26,708 37,569
Proceeds from short-term borrowings 522,102 395,939 327,360
Payments on short-term borrowings (493,294) (385,553) (332,700)
Proceeds from long-term borrowings 0 8,132 1,300
Dividends paid (1,023) (806) (676)
----------- ----------- -----------
Net cash from financing activities 62,979 44,420 32,853
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 2,748 11,278 2,591
Cash and cash equivalents at beginning of the year 24,147 12,869 10,278
----------- ----------- -----------
Cash and cash equivalents at end of year $ 26,895 $ 24,147 $ 12,869
=========== =========== ===========
Cash paid during the year for:
Interest $ 21,052 $ 14,496 $ 12,254
=========== =========== ===========
Income taxes $ 3,116 $ 3,038 $ 2,490
=========== =========== ===========
Securities transferred from held-to-maturity to available-for-sale (Note 1) $ 12,918 $ 0 $ 0
=========== =========== ===========
Loans transferred to other real estate $ 0 $ 107 $ 420
=========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations:
Lakeland Financial Corporation (the Corporation) is a bank holding
company as defined in the Bank Holding Company Act of 1956. The Corporation
owns all of the outstanding stock of Lake City Bank (the Bank), a full service
commercial bank organized under Indiana law, and conducts no business except
that incident to its ownership of the Bank. The Bank is headquartered in
Warsaw, Indiana, and has 29 branch offices in eight counties in northern
Indiana.
Use of Estimates:
In preparing financial statements in conformity with generally accepted
accounting principles, management must make estimates and assumptions. These
estimates and assumptions affect the amounts reported therein and the
disclosures provided. Actual results could differ from these estimates.
Areas involving the use of management's estimates and assumptions include
the allowance for loan losses, the realization of deferred tax assets, fair
values of certain securities, the determination and carrying value of impaired
loans, the carrying value of loans held-for-sale, the carrying value of other
real estate, the determination of other-than-temporary reductions in the fair
value of securities, recognition and measurement of loss contingencies,
depreciation of premises and equipment, the carrying value and amortization of
intangibles, the actuarial present value of pension benefit obligations, and
net periodic pension expense and accrued pension costs recognized in the
Corporation's financial statements. Estimates that are more susceptible to
change in the near term include the allowance for loan losses and the
realization of deferred tax assets.
Principles of Consolidation:
The consolidated financial statements include Lakeland Financial
Corporation and its wholly-owned subsidiary, Lake City Bank. All significant
intercompany balances and transactions are eliminated in consolidation.
Securities:
On December 31, 1993, the Corporation elected to adopt the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The Corporation now
classifies securities into held-to-maturity, available-for-sale and trading
categories. Held-to-maturity securities are those which the Corporation has
the positive intent and ability to hold to maturity, and are reported at
amortized cost. Available-for-sale securities are those the Corporation may
decide to sell if needed for liquidity, asset-liability management or other
reasons. Available-for-sale securities are reported at fair value, with
unrealized gains and losses included as a separate component of equity, net of
tax. Trading securities are bought principally for sale in the near term, and
are reported at fair value with unrealized gains and losses included in
earnings. Prior to December 31, 1993, securities were reported at amortized
cost except for securities held-for-sale, which were reported at the lower of
cost or market. This reclassification increased equity by $646,000 at December
31, 1993. Realized gains and losses resulting from the sale of securities are
computed by the specific identification method. Interest and dividend income,
adjusted by amortization of purchase premium or discount, is included in
earnings.
In November 1995, the Financial Accounting Standards Board issued its
Special Report 'A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities' (Guide). As permitted by
the Guide, on December 4, 1995, the Corporation made a one-time reassessment
and transferred securities from the held-to-maturity portfolio to the
available-for-sale portfolio. At the date of the transfer, these securities
had an amortized cost of $12,918,000 and increased the unrealized gain on
securities available-for-sale in stockholders' equity by $446,000, net of tax.
Real Estate Mortgages Held-for-Sale:
Real estate mortgages classified as held-for-sale in the secondary market
are carried at the lower of aggregate cost or estimated fair value. Net
unrealized losses are recognized in a valuation allowance by charges to
income. Gains and losses on sales of mortgages are recognized on the
settlement date. Gains and losses are determined by the difference between
sales proceeds and the carrying value of the mortgages.
Interest Income on Loans:
Interest is accrued over the loan term based upon the principal balances
outstanding. Loans are placed on nonaccrual when interest collection becomes
doubtful. Loan fees and related costs are netted and deferred. The deferral is
included in loans and recognized in interest income over the loan term on the
level yield method.
Concentration of Credit:
The Bank is a full service bank with headquarters in Warsaw, Indiana with
offices in 25 cities and towns located within Kosciusko and contiguous
counties. It is estimated that over 98% of all the Bank's commercial,
industrial, agri-business and agricultural real estate mortgage, real estate
construction mortgage and consumer loans are made within its basic trade area.
This area generally lies within a radius of 10 miles or less from any of its
existing offices. The loan portfolios are well diversified and are secured to
the extent deemed appropriate by management. Mortgage-backed securities are
collateralized by mortgages located throughout the United States.
Substantially all mortgage-backed securities are insured directly or
indirectly by the U. S. Government.
Allowance for Loan Losses:
The allowance is judgmentally determined by management and is maintained
at a level considered adequate to cover losses currently anticipated based on
past loss experience, general national and local economic conditions,
information about specific borrower situations, including their financial
position and collateral values, and other factors and estimates which may
change over time. While management may periodically allocate portions of the
allowance for specific problem loan situations, the whole allowance is
available for any loan charge-off that might occur. A loan is charged-off as a
loss when deemed uncollectible, although collection efforts continue and
future recoveries may occur. Increases to the allowance are recorded by a
charge to expense and are based upon subjective judgments.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Corporation adopted SFAS No. 114 and SFAS No. 118 at January 1, 1995.
Under these standards, loans considered to be impaired are reduced to the
present value of future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans. If these
allocations cause the allowance for loan losses to require increase, such
increase is reported as bad debt expense. As part of the loan review process,
management reviews all loans classified as 'special mention' or below for
impairment, as well as other loans that might warrant application of SFAS No.
114. Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one-to-four
family residences, residential construction loans, automobile, home equity and
second mortgage loans. The effect of adopting this accounting standard on
January 1, 1995, was not material.
The carrying value of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as bad debt expense.
Land, Premises and Equipment:
Land, premises, and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on both straight-line and
declining-balance methods based on estimated useful lives of the assets.
Other Real Estate Owned:
Other real estate properties acquired through, or in lieu of, loan
foreclosure are initially recorded at fair value at the date of acquisition.
Any reduction to fair value from the carrying value of the related loan at the
time of acquisition is accounted for as a loan loss and charged against the
allowance for loan losses. After acquisition, a valuation allowance is
recorded through a charge to income for the amount of estimated selling costs.
Valuations are periodically performed by management, and valuation allowances
are adjusted through a charge to income for changes in fair value or estimated
selling costs. Other real estate owned, other than Corporate premises,
amounted to $1,109,000, net of a $415,000 valuation allowance and $1,279,000,
net of a $445,000 valuation allowance at December 31, 1995 and 1994,
respectively, and is included in other assets in the consolidated balance
sheets.
Income Taxes:
The Corporation files annual consolidated federal income tax returns.
Beginning in 1993, the Corporation adopted the provisions of SFAS No. 109,
Accounting for Income Taxes. The Corporation records income tax expense based
on the amount of taxes due on its tax return plus deferred taxes computed
based on the expected future tax consequences of temporary differences between
carrying amounts and tax bases of assets and liabilities, using enacted tax
rates. The effect of the adoption of SFAS No. 109, as of January 1, 1993, is
shown as the cumulative effect of an accounting change in the 1993 income
statement.
Dividend Restriction:
The Bank is subject to banking regulations which require the maintenance
of certain capital levels and which may limit the amount of dividends which
may be paid to the Corporation. At December 31, 1995, approximately $4,939,000
of the Bank's retained earnings is available for distribution to the
Corporation without prior regulatory approval.
Earnings Per Share:
Earnings per common share are based upon the weighted average number of
common shares outstanding.
Pension Plan:
A noncontributory defined benefit pension plan covers substantially all
employees. Funding of the plan equals or exceeds the minimum funding
requirement determined by the actuary. The projected unit credit cost method
is used to determine expense. Benefits are based on years of service and
compensation levels.
Statement of Cash Flows:
Cash and cash equivalents include cash on hand, demand deposits in other
institutions and short-term investments with maturities of 90 days or less.
Reclassifications:
Certain amounts appearing in the financial statements and notes thereto
for the years ended December 31, 1994 and 1993, have been reclassified to
conform with the December 31, 1995, presentation.
NOTE 2 - PENDING ACCOUNTING CHANGES
SFAS No. 122 on accounting for mortgage servicing rights was issued in
May, 1995. The Corporation will adopt this Statement on January 1, 1996, as
required. SFAS No. 122 eliminates the accounting distinction between
originated and purchased mortgage servicing rights. Beginning in 1996, when a
loan is originated with the intent to sell, a separate asset will be
recognized for the mortgage servicing right, which is consistent with the
current treatment of purchased mortgage servicing rights. SFAS No. 122 also
changes the manner in which impairment of capitalized mortgage servicing
rights is recognized. Impairment will be recognized using the fair value of
individual stratum of servicing rights based upon the underlying risk
characteristics of the serviced loan portfolio, compared to an aggregate
portfolio approach under existing accounting guidance.
Based on its current volume of mortgage banking activity, the Corporation
does not expect SFAS No. 122 to have a significant impact on its financial
condition and operations for 1996. The impact in subsequent years is difficult
to predict. SFAS No. 122 will initially result in the recognition of larger
gains on sales of mortgage loans, because of the initial capitalization of the
originated mortgage servicing right asset. However, the larger gains on sales
of loans will be offset by the future amortization of the mortgage servicing
right asset. In addition, the valuation allowance on impaired mortgage
servicing rights may fluctuate significantly in the future, because the
impairment evaluation is based on assumed loan prepayment and default rates,
interest rates, and other factors.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - SECURITIES
<TABLE>
Information related to the amortized cost and fair value of securities at December 31 is provided in the table below.
<CAPTION>
Unrealized Unrealized
Amortized Gross Gross Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Securities Available-for-Sale at December 31, 1995
U.S. Treasury securities $ 27,549 $ 378 $ (83) $ 27,844
U.S. Government agencies and corporations 2,150 41 0 2,191
Mortgage-backed securities 48,302 785 (244) 48,843
State and municipal securities 2,076 100 0 2,176
Other debt securities 999 67 0 1,066
------------ ------------ ------------ ------------
Total securities available-for-sale at December 31, 1995 $ 81,076 $ 1,371 $ (327) $ 82,120
============ ============ ============ ============
Securities Held-to-Maturity at December 31, 1995
U.S. Treasury securities $ 13,611 $ 34 $ (69) $ 13,576
U.S. Government agencies and corporations 2,898 141 (6) 3,033
Mortgage-backed securities 77,319 878 (726) 77,471
State and municipal securities 19,047 1,066 (36) 20,077
Other debt securities 1,013 158 0 1,171
------------ ------------ ------------ ------------
Total securities held-to-maturity at December 31, 1995 $ 113,888 $ 2,277 $ (837) $ 115,328
============ ============ ============ ============
Securities Available-for-Sale at December 31, 1994
U.S. Treasury securities $ 26,960 $ 2 $ (1,046) $ 25,916
U.S. Government agencies and corporations 1,000 0 0 1,000
Mortgage-backed securities 30,734 1 (1,748) 28,987
State and municipal securities 887 46 0 933
Other debt securities 999 27 0 1,026
------------ ------------ ------------ ------------
Total debt securities 60,580 76 (2,794) 57,862
Equity securities 36 0 (22) 14
------------ ------------ ------------ ------------
Total securities available-for-sale at December 31, 1994 $ 60,616 $ 76 $ (2,816) $ 57,876
============ ============ ============ ============
Securities Held-to-Maturity at December 31, 1994
U.S. Treasury securities $ 14,714 $ 0 $ (838) $ 13,876
U.S. Government agencies and corporations 2,034 4 (1) 2,037
Mortgage-backed securities 78,781 22 (5,130) 73,673
State and municipal securities 13,608 73 (620) 13,061
Other debt securities 1,015 61 0 1,076
------------ ------------ ------------ ------------
Total securities held-to-maturity at December 31, 1994 $ 110,152 $ 160 $ (6,589) $ 103,723
============ ============ ============ ============
</TABLE>
Information regarding the amortized cost and fair value of debt
securities by maturity as of December 31, 1995, is presented below. Maturity
information is based on contractual maturity for all securities other than
mortgage-backed securities. Actual maturities of securities may differ from
contractual maturities because borrowers may have the right to prepay the
obligation without prepayment penalty.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
December 31, 1995 December 31, 1995
-------------------------- --------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 1,100 $ 1,121 $ 2,556 $ 2,544
Due after one year through five years 30,089 30,516 16,395 16,710
Due after five years through ten years 100 100 1,193 1,220
Due after ten years 1,485 1,540 16,425 17,383
------------ ------------ ------------ ------------
32,774 33,277 36,569 37,857
Mortgage-backed securities 48,302 48,843 77,319 77,471
------------ ------------ ------------ ------------
Total debt securities $ 81,076 $ 82,120 $ 113,888 $ 115,328
============ ============ ============ ============
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - SECURITIES (continued)
In 1995, proceeds from the sales and calls of securities
available-for-sale amounted to $7,563,000 with gross gains of $348,000 and
gross losses of $17,000. The proceeds from calls of securities
held-to-maturity amounted to $414,000 with gross gains of $0 and gross losses
of $16,000. There were no sales or calls of securities available-for-sale in
1994. During 1994, the proceeds from the call of securities held-to-maturity
amounted to $249,000 with gross gains of $10,000 and gross losses of $17,000.
Securities with a carrying value of $100,572,000 were pledged as of December
31, 1995, as collateral for deposits of public funds, securities sold under
agreements to repurchase and for other purposes as permitted or required by
law.
NOTE 4 - TOTAL LOANS
Total loans outstanding as of December 31, 1995 and 1994, consist of the
following:
1995 1994
-------- --------
(in thousands)
Commercial and industrial loans $173,368 $154,326
Agri-business and agricultural loans 22,627 22,206
Real estate mortgage loans 54,724 46,870
Real estate construction loans 1,224 426
Installment loans and credit cards 75,674 64,128
-------- --------
Total loans $327,617 $287,956
======== ========
Loans aggregating $60,000 or more with executive officers and directors
(including their associates) amounted to $6,028,000 and $7,109,000 as of
December 31, 1995 and 1994, respectively. During 1995, new loans or advances
were $17,334,000, loan repayments were $18,367,000 and other changes were
$48,000.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
December 31 are summarized as follows:
1995 1994
-------- --------
(in thousands)
Mortgage loan portfolios serviced for:
FHLMC $ 35,899 $ 28,909
Other investors 1,218 1,456
-------- --------
Total mortgage loan portfolios serviced $ 37,117 $ 30,365
======== ========
Income earned for loan servicing was $82,000, $68,000 and $41,000 for
1995, 1994 and 1993, respectively.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the allowance for loan losses for 1995,
1994 and 1993:
1995 1994 1993
-------- -------- --------
(in thousands)
Balance, January 1 $ 4,866 $ 4,010 $ 3,095
Allowance related to acquisitions 746 0 250
Provision for loan losses 120 795 790
Less: Loans charged-off (recovered) (net of
recoveries of $95 in 1995; $196 in 1994;
and $103 in 1993) 260 (61) 125
-------- -------- --------
Balance, December 31 $ 5,472 $ 4,866 $ 4,010
======== ======== ========
Nonaccrual loans at December 31, 1995, 1994 and 1993, totaled $532,000,
$18,000 and $0, respectively. Interest lost on nonaccrual loans was
approximately $29,000 for 1995. The amount of interest lost for 1994 and 1993,
was immaterial. Loans renegotiated as troubled debt restructuring totaled
$1,432,000 and $1,484,000 as of December 31, 1995 and 1994, respectively.
Interest income of $96,000 and $82,000 was recognized in 1995 and 1994. Had
these loans been performing under the original contract terms, an additional
$53,000 would have been reflected in interest income during 1995 and $31,000
in 1994. The Corporation is not committed to lend additional funds to debtors
whose loans have been modified. During 1995, the Corporation had no loans
meeting the definition of impaired under SFAS No. 114.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - LAND, PREMISES AND EQUIPMENT, NET Land, premises and equipment
and related accumulated depreciation were as follows at December 31:
1995 1994
-------- --------
(in thousands)
Land $ 3,648 $ 2,872
Buildings 10,568 8,824
Equipment 7,069 6,117
-------- --------
Total cost 21,285 17,813
Less accumulated depreciation 7,549 6,518
-------- --------
Land, premises and equipment, net $ 13,736 $ 11,295
======== ========
NOTE 7 - INTEREST BEARING DEPOSITS
The following is an analysis of interest bearing deposits as of December
31:
1995 1994
-------- --------
(in thousands)
Super NOW $ 41,985 $ 44,335
Insured money market 14,151 17,993
Savings 42,904 52,091
Time: In denominations under $100,000 202,675 162,732
In denominations of $100,000 or more 62,363 56,759
-------- --------
Total interest bearing deposits $364,078 $333,910
======== ========
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repo accounts) represent
collateralized borrowings with customers located primarily within the Bank's
trade area. Liabilities and the related collateral consisting of U.S. Treasury
securities and mortgage-backed securities as of December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Collateral Value
------------------------------------------------------
U.S. Treasury Mortgage-backed
Weighted Securities Securities
Average -------------------------- --------------------------
Repurchase Interest Amortized Fair Amortized Fair
Term Liability Rate Cost Value Cost Value
- --------------------------------------------- ------------ ------------- ------------ ------------ ------------ ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
On demand $ 19,114 4.36% $ 0 $ 0 $ 19,439 $ 19,481
Less than 90 days 19,627 5.72 8,298 8,407 11,966 12,186
Over 90 days 19,410 5.98 14,311 14,348 5,920 6,036
------------ ------------- ------------ ------------ ------------ ------------
Total $ 58,151 5.35% $ 22,609 $ 22,755 $ 37,325 $ 37,703
============ ============= ============ ============ ============ ============
</TABLE>
As indicated in Note 3, securities are pledged to meet both current and
potential collateral requirements applicable to deposits of public funds,
securities sold under agreements to repurchase and for other purposes
permitted or required by law. The Bank retains the right to substitute similar
type securities, and has the right to withdraw all collateral applicable to
repo accounts whenever the collateral values are in excess of the related
repurchase liabilities. At December 31, 1995, there were no material amounts
of securities at risk with any one customer.
NOTE 9 - LONG -TERM DEBT
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
Federal Home Loan Bank of Indianapolis Notes, 5.55%, Due January 2, 1996 $ 8,000 $ 8,000
Federal Home Loan Bank of Indianapolis Notes, 5.59%, Due January 14, 1997 8,132 8,132
Federal Home Loan Bank of Indianapolis Notes, 6.15%, Due June 24, 2003 1,300 1,300
----------- -----------
Total $ 17,432 $ 17,432
=========== ===========
</TABLE>
All notes require monthly interest payments and are secured by
residential real estate loans with a carrying value of $26,179,000 at December
31, 1995.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - EMPLOYEE BENEFIT PLANS
Information as to the Corporation's pension plan at December 31 is as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $949,000 for 1995 and $640,000 for 1994 $ 1,060 $ 719
=========== ===========
Projected benefit obligation for service rendered to date $ 1,355 $ 949
Plan assets at fair value (primarily money market funds
and equity and fixed income investments) (1,131) (893)
Unrecognized gains (losses) (29) 193
Unrecognized prior service cost 31 33
----------- -----------
Accrued balance sheet pension liability $ 226 $ 282
=========== ===========
</TABLE>
Net pension expense includes the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Service cost for benefits earned $ 116 $ 119 $ 113
Interest cost 77 66 58
Actual return on plan assets (97) (56) (52)
Net amortization and deferrals 19 (3) 4
----------- ----------- -----------
Net pension expense $ 115 $ 126 $ 123
=========== =========== ===========
The following assumptions were used in calculating the net pension cost:
Weighted average discount rate 7.50% 8.00% 6.75%
Rate of increase in future compensation 4.50% 4.50% 4.50%
Expected long-term rate of return 8.00% 8.00% 8.00%
</TABLE>
Under a 401(k) profit sharing plan, the Corporation contributions are
based upon the rate of return on January 1 stockholders' equity. The expense
recognized was $455,000, $370,000 and $332,000 in 1995, 1994 and 1993,
respectively.
NOTE 11 - OTHER EXPENSE
Other expense for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Regulatory fees and FDIC insurance $ 616 $ 904 $ 783
Data processing fees and supplies 913 769 873
Office supplies 632 519 440
Telephone and postage 616 535 466
Miscellaneous 2,342 2,029 1,804
----------- ----------- -----------
Total other expense $ 5,119 $ 4,756 $ 4,366
=========== =========== ===========
</TABLE>
NOTE 12 - INCOME TAXES
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
Accounting for Income Taxes. The adjustment of $325,000 to apply the new
accounting method is included in income for the year ended December 31, 1993.
The change in method had no affect on income before cumulative effect of the
change in accounting principle in 1993.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Current federal income tax expense $ 2,297 $ 2,301 $ 1,831
Deferred federal income tax expense (credit) 5 11 (158)
Current state income tax expense 734 673 600
Deferred state income tax expense (credit) 28 39 (102)
----------- ----------- -----------
Total income tax expense $ 3,064 $ 3,024 $ 2,171
=========== =========== ===========
</TABLE>
Income tax expense (credit) included $114,000, $(34,000) and $58,000
applicable to security transactions for 1995, 1994 and 1993, respectively. The
differences between financial statement tax expense and amounts computed by
applying the statutory federal income tax rate of 34% for all three years to
income before income taxes are as follows:
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - INCOME TAXES (continued)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Income taxes at statutory federal rate $ 2,961 $ 2,771 $ 2,068
Increase (decrease) in taxes resulting from:
Tax exempt income (433) (338) (339)
Nondeductible expense 119 73 45
State income tax, net of federal tax effect 503 471 328
Net operating loss, Gateway (29) 0 0
Tax credits (30) 0 0
Other (27) 47 69
----------- ----------- -----------
Total income tax expense $ 3,064 $ 3,024 $ 2,171
=========== =========== ===========
</TABLE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Federal State Federal State
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Deferred tax assets
Bad debts $ 1,344 $ 445 $ 1,247 $ 392
ORE 142 35 194 48
Pension and deferred compensation liability 289 72 255 64
Deferred loan fees 83 21 144 36
Net operating loss carryforward 385 0 0 0
Other 98 23 10 2
----------- ----------- ----------- -----------
2,341 596 1,850 542
Deferred tax liabilities
Depreciation 409 102 243 61
State taxes 190 0 146 0
Other 320 26 356 140
----------- ----------- ----------- -----------
919 128 745 201
Valuation allowance 158 0 0 0
----------- ----------- ----------- -----------
Net deferred tax asset $ 1,264 $ 468 $ 1,105 $ 341
=========== =========== =========== ===========
</TABLE>
For tax purposes, the acquisition of Gateway Bank (See Note 13) was a
pooling. Therefore, Gateway Bank's net operating loss carryforward of
approximately $1,339,000 is available to the Corporation. However, due to the
ownership change, the Internal Revenue Service has certain limitations on the
amount of net operating loss carryforward that can be utilized by the
Corporation. As a result, at the date of acquisition the Corporation recorded
a deferred tax asset of approximately $385,000 and an offsetting valuation
reserve of approximately $158,000.
In addition to the net deferred tax assets included above, income taxes
(credits) allocated to the unrealized net gain (loss) account included in
equity were $414,000 and $(1,085,000) for 1995 and 1994, respectively.
NOTE 13 - ACQUISITIONS
On July 15, 1995, the Bank acquired Gateway Bank ("Gateway"), LaGrange,
Indiana. The Bank paid $1,380,000 for all the issued and outstanding shares of
Gateway common stock. The transaction was accounted for using the purchase
method of accounting. The acquisition added the following assets and
liabilities to the Bank:
(in thousands)
----------------
Assets
Cash and due from banks $ 292
Securities 10,307
Gross loans 9,073
Allowance for loan losses (746)
Other assets 1,636
Liabilities
Deposits $ 18,528
Other liabilities 102
As of the date of the acquisition, the former Gateway Bank became an
office of Lake City Bank. Gateway's results of operations are included in the
income statement of the Corporation beginning as of the purchase date.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - PARENT COMPANY STATEMENTS
The Corporation operates primarily in the banking industry, which
accounts for more than 90 percent of its revenues, operating income, and
assets. Presented below are parent only financial statements:
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
December 31
--------------------------
1995 1994
------------ ------------
(in thousands)
<S> <C> <C>
ASSETS
Deposits with Lake City Bank $ 25 $ 15
Investment in subsidiary 36,987 30,085
Other assets 11 12
------------ ------------
Total assets $ 37,023 $ 30,112
============ ============
LIABILITIES
Dividends payable and other liabilities $ 269 $ 223
STOCKHOLDERS' EQUITY 36,754 29,889
------------ ------------
Total liabilities and stockholders' equity $ 37,023 $ 30,112
============ ============
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Dividends from Lake City Bank $ 928 $ 982 $ 458
Interest on deposits and repurchase agreements, Lake City Bank 6 3 0
Miscellaneous income 10 22 (10)
Equity in undistributed income of subsidiary 4,719 4,168 3,782
Miscellaneous expense (credit) 14 68 (2)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,649 5,107 4,232
Income tax expense (credit) 4 (19) (3)
------------ ------------ ------------
NET INCOME $ 5,645 $ 5,126 $ 4,235
============ ============ ============
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 5,645 $ 5,126 $ 4,235
Adjustments to net cash from operating activities
Equity in undistributed income of subsidiary (4,719) (4,168) (3,782)
Other changes 3 18 36
------------ ------------ ------------
Net cash from operating activities 929 976 489
Cash flows from investing activities 104 (137) 0
Cash flows from financing activities (1,023) (848) (716)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 10 (9) (227)
Cash and cash equivalents at beginning of the year 15 24 251
------------ ------------ ------------
Cash and cash equivalents at end of the year $ 25 $ 15 $ 24
============ ============ ============
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 15 - COMMITMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES
During the normal course of business, the Bank becomes a party to
financial instruments with off-balance sheet risk in order to meet the
financing needs of its customers. These financial instruments include
commitments to make loans and open-ended revolving lines of credit. Amounts as
of December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Fixed Variable Fixed Variable
Rate Rate Rate Rate
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial loan lines of credit $ 2,558 $ 100,033 $ 3,267 $ 71,075
Commercial loan standby letters of credit 0 4,608 0 6,807
Real estate mortgage loans 699 199 0 485
Real estate construction mortgage loans 0 963 0 460
Credit card open-ended revolving lines 4,153 0 4,444 0
Home equity mortgage open-ended revolving lines 0 13,955 0 11,317
Consumer loan open-ended revolving lines 0 2,556 0 2,384
------------ ------------ ------------ ------------
Total $ 7,410 $ 122,314 $ 7,711 $ 92,528
============ ============ ============ ============
</TABLE>
At December 31, 1995, the range of interest rates for commercial loan
commitments with a fixed rate was 6.99 to 12.00 percent. The range of interest
rates for commercial loan commitments with variable rates was 6.89 to 12.50
percent. The index on variable rate commercial loan commitments is principally
the Bank's base rate.
Commitments, excluding open-ended revolving lines, generally have fixed
expiration dates of one year or less. Credit card open-ended revolving lines
of credit are normally reviewed bi-annually and other personal lines of credit
are normally reviewed annually. Since many commitments expire without being
drawn upon, the total commitment amount does not necessarily represent future
cash requirements. The Bank follows the same credit policy (including
requiring collateral, if deemed appropriate) to make such commitments as is
followed for those loans that are recorded in its financial statements.
The Bank's exposure to credit losses in the event of nonperformance is
represented by the contractual amount of the commitments. Management does not
expect any losses as a result of these commitments.
There are presently no lawsuits which, in the opinion of management and
legal counsel, would have a material affect on the financial statements.
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table contains the estimated fair values and the related
carrying values of the Corporation's financial instruments at December 31,
1995 and 1994. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 26,895 $ 26,895 $ 24,147 $ 24,147
Real estate mortgages held-for-sale 145 147 175 179
Securities available-for-sale 82,120 82,120 59,600 59,600
Securities held-to-maturity 113,888 115,328 110,152 103,723
Loans, net 322,145 322,692 283,090 279,035
Accrued income receivable 4,003 4,003 3,464 3,464
Certificates of deposit (265,038) (266,600) (219,491) (218,739)
All other deposits (166,896) (166,896) (177,249) (177,249)
Securities sold under agreements to repurchase (58,151) (58,496) (41,750) (41,833)
Other short-term debt (18,980) (18,980) (6,573) (6,573)
Long-term debt (17,432) (17,505) (17,432) (16,337)
Accrued expenses payable (4,481) (4,481) (3,280) (3,280)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1995 and 1994. The
estimated fair value for cash, cash equivalents and accruals is considered to
approximate cost. Real estate mortgages held-for-sale are based upon either
the actual contracted price for those loans sold but not yet delivered, or the
current FHLMC price for normal delivery of mortgages with similar coupons and
maturities at year-end. The estimated fair value for securities is based on
quoted market rates for individual securities or for equivalent quality,
coupon and maturity securities. The estimated fair value of loans is based on
estimates of the rate the Bank would charge for similar such loans at December
31, 1995 and 1994, applied for the time period until estimated repayment. The
estimated fair value for demand and savings deposits is based on their
carrying value. The estimated fair value for certificates of deposit and
borrowings is based on estimates of the rate the Bank would pay on such
deposits or borrowings at December 31, 1995 and 1994, applied for the time
period until maturity. The estimated fair value of short-term borrowed funds
is considered to approximate cost. The estimated fair value of other financial
instruments and off-balance sheet loan commitments approximate cost and are
not considered significant to this presentation.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1995 and 1994, the estimated fair
values would necessarily have been achieved at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 1995 and 1994, should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Bank that are not
defined as financial instruments are not included in the above disclosures,
such as land, premises and equipment. Also, non-financial instruments
typically not recognized in financial statements nevertheless may have value
but are not included in the above disclosures. These include, among other
items, the estimated earnings power of core deposit accounts, the earnings
potential of loan servicing rights, the earnings potential of the Bank's trust
department, the trained work force, customer goodwill and similar items.
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Lakeland Financial Corporation
Warsaw, Indiana
We have audited the accompanying consolidated balance sheets of Lakeland
Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1995, 1994 and 1993. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lakeland
Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years ended December 31,
1995, 1994 and 1993, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 12, the Corporation changed its method of
accounting for income taxes in 1993, as discussed in Notes 1 and 3, the
Corporation elected to classify its securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 at December 31, 1993, and as
discussed in Note 1, the Corporation adopted the accounting for impaired loans
as required by SFAS No. 114, and amended by SFAS No. 118.
CROWE CHIZEK AND COMPANY LLP
South Bend, Indiana
January 19, 1996
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the Corporation's
consolidated financial statements and related information appearing in this
annual report. Management believes that the consolidated financial statements
fairly reflect the form and substance of transactions and that the financial
statements reasonably present the Corporation's financial position and results
of operations and were prepared in conformity with generally accepted
accounting principles. Management also has included in the Corporation's
financial statements, amounts that are based on estimates and judgments which
it believes are reasonable under the circumstances.
The independent auditors have audited the Corporation's consolidated
financial statements in accordance with generally accepted auditing standards
and provide an objective, independent review of the fairness of the reported
operating results and financial position.
The Board of Directors of the Corporation has an Audit Review Committee
composed of five non-management Directors. The Committee meets periodically
with the internal auditors and the independent auditors.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Liquidity
The Corporation manages its primary liquidity position to provide funding
at the lowest possible cost, for anticipated loan demand and/or deposit
run-off that occurs in the regular course of business. Such sources of
liquidity are: Federal fund lines with correspondent banks, advances from the
Federal Home Loan Bank, repurchase agreements with local bank customers and
cash flow from the securities portfolio. This cash flow from the securities
portfolio could total approximately $21.0 million in 1996, given current
prepayment assumptions. Additionally, continuous growth into new markets in
northern Indiana has diversified the retail deposit base, reducing volatility
that might occur in one geographical location.
The Corporation manages a secondary liquidity position to provide funding
in the event of unanticipated loan demand and/or deposit run-off. Management
has designated approximately 41.9 percent of its investment portfolio as
available for sale (AFS). This designation provides the liquidity to fund
abnormal loan demand, or to manage the loss of deposits. The Corporation's
securities are all very high quality and easily marketable, with 88 percent
either U.S. Treasuries, Federal agency securities or mortgage-backed
securities directly or indirectly guaranteed by the Federal government.
The following is a brief description of the sources and uses of funds for
the indicated periods:
During the year ended December 31, 1995, there was a net increase of $2.7
million in cash and cash equivalents. The major uses of cash during the period
included the funding of a $39.2 million increase in loans, the purchase of
securities totaling $42.9 million and the purchase of new premises and
equipment of $3.7 million. Major sources of funds were: a net increase in cash
from operating activities of $8.1 million, maturities and sales of securities
totaling $18.9 million, an increase in deposits of $35.2 million and a $28.8
million increase in total borrowings.
During the year ended December 31, 1994, there was a net increase of
$11.3 million in cash and cash equivalents. The major uses of cash during the
period included the funding of a $27.7 million increase in loans and the
purchase of securities totaling $28.5 million. Major sources of funds were: a
net increase in cash from operating activities of $10.3 million, maturing
securities of $15.3 million, an increase in deposits of $26.7 million and an
$18.5 million increase in total borrowings.
During the year ended December 31, 1993, there was a net increase of $2.6
million in cash and cash equivalents. The major uses of cash during the period
included the funding of an $8.2 million increase in loans and the purchase of
securities totaling $85.0 million. Major sources of funds were: a net increase
in cash from operating activities of $7.7 million, proceeds from the sale or
maturity of securities totaling $27.0 million, an increase in deposits of
$37.6 million, and proceeds from branch acquisitions of $29.8 million.
Asset/Liability Management (ALCO) and Securities
The Board of Directors annually reviews and approves the ALCO policy used
to manage interest rate risk. This policy sets guidelines for balance sheet
structure that protect the Corporation from excessive net income volatility
that could result from changing interest rates. The Corporation uses a GAP
report, which details the relative mismatch of asset and liability cash flows
occurring in specified time horizons, and a computer program to stress test
the balance sheet under a wide variety of interest rate scenarios. This model
quantifies the impact on income of such things as: changes in customer
preference for bank products, basis risk between the Bank's assets and the
funds supporting them and the risk inherent in different yield curves. The
ALCO committee reviews these possible outcomes and makes loan, investment and
deposit decisions that maintain reasonable balance sheet structure in light of
potential interest rate movements. After the committee has specified a maximum
risk tolerance for dollar margin volatility, the committee develops guidelines
for the GAP ratios. As indicated in Table 1 on page 25, the Corporation's
cumulative GAP ratio at December 31, 1995, for the next 12 months is a
negative 14.2 percent of total assets. This ratio indicates that the interest
margin could be slightly lower if interest rates rise, as compared to flat or
falling interest rate environments. The computer model produces a slightly
different result, and highlights one of the major problems with GAP analysis.
While GAP may provide a basic guide to rate risk exposure in certain rate
environments, it cannot effectively provide a dollar margin impact since it
ignores the rates on maturing assets and liabilities, the different indexes
used to price bank products and the changes in customer preference that occur
whenever interest rates change. Factoring all of these things into the
computer simulation, the Corporation is slightly exposed to falling rates.
That is, the interest margin could be slightly lower if rates fall. The degree
of this exposure is well within policy limits.
The Corporation's investment portfolio consists of U.S. Treasuries,
agencies, mortgage-backed securities, municipal bonds and corporates. During
1995, purchases have been primarily municipal bonds and mortgage-backed
securities. At December 31, 1995, the Corporation's investment in
mortgage-backed securities comprised approximately 64 percent of total
securities and consisted of CMO's and mortgage pools issued by GNMA, FNMA and
FHLMC. As such, these securities are backed directly or indirectly by the
Federal government. All mortgage securities are purchased to conform to the
FFIEC high risk standards which prohibit the purchase of securities that have
excessive price, prepayment, extension and original life risk characteristics.
The Corporation uses Bloomberg analytics to evaluate and monitor all
purchases. At December 31, 1995, the mortgage securities in the AFS portfolio
had a two year average life, with approximately 6 percent price depreciation
should rates move up 300 basis points and approximately 4 perccent price
appreciation should rates move down 300 basis points. The mortgage securities
in the HTM portfolio had a three and one-half year average life and the
potential for approximately 9 percent price depreciation should rates increase
300 basis points and approximately 10 percent price appreciation should rates
move down 300 basis points. As of December 31, 1995, all mortgage securities
continue to be in compliance with FFIEC guidelines, and are performing in a
manner consistent with management's original expectations.
Capital Management
The Corporation believes that a strong capital position is vital to
long-term earnings and expansion. Currently the Bank maintains capital levels
in excess of "well-capitalized" levels as defined by the FDIC. Bank regulatory
agencies exclude the market value adjustment created by SFAS No. 115 (AFS
adjustment) from capital adequacy calculations. Therefore, excluding this
adjustment from the calculation, the Bank attained tier I leverage capital,
tier I risk based capital and tier II risk based capital ratios of 6.3
percent, 10.1
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
percent and 11.4 percent, respectively at December 31, 1995. All three ratios
are well above the "well-capitalized" minimums of 5.0 percent, 6.0 percent and
10.0 percent, respectively.
The ability to maintain these ratios at these levels is a function of net
income growth and a prudent dividend policy. Total stockholders' equity
increased by 23.0 percent, to $36,754,000 as of December 31, 1995, from
$29,889,000 as of December 31, 1994. Total stockholders' equity increased by
31.7 percent or $8,842,000 from $27,912,000 as of December 31, 1993. The 1995
growth of $6,865,000 resulted from the retention of net income of $5,645,000,
minus cash dividends declared of $1,066,000 plus the change in the AFS
adjustment of $2,286,000, net of tax. The AFS adjustment reflects a 250 basis
point decrease in three to five year U. S. Treasury rates during 1995. Since
the securities portfolio is primarily fixed rate, a positive equity adjustment
should occur whenever interest rates decline. Management has factored this
into the determination of the size of the AFS portfolio, to assure that
stockholders' equity is adequate under various scenarios. The 1994 growth of
$1,977,000 resulted from the retention of net income of $5,126,000, minus cash
dividends declared of $848,000 less the AFS adjustment of $2,301,000. At
December 31, 1994, the change in stockholders' equity reflected an AFS
adjustment that decreased equity by $2,301,000, as compared to December 31,
1993. This adjustment reflected a 294 basis point increase in three to five
year U. S. Treasury rates during 1994.
Management is not aware of any known trends, events or uncertainties that
would have a material effect on the Corporation's liquidity, capital and
results of operations. Nor is management aware of any regulatory
recommendations, that if implemented, would have such an effect.
Allowance for Credit Risk
At December 31, 1995, the allowance for loan losses was $5,472,000 or
1.67 percent of total loans outstanding, compared with $4,866,000 or 1.69
percent of total loans outstanding at December 31, 1994. The process of
identifying credit losses that may occur based upon current circumstances is
subjective. Therefore, the Corporation maintains a general allowance to cover
all credit losses within the entire portfolio. The methodology management uses
to determine the adequacy of the loan loss reserve is as follows:
1. Management reviews the larger individual loans for unfavorable
collectibility factors (including impairment) and assesses the
requirement for specific reserves on such credits. For those loans
not subject to specific reviews, management reviews previous loan
loss experience to establish historical ratios and trends in
charge-offs by loan category. The ratios of net charge-offs to
particular types of loans enables management to establish
charge-offs in future periods by loan category and thereby establish
appropriate reserves for loans not specifically reviewed.
2. Management reviews the current and anticipated economic conditions
of its lending market to determine the effects on future loan
charge-offs by loan category, in addition to the effects on the
loan portfolio as a whole.
3. Management reviews delinquent loan reports to determine risk of
future charge-offs. High delinquencies are generally indicative of an
increase in future loan charge-offs.
Given this methodology for determining the adequacy of the loan loss
reserve, the provision for loan losses was substantially lower in 1995 as
compared to prior periods. This reduction reflects the trend in past due
accruing loans (90 days of more) which have been declining steadily, and are
currently at historically low levels. It also reflects the immaterial level of
nonaccrual loans over the same period. These trends in non-performing loans
reflect both general economic conditions that have promoted growth and
expansion in the Corporation's market area, and a credit risk management
strategy that promotes diversification.
At December 31, 1995, 70 percent of the Corporation's allowance for loan
losses was classified as unallocated. To a large extent, this reflects the
growth in total loans over the last three years of $93 million, or about 39.9
percent, and the concentration of this loan growth in the commercial loan
portfolio. With this type of commercial loan growth, management believes that
it is prudent to continue to provide for loan losses, due to the inherent risk
associated with commercial loans.
Inflation
For a financial institution, the effects of price changes and inflation
can vary substantially. Inflation affects the growth of total assets, but it
is difficult to assess its impact since neither the timing nor the magnitude
of the changes in the consumer price index (CPI) coincides with changes in
interest rates. The price of one or more of the important components of the
CPI may fluctuate considerably and thereby influence the overall CPI without
having a corresponding affect on interest rates or upon the cost of those
goods and services normally purchased by the Corporation. In years of high
inflation and high interest rates, intermediate and long-term interest rates
tend to increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans. In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In other years, the reverse situation may occur.
Growth and Expansion
The assets of the Corporation increased 14.4 percent, or $71,616,000, to
$568,579,000 as of December 31, 1995, from $496,963,000 as of December 31,
1994. Assets at December 31, 1994, increased 10.5 percent, or $47,009,000,
from $449,954,000 as of December 31, 1993. The Corporation has been pursuing
expansion into contiguous markets since 1990. Most recently, the Corporation
acquired the Gateway Bank in LaGrange county (see Note 13 to Consolidated
Financial Statements), and opened three additional offices during 1995. Plans
call for additional expansion in Elkhart and Noble counties in 1996. Although
growth continues to be strong in the traditional markets served by the Bank,
much of the growth experienced in 1995 was in the new markets served by the
Corporation. The Corporation's market area now includes: Elkhart, Fulton,
Kosciusko, LaGrange, Marshall, Noble and Whitley counties. As in the past, the
Corporation expects to continue to serve its market by adding new products,
offices and ATM's in areas where the demographic trends dictate. This activity
will contribute to net income in future years.
Changes in Accounting Methods
At December 31, 1993, the Corporation elected to adopt the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115. This deals with
the accounting for certain debt and equity securities. Stockholders' equity
includes the impact of this
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
accounting standard. During the first quarter of 1993, the Corporation
adopted the provisions of SFAS No. 109, Accounting for Income Taxes. Net
income in 1993 includes the cumulative impact of this change in accounting
standard. Effective January 1, 1995, the Corporation adopted SFAS No. 114, and
SFAS No. 118, Accounting by Creditors for Impairment of a Loan. The effect on
the Corporation of the adoption of this accounting standard was not material.
Statement of Financial Accounting Standards No. 122 "Accounting for
Mortgage Servicing Rights", requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. Based upon its
current volume of mortgage banking activity, The Corporation does not expect
SFAS No. 122 to have a significant impact on its financial condition and
operations for 1996. The impact in subsequent years is difficult to predict.
RESULTS OF OPERATIONS
1995 vs 1994
Corporation assets and earnings were at record levels in 1995. Total
assets were at $568,579,000 at December 31, 1995, an increase of $71,616,000
or 14.4 percent over the assets at December 31, 1994. Loans increased 13.8
percent, or $39,661,000, to $327,617,000 at year-end 1995. Total deposits
increased 8.9 percent, or $35,194,000, to $431,934,000 at December 31, 1995.
Core funding, deposits plus securities sold under agreement to repurchase,
increased 11.8 percent, or $51,595,000, to $490,085,000. Net income totaled
$5,645,000, exceeding 1994 by 10.1 percent. On an average daily basis, gross
earning assets increased by 14.8 percent and total deposits and purchased
funds increased by 14.3 percent. The Gateway Bank office added in July, 1995
accounted for approximately one-third of this average daily earning asset
growth.
Total interest income increased 25.0 percent, or $8,424,000 to
$42,079,000 for the year ended December 31, 1995. This increase was a result
of the increase in daily average earning assets and a 97 basis point increase
in the overall tax equivalent yield on earning assets as compared to the 1994
overall tax equivalent yield. The increase in the tax equivalent yield on
earning assets is reflective of the 168 basis point increase in the average
prime rate during 1995, and the effect this prime rate increase had on the
commercial loan portfolio yield.
Nonearning assets of the Corporation include nonaccrual loans and
investments, other real estate, and repossessions. These nonearning assets
amounted to $1,207,000, $815,000 and $2,379,000 as of December 31, 1995, 1994
and 1993, respectively. Nonaccrual loans totaled $532,000, $18,000 and $0,
respectively at the end of the years 1995, 1994 and 1993. Four mortgage loans
acquired from Gateway account for the majority of the amount in nonaccrual
loans for 1995.
Interest expense for 1995 was $21,642,000. This is an increase of
$6,755,000, or 45.4 percent, over the interest expense for 1994. The increase
in interest expense is attributable to the continued growth in time deposit
balances and rising interest rates. Average daily balances of time deposits
increased 24.1 percent over the prior year average daily balances and the
average rate paid on time deposits increased 161 basis points.
Net interest income increased $1,669,000 or 8.9 percent, to $20,437,000
in 1995, from $18,768,000 in 1994. Net interest income as a percentage of
earning assets was 4.18 percent for 1995. This is a decrease of 23 basis
points from the 4.41 percentage for 1994. This decrease results from the
increase in the rates paid on deposits and purchased funds being 25 basis
points higher than the increase in the rates for earning assets. The increase
in rates paid on deposits and purchased funds reflects both the effects of
competition and the shift of balances from savings and money market funds to
higher cost time deposits.
As indicated in the Notes to Consolidated Financial Statements (Notes 1
and 5) and the discussion of Financial Condition above, management maintains
the allowance for loan losses at an appropriate level given many different
factors. The December 31, 1995, allowance of $5,472,000 is believed by
management to be adequate to absorb all potential risk applicable to the
classification of loans as loss, doubtful, substandard or special mention.
This allowance does not represent or result from trends that will materially
adversely impact future operating results, liquidity or capital resources. Net
interest income after provision for loan losses increased $2,344,000, or 13.0
percent, to $20,317,000 in 1995, from $17,973,000 in 1994.
Trust income and service charges on deposit accounts, two major
components of noninterest income, increased 10.6 percent, or $284,000 in 1995
to $2,971,000 in 1995, from $2,687,000 in 1994. Trust income increased to
$709,000 for 1995, as compared to $609,000 for 1994, an increase of 16.4
percent. Service charges on deposit accounts increased 8.9 percent to
$2,262,000 in 1995. This increase is reflective of the continued acceptance of
the Bank's individual deposit accounts paying fees. Other income decreased by
$221,000 when compared to 1994. Other income in 1994 included a one-time event
relating to the reversal of certain other real estate valuation allowances
that contributed $404,000 to other income. Without that one-time event in
1994, the other income for 1995 would have increased $183,000 over the amount
for 1994.
The Bank continues its program of originating mortgages for sale on the
secondary market. Loans originated for sale in 1995 were $10,878,000 as
compared to $9,426,000 originated for sale in 1994. Gains on the sales of
these loans totaled $159,000 a decrease of $18,000 from the gains recorded in
1994.
The ALCO committee reviews the portfolio monthly and makes investment
decisions based upon the projected balance sheet needs. During 1995, there
were sales of securities available-for-sale which resulted in net gains of
$331,000 and there were calls of securities held-to-maturity which resulted in
losses of $16,000. The net of these activities resulted in security gains of
$315,000 for 1995 as compared to net security losses of $7,000 in 1994. The
small security losses in 1994 were the result of several partial calls on zero
coupon bonds.
The result of the changes in all components of noninterest income was an
increase in total noninterest income of $367,000, or 8.6 percent, over the
amounts recorded for 1994.
Salaries and employee benefit costs for 1995 increased $1,243,000, or
17.1 percent, to $8,521,000. This increase is attributable to a 5.0 percent
increase in full-time equivalent employees (FTE) in 1995, to 292, along with
normal salary increases. The increase in FTE is a result of the opening of
three new offices and the acquisition of Gateway Bank during 1995.
Additionally, the increase in salaries and employee benefits reflects the
increased cost of fringe benefit and indirect payroll programs which are tied
to Corporate performance.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Net occupancy and equipment costs increased to $2,604,000 in 1995, from
$2,058,000 in 1994, an increase of $546,000 or 26.5 percent. This increase is
also due to the new offices added during 1995 as well as having the expenses
for the full year for the two offices opened in the fourth quarter of 1994.
This increase is also a result of investments in the equipment needed to stay
current with Bank technology.
Other expense increased 7.6 percent, or $363,000, to $5,119,000 for 1995.
As indicated in Note 11 to Consolidated Financial Statements, all components
of other expense increased from 1994 to 1995 except for Regulatory Fees and
FDIC Insurance. During 1995, the FDIC announced that the Bank Insurance Fund
reached its capitalization target in May. As a result, the FDIC refunded
excess premiums that banks paid from June to September and reduced the FDIC
premium rates. This refund and the reduction in FDIC premiums resulted in the
$288,000 decrease in Regulatory Fees and FDIC Insurance for 1995 as compared
to 1994. The reduced FDIC premiums should have a continued positive effect on
these costs.
As a result of all these factors, income before income tax expense
increased $559,000, or 6.9 percent, to $8,709,000 from the $8,150,000 for
1994. Income tax expense was $3,064,000 and $3,024,000 in 1995 and 1994,
respectively, which represent 35.2 percent and 37.1 percent of income before
taxes. The reduction in the average tax rate is due to a higher level of tax
exempt income, the net operating loss carryforward related to the Gateway
acquisition and an increase in Federal and State tax credits. Net income
increased to $5,645,000 for 1995 from $5,126,000 for 1994, an increase of
$519,000, or 10.1 percent. Net income per share was $3.92 for 1995, as
compared to $3.56 for 1994. Net income of $5,645,000 represents a 17.9 percent
return on January 1, 1995, stockholders' equity (excluding the equity
adjustment related to SFAS No. 115), and a 1.05 percent return on average
daily assets.
RESULTS OF OPERATIONS
1994 versus 1993
Record assets and earnings characterized 1994. Loans increased 10.7
percent, or $27,771,000, to $287,956,000 at year-end 1994. Total deposits
increased 7.2 percent, or $26,708,000, to $396,740,000 at December 31, 1994,
while deposits and securities sold under agreement to repurchase increased 9.8
percent, or $39,086,000, to $438,490,000. Net income totaled $5,126,000,
surpassing 1993 results by 21.0 percent. On an average daily basis, gross
earning assets increased by 22.1 percent and total deposits and purchased
funds increased by 22.9 percent. The Prime Bank offices added in late 1993
accounted for approximately two-thirds of this average daily earning asset
growth.
Total interest income increased 21.9 percent, or $6,048,000 to
$33,655,000 for the year ended December 31, 1994. The 22.1 percent growth in
average daily earning assets was solely responsible for this increase, as the
overall tax equivalent yield of 7.70 percent on average earning assets in 1994
was unchanged from 1993.
Nonearning assets of the Corporation include nonaccrual loans and
investments, other real estate, and repossessions, and amounted to $815,000,
$2,379,000 and $3,132,000 as of December 31, 1994, 1993 and 1992,
respectively. There was one $18,000 nonaccrual loan at year-end 1994.
Interest expense totaled $14,887,000 in 1994, a 23.8 percent, or
$2,865,000 increase over 1993. Average daily deposits and purchased funds
increased by 22.9 percent in 1994, and rising interest rates during the year
increased the average rate paid on interest bearing liabilities by 3 basis
points to 3.44 percent for the year. As interest rates rose during 1994, Bank
customers returned to fixed rate certificates of deposit. This shift in mix
modestly increased the Bank's overall cost of funds during 1994.
Net interest income increased 20.4 percent, or $3,183,000, to $18,768,000
in 1994, from $15,585,000 in 1993. Net interest income as a percentage of
average earning assets was 4.41 percent in 1994. This represented an 8 basis
point decline from 4.49 percent in 1993. This reduction was due in equal
measure to the modest increase in the cost of funds and a lower level of loan
fees.
As indicated in the Notes to Consolidated Financial Statements (Notes 1
and 5), management maintains the allowance for loan losses at an appropriate
level given many different factors. The December 31, 1994, allowance for loan
losses of $4,866,000 was believed by management to be adequate to absorb all
potential inherent risk applicable to the classification of loans as loss,
doubtful, substandard or special mention. Net interest income after provision
for loan losses increased 21.5 percent, or $3,178,000, to $17,973,000 in 1994,
from $14,795,000 in 1993.
Trust income and service charges on deposit accounts, two large
components of noninterest income, increased 16.9 percent, or $388,000 to
$2,687,000 in 1994, from $2,299,000 in 1993. Trust income totaled $609,000, an
increase of 16.2 percent from 1993. This reflected increased corporate trust
business. Service charges on deposit accounts increased by 17.1 percent, to
$2,078,000 in 1994, reflecting the growth in individual and corporate deposit
accounts paying fees. Other income increased $898,000 to $1,412,000 in 1994. A
portion of this growth reflected the reversal of certain other real estate
valuation allowances totaling $404,000 that were related to two large loans.
These situations were resolved in 1994 and the reserves were no longer
necessary. Other components of other income such as wire transfer fees, credit
card fees and mortgage service fees increased 15.0 percent in 1994.
The Corporation continued its program of originating and selling real
estate mortgages in the secondary market. During the course of 1994, the Bank
sold approximately $8,800,000 of mortgages through the FHLMC Gold program.
Gains on the sale of these loans totaled $177,000, a decrease of $499,000 over
1993. This decrease represented the higher rate environment that substantially
reduced the level of home refinancing during the year.
Net investment securities losses totaled $(7,000) in 1994, as compared to
net investment security gains of $175,000 in 1993. During 1994, there were no
securities sold from either the AFS or HTM portfolios. The small security
losses experienced during 1994 were the result of several partial calls on
zero coupon bonds.
Salaries and employee benefit costs increased 16.7 percent in 1994, to
$7,278,000 from $6,236,000. This increase reflected a 10.8 percent increase in
full-time equivalent employees (FTE) in 1994, to 278, and normal annual salary
increases. This increase in FTE related to the full year impact of the offices
added in Noble county in late 1993 and the two new offices added in 1994.
There was also an increase in fringe benefit costs and indirect payroll costs,
as some of these programs reflected corporate performance that was at record
levels.
Another component of other expense that grew due to expansion was net
occupancy expense of premises and equipment costs. These expenses totaled
$2,058,000 in 1994, an increase of 15.9 percent over 1993. Again, the
additional offices added in 1994, as well as, a full year of expense on the
offices added in Elkhart and Noble counties in 1993 contributed to this
increase.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
As indicated in the Note 11 to Consolidated Financial Statements, all
major components of other expense contributed to the 8.9 percent, or $390,000
increase to $4,756,000 for 1994, from $4,366,000 in 1993. Regulatory and FDIC
insurance premiums are the largest component of other expense, totaling
$904,000 in 1994. This was an increase of $121,000, or 15.5 percent from 1993.
This increase reflected the overall growth in deposits. Data processing and
supplies were the second largest component of other expense, totaling $766,000
in 1994. This represented a decrease of 11.9 percent, or $104,000 from 1993.
Included in the 1993 amount were certain non-recurring expenses related to the
acquisition of the branches of Prime Bank.
As a result of all of these factors, income before income tax and
cumulative effect of change in accounting principle totaled $8,150,000, an
increase of 34.0 percent, or $2,069,000 from the $6,081,000 reported in 1993.
Income before cumulative change in accounting principle was $5,126,000, an
increase of 31.1 percent, or $1,216,000 over 1993. In the first quarter of
1993, the Corporation applied the provisions of SFAS No. 109, Accounting for
Income Taxes. Included in 1993 income is the cumulative adjustment of $325,000
to apply this new accounting method. Net income totaled $5,126,000 in 1994, an
increase of 21.0 percent, or $891,000, from $4,235,000 in 1993. On a per share
basis, income before cumulative change in accounting principle was $3.56 in
1994, as compared to $2.72 in 1993. Also on a per share basis, net income was
$3.56 in 1994, as compared to $2.94 in 1993. Net income of $5,126,000
represents an 18.8 percent return on January 1, 1994, stockholders' equity
(excluding the equity adjustment related to SFAS No. 115), and a 1.10 percent
return on average daily assets.
TABLE 1 - REPRICING OPPORTUNITIES
The table below illustrates the funding gaps for selected maturity
periods as of December 31, 1995, for Lake City Bank only. Repricing
opportunities for fixed rate loans and mortgage-backed securities are based
upon anticipated prepayment speeds. Demand deposit accounts and savings
accounts are classified as having maturities beyond five years.
<TABLE>
<CAPTION>
Repricing or Maturing Within
----------------------------------------------------
6 7-12 1-5
Months Months Years
--------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Earning Assets
Loans $ 209,596 $ 26,777 $ 79,374
Securities 16,413 11,225 128,619
Short-term investments 512 0 198
--------------- ---------------- ----------------
Total 226,521 38,002 208,191
--------------- ---------------- ----------------
Deposits and Purchased Funds
Transaction accounts 95,469 0 0
Time deposits 116,525 43,239 57,986
Short-term borrowings 68,066 7,540 1,610
Long-term borrowings 8,000 0 8,132
--------------- ---------------- ----------------
Total 288,060 50,779 67,728
--------------- ---------------- ----------------
Interest sensitivity GAP $ (61,539) $ (12,777) $ 140,463
=============== ================ ================
Cumulative interest sensitivity GAP $ (61,539) $ (74,316) $ 66,147
=============== ================ ================
Cumulative GAP as percent of earning assets (11.7)% (14.2)% 12.6%
=============== ================ ================
</TABLE>
TABLE 2 - CAPITAL RATIOS
Regulatory agencies specifically exclude the equity adjustment associated
with SFAS No. 115 from the calculation of capital adequacy. The following
table presents the Bank's current capital adequacy ratios, as well as the FDIC
defined levels to be considered "well-capitalized" and the Bank's current
excess capital position in relation to these "well-capitalized" levels.
<TABLE>
<CAPTION>
Regulatory Capital Ratio
----------------------------------------------------
December 31, Well- Excess
Ratio 1995 Capitalized Capital
- ----- --------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Tier I leverage 6.31% 5.00% $ 7,523
Tier I risk based 10.13% 6.00% $ 14,763
Tier II risk based 11.38% 10.00% $ 4,939
</TABLE>
25
<PAGE>
LAKELAND FINANCIAL CORPORATION AND LAKE CITY BANK BOARD OF DIRECTORS
Eddie Creighton Partner and General Manager, Creighton Brothers
Anna K. Duffin Civic Leader
L. Craig Fulmer Chairman, Heritage Financial Group, Inc.
R. Douglas Grant Chairman and President, Lakeland Financial
Corporation and Lake City Bank
Jerry L. Helvey President, Helvey & Associates, Inc.
Dr. Homer A. Kent President Emeritus of Grace Theological Seminary
and Grace College
J. Alan Morgan Former President of Zimmer USA and Vice President of
Bristol Myers Co.
Richard L. Pletcher President, Pletcher Enterprises, Inc.
Joseph P. Prout President, Owens Supermarket, Inc.
Philip G. Spear Former President, W.R. Thomas Stores, Inc.
Terry L Tucker President, Maple Leaf Farms, Inc.
G.L.White Former President, United Telephone Company of Indiana
LAKELAND FINANCIAL CORPORATION OFFICERS
R. Douglas Grant Chairman and President
William A. Henthorn Executive Vice President
Paul S. Siebenmorgen Executive Vice President
Terry M. White Secretary and Treasurer
James J. Nowak Assistant Treasurer
26
<PAGE>
<TABLE>
<CAPTION>
LAKE CITY BANK OFFICERS
<S> <C> <C> <C>
R. Douglas Grant President Retail Services
William A. Henthorn Executive Vice President Kevin L. Deardorff Senior Vice President
Paul S. Siebenmorgen Executive Vice President Dale L. Cramer Vice President
Thomas P. Frantz Vice President
Commercial Services Burl Nifong Vice President
Charles D. Smith Senior Vice President Janet K. Anderson Assistant Vice President
David A. Bickel Vice President Barry A. Bailey Assistant Vice President
James R. Cowan Vice President Dennis E. Dolby Assistant Vice President
Michael E. Gavin Vice President Glenn A. Goudey Assistant Vice President
William D. Leedy Vice President April J. Gayton Mortgage Banking Officer
J. Randall Leininger Vice President Jill L. Warstler Retail Banking Officer
H.A. "Rocky" Meyer Vice President
Willard N. Schieler Vice President Marketing and Human Resources
Thomas G. Stark Vice President D. Jean Northenor Senior Vice President
James C. Stout Vice President Gregory D. Lawrence Vice President
Randal U. Vutech Vice President Cathy L. Teghtmeyer Vice President
Edward D. Jarrett Assistant Vice President Paul S. Purvis Assistant Vice President
Chad D. Brouyette Commercial Banking Officer Bettie S. Moore Assistant Human Resource Officer
Brent E. Hoffman Commercial Banking Officer
J. Chad Stoltzfus Commercial Banking Officer Operations
Michael A. Zimmerman Commercial Banking Officer E. Ray Younce Senior Vice President
Judy K. Harvey Vice President
Trust Lisa M. Bicknese Assistant Vice President
Bradley C. Brail Senior Vice President Ruth A. Hutcherson Assistant Vice President
Coral G. Amspaugh Vice President Vicki D. Martin Assistant Vice President
Max A. Mock Vice President Rebecca M. Siery Assistant Vice President
Jeannine D. Knowles Assistant Vice President William L. Hilliard Operations Officer
Shelley A. Moore Trust Operations Officer Linda A. Owens Operations Officer
Connie Miller Trust Officer Angela K. Ritchey Operations Officer
Linda Swoverland Operations Officer
Investments
Dennis E. Cultice Senior Vice President Financial
Anne M. Bailey Assistant Vice President Terry M. White Senior Vice President
James J. Nowak Vice President and Controller
Office Administration Jill A. Hester Assistant Vice President
Walter L. Weldy Senior Vice President
Pamela J. Cooper Vice President Audit
Timothy L. Sutton Vice President Betty L. McHenry Senior Vice President and Auditor
Peggy A. Guyas Assistant Vice President Kris J. Kerlin Assistant Vice President
Jeannine P. Cooley Teller Training Officer Cynthia A. Studebaker Assistant Auditor
</TABLE>
<TABLE>
<CAPTION>
OFFICES
<S> <C> <C>
Akron Jane Murphy Assistant Vice President
Argos Michael D. Burroughs Assistant Vice President
Bremen Matthew K. Bixel Vice President
Columbia City Lisa A. Hockemeyer Assistant Vice President
Concord Jeri L. Yoder Assistant Vice President
Cromwell Jerry L. Stoner Retail Banking Officer
Elkhart Rosalie M. Smith Vice President
Elkhart East Mervin "Bud" Hammon Assistant Vice President
Goshen Downtown Thomas E. Marquis Assistant Vice President
Goshen South Clarence J. Yoder Vice President
Kendallville Duane Smith Vice President
LaGrange Michael P. Schlemmer Vice President
Ligonier Craig R. Atz Vice President
Mentone Karen A. Francis Assistant Vice President
Middlebury Jerry S. Troyer Vice President
Milford Jack A. Heeter Assistant Vice President
Nappanee Larry L. Penrod Vice President
North Webster Jeanne G. Bowen Vice President
Pierceton Pamela J. Messmore Office Manager
Roann Merrill Templin Assistant Vice President
Rochester Gail D. Law Assistant Vice President
Shipshewana John R. Munsell Assistant Vice President
Silver Lake Deborah A. Lotz Assistant Vice President
Syracuse Donna J. Beck Assistant Vice President
Wabash North T.F. "Bob" Fuller Vice President
Wabash South Jody A. Slacian Assistant Office Manager
Warsaw Downtown Traci Dahlinger Office Manager
Warsaw East Tricia G. Hess Office Manager
Warsaw West Tricia G. Hess Office Manager
Winona Lake Allan L. Disbro Vice President
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995
REPORT TO SHAREHOLDERS AND THE 1995 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,185
<INT-BEARING-DEPOSITS> 240
<FED-FUNDS-SOLD> 470
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,120
<INVESTMENTS-CARRYING> 113,888
<INVESTMENTS-MARKET> 115,328
<LOANS> 327,762
<ALLOWANCE> 5,472
<TOTAL-ASSETS> 568,579
<DEPOSITS> 431,934
<SHORT-TERM> 77,131
<LIABILITIES-OTHER> 5,328
<LONG-TERM> 17,432
0
0
<COMMON> 1,438
<OTHER-SE> 35,316
<TOTAL-LIABILITIES-AND-EQUITY> 568,579
<INTEREST-LOAN> 30,116
<INTEREST-INVEST> 11,761
<INTEREST-OTHER> 202
<INTEREST-TOTAL> 42,079
<INTEREST-DEPOSIT> 16,847
<INTEREST-EXPENSE> 21,642
<INTEREST-INCOME-NET> 20,437
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 315
<EXPENSE-OTHER> 16,244
<INCOME-PRETAX> 8,709
<INCOME-PRE-EXTRAORDINARY> 5,645
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,645
<EPS-PRIMARY> 3.92
<EPS-DILUTED> 3.92
<YIELD-ACTUAL> 4.09
<LOANS-NON> 532
<LOANS-PAST> 192
<LOANS-TROUBLED> 1,432
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,866
<CHARGE-OFFS> 355
<RECOVERIES> 95
<ALLOWANCE-CLOSE> 5,472
<ALLOWANCE-DOMESTIC> 1,411
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,061
</TABLE>
