UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-11487
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1559596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
202 East Center Street
P.O. Box 1387, Warsaw, Indiana 46581-1387
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219)267-6144
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at March 31, 1998
Common Stock, $.50 Stated Value 2,899,495
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<TABLE>
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 1998 and December 31, 1997
(in thousands)
(Unaudited)
(Page 1 of 2)
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 37,087 $ 45,317
Short-term investments 14,465 4,445
------------ ------------
Total cash and cash equivalents 51,552 49,762
Securities available-for-sale
U. S. Treasury securities 26,798 29,286
Mortgage-backed securities 40,679 53,409
State and municipal securities 1,895 1,904
Other debt securities 100 0
------------ ------------
Total securities available-for-sale
(carried at fair value) 69,472 84,599
Securities held-to-maturity
U. S. Treasury securities 21,159 21,170
Mortgage-backed securities 157,097 118,964
State and municipal securities 24,373 22,418
Other debt securities 3,186 1,007
------------ ------------
Total securities held-to-maturity
(fair value of $207,536 at
March 31, 1998, and $166,079
at December 31, 1997) 205,815 163,559
Real estate mortgages held-for-sale 4,137 1,516
Loans:
Total loans 470,642 458,634
Less: Allowance for loan losses 5,345 5,308
------------ ------------
Net loans 465,297 453,326
Land, premises and equipment, net 24,840 23,108
Accrued income receivable 4,719 4,915
Intangible assets 12,657 9,649
Other assets 7,228 6,044
------------ ------------
Total assets $ 845,717 $ 796,478
============ ============
(Continued)
</TABLE>
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<TABLE>
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 1998 and December 31, 1997
(in thousands)
(Unaudited)
(Page 2 of 2)
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing deposits $ 98,645 $ 92,467
Interest bearing deposits 571,852 520,525
------------ ------------
Total deposits 670,497 612,992
Short-term borrowings
Federal funds purchased 0 14,650
U.S. Treasury demand notes 3,113 4,000
Securities sold under agreements
to repurchase 71,068 65,467
------------ ------------
Total short-term borrowings 74,181 84,117
Accrued expenses payable 5,688 5,040
Other liabilities 1,195 1,495
Long-term debt 25,409 25,367
Guaranteed preferred beneficial interests in
Company's subordinated debentures 19,218 19,211
------------ ------------
Total liabilities 796,188 748,222
Commitments, off-balance sheet risks
and contingencies
STOCKHOLDERS' EQUITY
Common stock: $.50 stated value, 10,000,000 shares authorized,
2,906,992 shares issued and 2,899,495 outstanding as of
March 31, 1998, and 2,906,992 shares issued and 2,901,616
outstanding at December 31, 1997 1,453 1,453
Additional paid-in capital 8,537 8,537
Retained earnings 39,333 37,766
Unrealized net gain (loss) on securities available-for-sale 492 685
Treasury stock, at cost (286) (185)
------------ ------------
Total stockholders' equity 49,529 48,256
------------ ------------
Total liabilities and stockholders' equity $ 845,717 $ 796,478
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(in thousands except for share data)
(Unaudited)
(Page 1 of 2)
<CAPTION>
Three Months Ended
March 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans: Taxable $ 10,524 $ 8,956
Tax exempt 51 58
------------ ------------
Total loan income 10,575 9,014
Short-term investments 114 86
Securities:
U.S. Treasury and Government agency securities 772 763
Mortgage-backed securities 3,084 2,116
Obligations of state and political subdivisions 350 347
Other debt securities 51 74
------------ ------------
Total interest and dividend income 14,946 12,400
INTEREST EXPENSE:
Interest on deposits 6,594 4,867
Interest on short-term borrowings 950 1,313
Interest on long-term debt 812 234
------------ ------------
Total interest expense 8,356 6,414
------------ ------------
NET INTEREST INCOME 6,590 5,986
Provision for loan losses 120 60
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,470 5,926
NONINTEREST INCOME:
Trust fees 315 359
Service charges on deposit accounts 887 739
Other income (net) 810 397
Net gains on the sale of real estate mortgages held-for-sale 175 104
Net securities gains (losses) 253 0
------------ ------------
Total noninterest income 2,440 1,599
(Continued)
</TABLE>
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<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(in thousands except for share data)
(Unaudited)
(Page 2 of 2)
<CAPTION>
Three Months Ended
March 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
NONINTEREST EXPENSE:
Salaries and employee benefits 3,299 2,540
Occupancy and equipment expenses 878 783
Other expenses 1,857 1,333
------------ ------------
Total noninterest expense 6,034 4,656
INCOME BEFORE INCOME TAX EXPENSE 2,876 2,869
Income tax expense 874 1,042
------------ ------------
NET INCOME $ 2,002 $ 1,827
============ ============
AVERAGE COMMON SHARES OUTSTANDING (Note 2) 2,900,603 2,903,563
============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.69 $ 0.63
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 1998 and 1997
(in thousands except for share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
NET INCOME $ 2,002 $ 1,827
OTHER COMPREHENSIVE INCOME, net of tax:
Unrealized gains (losses) on securities available-for-sale
arising during period (40) (495)
Reclassification adjustment for accumulated (gains)
losses included in net income:
Unrealized (gains) losses on securities available-for-sale (153) 0
------------ ------------
Total other comprehensive income (193) (495)
------------ ------------
COMPREHENSIVE INCOME $ 1,809 $ 1,332
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1998 and 1997
(in thousands except for shares)
(Unaudited)
<CAPTION>
Accumulated
Common Stock Other Total
--------------------- Paid-in Retained Comprehensive Treasury Stockholders'
Shares Amount Capital Earnings Income Stock Equity
---------- --------- --------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 2,896,992 $ 1,448 $ 8,232 $ 31,967 $ 396 $ 0 $ 42,043
Net income for three months
ended March 31, 1997 1,827 1,827
Net change in unrealized net gain (loss)
on securities available-for-sale (495) (495)
Issued 10,000 shares of previously
authorized, unissued shares. 10,000 5 305 310
Acquired shares of treasury stock (4,490) (143) (143)
Cash dividends declared -
$.15 per share (436) (436)
---------- --------- --------- --------- ------------- --------- -------------
Balances, March 31, 1997 2,902,502 $ 1,453 $ 8,537 $ 33,358 $ (99) $ (143) $ 43,106
========== ========= ========= ========= ============= ========= =============
Balances, January 1, 1998 2,901,616 $ 1,453 $ 8,537 $ 37,766 $ 685 $ (185) $ 48,256
Net income for three months
ended March 31, 1998 2,002 2,002
Net change in unrealized net gain (loss)
on securities available-for-sale (193) (193)
Acquired shares of treasury stock (2,121) (101) (101)
Cash dividends declared -
$.15 per share (435) (435)
---------- --------- --------- --------- ------------- --------- -------------
Balances, March 31, 1998 2,899,495 $ 1,453 $ 8,537 $ 39,333 $ 492 $ (286) $ 49,529
========== ========= ========= ========= ============= ========= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(in thousands)
(Unaudited)
(Page 1 of 2)
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,002 $ 1,827
------------ ------------
Adjustments to reconcile net income to net cash
from operating activites:
Depreciation 396 331
Provision for loan losses 120 60
Amortization of intangible assets 215
Loans originated for sale (12,589) (4,398)
Net (gain) loss on sale of loans (175) (104)
Proceeds from sale of loans 10,142 5,149
Net (gain) loss on sale of premises and equipment (63) 1
Net (gain) loss on sale of securities available-for-sale (253) 0
Net (gain) loss on calls of securities held-to-maturity 0 0
Net securities amortization (accretion) 130 14
Increase (decrease) in taxes payable 725 1,077
(Increase) decrease in income receivable 197 3
Increase (decrease) in accrued expenses payable (339) (313)
(Increase) decrease in other assets (1,394) (90)
Increase (decrease) in other liabilities (325) 74
------------ ------------
Total adjustments (3,213) 1,804
------------ ------------
Net cash from operating activities (1,211) 3,631
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and calls of securities held-to-maturity 11,455 4,255
Proceeds from maturities and calls of securities available-for-sale 3,882 6,634
Purchases of securities available-for-sale 0 (9,213)
Purchases of securities held-to-maturity (53,846) (7,030)
Proceeds from sales of securities available-for-sale 11,183 0
Net (increase) decrease in total loans (12,129) (18,496)
Purchases of land, premises and equipment (438) (873)
Net proceeds (payments) from acquisitions 30,020 0
------------ ------------
Net cash from investing activities (9,873) (24,723)
------------ ------------
(Continued)
</TABLE>
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<TABLE>
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(in thousands)
(Unaudited)
(Page 2 of 2)
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in total deposits $ 23,304 $ 680
Proceeds from short-term borrowings 171,820 223,141
Payments on short-term borrowings (181,756) (205,680)
Proceeds from long-term borrowings 50 0
Payments on long-term borrowings (8) (8,140)
Dividends paid (435) (436)
Proceeds from sale of common stock 0 310
Purchase of treasury stock (101) (143)
------------ ------------
Net cash from financing activities 12,874 9,732
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,790 (11,360)
Cash and cash equivalents at beginning of the period 49,762 44,879
------------ ------------
Cash and cash equivalents at end of the period $ 51,552 $ 33,519
============ ============
Cash paid during the period for:
Interest $ 7,967 $ 5,987
============ ============
Income taxes $ 275 $ 225
============ ============
Loans transferred to other real estate $ 52 $ 0
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This report is filed for Lakeland Financial Corporation (the Company) and
its wholly owned subsidiaries, Lake City Bank (the Bank) and Lakeland Capital
Trust (Lakeland Trust). All significant intercompany balances and transactions
have been eliminated in consolidation.
The Company formed Lakeland Trust on July 24, 1997. Lakeland Trust issued
$20 million of 9% Cumulative Trust Preferred Securities (Preferred
Securities). These proceeds were used to purchase Subordinated Debentures of
the Company. The Company owns all of the common stock of Lakeland Trust. The
sole assets of Lakeland Trust are the Subordinated Debentures and the payments
thereunder. The obligations of the Company under the Guarantee, the Trust
Agreement, the Subordinated Debentures, the Indenture and the Expense
Agreement provide, in the aggregate, a full, irrevocable and unconditional
guarantee, on a subordinated basis, of all the obligations of Lakeland Trust
under the Preferred Securities. The Preferred Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the subordinated
debentures at maturity or their earlier redemption at the liquidation
preference. Subject to the Company receiving prior approval of the Federal
Reserve, if then required, the subordinated debentures are redeemable prior to
the maturity date of September 30, 2027 at the option of the Company on or
after September 30, 2002, or upon occurrence of specific events defined within
the trust indenture. The Company has the option to defer distributions on the
subordinated debentures from time to time for a period not to exceed 20
consecutive quarters.
Lakeland Trust is treated for financial reporting purposes as a
subsidiary of the Company and, accordingly, the accounts of Lakeland Trustare
included in the consolidated financial statements of the Company. The
Preferred Securities issued by Lakeland Trust are presented as a separate line
item as long-term debt in the consolidated balance sheets of the Company under
the caption "Guaranteed Preferred Beneficial Interests in Company's
Subordinated Debentures" and the Company records distributions payable on the
Preferred Securities as an expense in its consolidated statements of income.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures are adequate and do not make the information presented misleading.
-9-
<PAGE>
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's latest annual report and Form 10-K. 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. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of the results for interim periods
are reflected in the quarterly statements included herein.
NOTE 2. EARNINGS PER SHARE
The average common shares outstanding for the first quarters of 1998 and
1997 reflect the acquisition of 2,121 and 4,490 shares, respectively, of
Lakeland Financial Corporation common stock to offset a liability for a
director's deferred compensation plan. This stock is classified as treasury
stock for financial reporting purposes.
NOTE 3. ACCOUNTING CHANGES
SFAS No. 130, Reporting Comprehensive Income, was issued by the Financial
Accounting Standards Board and is effective for fiscal years beginning after
December 15, 1997. This statement established standards for reporting and
displaying comprehensive income and its components in financial statements.
Consolidated comprehensive income is presented in the accompanying financial
statements in accordance with this SFAS.
-10-
<PAGE>
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
March 31, 1998
FINANCIAL CONDITION
The financial statements reflect the Company's continued growth within
the Company's traditional markets and expansion into contiguous market areas.
On February 20, 1998, the Company closed on its purchase of selected assets
and assumption of all deposits of the Peru, Indiana and Greentown, Indiana
offices of National City Bank. On April 15, 1998, the Company opened the
office it constructed in Plymouth, Indiana.
Total assets of the Company were $845,717,000 as of March 31, 1998. This
is an increase of $49,239,000 or 6.2 percent from $796,478,000 reported at
December 31, 1997. Total loans were $470,642,000 at March 31, 1998. This is an
increase of $12,008,000 or 2.6 percent from balances at December 31, 1997.
Total securities (including available-for-sale (AFS) and held-to-maturity
(HTM)) increased $27,129,000 or 10.9 percent to $275,287,000 as of March 31,
1998, from $248,158,000 at December 31, 1997. Earning assets increased to
$759,186,000 at March 31, 1998. This is an increase of $51,741,000 or 7.3
percent from the December 31, 1997, total of $707,445,000.
Total deposits and securities sold under agreements to repurchase
(repurchase agreements) consist primarily of funds generated within the
Company's primary market area as defined in its Community Reinvestment Act
(CRA) statement. These funds increased $63,106,000 or 9.3 percent, from
December 31, 1997 to March 31, 1998. The increase was in time deposits with
additional growth in noninterest-bearing demand deposits, savings deposits and
repurchase agreements offset by a decrease in interest-bearing demand
deposits. Time deposits increased $60,637,000 or 15.4 percent from the balance
at December 31, 1997. Noninterest-bearing demand deposits increased $6,178,000
or 6.7 percent to $98,645,000, savings deposits increased $2,634,000 or 4.9
percent to $56,218,000, and repurchase agreements increased $5,601,000 or 8.6
percent to $71,068,000. The repurchase agreement balance is a combination of
fixed rate contracts and excess cash management accounts, a variable rate
repurchase agreement product. Interest-bearing demand deposits decreased
$13,083,000 or 19.0 percent from December 31, 1997 to March 31, 1998. The
assumption of deposits of the Peru and Greentown offices of National City Bank
added approximately $2 million of demand deposits, $2 million of savings
deposits and $30 million of time deposits on the date of acquisition.
In addition to these local funding sources, the Company borrows modestly
through the Treasury, Tax and Loan program, occasionally through federal fund
-11-
<PAGE>
lines with correspondent banks and through term advances from the Federal Home
Loan Bank of Indianapolis (FHLB). Including these non-local sources, funding
totaled $770,087,000 at March 31, 1998. This is a $47,611,000 or 6.6 percent
increase from $722,476,000 reported at December 31, 1997. Other funding of
$19,218,000 was provided through the issuance of trust preferred securities in
1997.
On an average daily basis, total earning assets increased 21.3 percent
for the three month period ended March 31, 1998, as compared to the similar
period ended March 31, 1997. On an average daily basis, total deposits and
purchased funds increased 24.6 percent for the three month period ended March
31, 1998, as compared to the three month period ended March 31, 1997.
The Company's investment portfolio consists of U.S. Treasuries, agencies,
mortgage-backed securities, municipal bonds, and corporates. During 1998, new
investments have been primarily mortgage-backed securities and municipal
bonds. At March 31, 1998, and December 31, 1997, the Company's investment in
mortgage-backed securities comprised approximately 71.8 and 69.5 percent,
respectively, of the total securities and consisted mainly 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-backed
securities purchased 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 Company uses Bloomberg analytics
to evaluate and monitor all purchases. At March 31, 1998, the mortgage-backed
securities in the HTM portfolio had a two and one-half year average life, with
a potential for approximately 5 percent price depreciation should rates move
up 300 basis points and approximately 9 percent price appreciation should
rates move down 300 basis points. The mortgage-backed securities in the AFS
portfolio had a one year average life and a potential for approximately 7
percent price depreciation should rates increase 300 basis points and
approximately 1 percent price appreciation should rates move down 300 basis
points. As of March 31, 1998, all mortgage-backed securities continue to be in
compliance with FFIEC guidelines and are performing in a manner consistent
with management's original expectations.
The Company's HTM and AFS portfolios are managed with consideration given
to factors such as the Company's capital levels, growth prospects,
asset/liability structure and liquidity needs. Based upon the change in the
funding due to normal activity and recent acquisitions, the decision was to
purchase securities for the held-to-maturity portfolio and to sell securities
from the available-for-sale portfolio. During the first three months of 1998,
purchases for the HTM portfolio were $53,846,000 with no purchases for the AFS
portfolio and sales from the AFS portfolio were $10,930,000. At March 31,
1998, the AFS portfolio constituted 25.2 percent of the total investment
security portfolio. At March 31, 1998, the net after-tax unrealized gain in
the AFS portfolio included in stockholders' equity was $492,000, a reduction
of $193,000 from the unrealized gain included in stockholders' equity at
December 31, 1997. Future investment activity is difficult to predict, as it
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<PAGE>
is dependent upon loan and deposit trends.
As previously indicated, total loans increased $12,008,000 to
$470,642,000 as of March 31, 1998, from $458,634,000 at December 31, 1997.
Loan growth is net of loans reclassified to other real estate. The Company
continues to experience good loan demand, especially in commercial loans.
Commercial loans at March 31, 1998, increased $8,917,000 or 3.3 percent from
the level at December 31, 1997. Retail loans at March 31, 1998, increased 1.6
percent from December 31, 1997. Real estate loans (excluding mortgages
held-for-sale) increased 1.8 percent from December 31, 1997. The balances in
the real estate loan portfolio are impacted by the sale of real estate
mortgages in the secondary market and the level of refinance and new mortgage
activity in the existing rate environment.
The Company had 59.9 percent of its loans concentrated in commercial
loans at March 31, 1998, and 59.5 percent at December 31, 1997. Traditionally,
this type of lending may have more credit risk than other types of lending.
This is attributed to the fact that individual commercial loans are generally
larger than residential real estate and retail loans, and because the type of
borrower and purpose of commercial loans are not as homogeneous as with
residential and retail customers. The Company manages this risk by pricing to
the perceived risk of each individual credit, and by diversifying the
portfolio by customer, product, industry and geography. Customer
diversification is accomplished through an administrative loan limit of
$7,500,000. Product diversification is accomplished by offering a wide variety
of financing options. Management reviews the loan portfolios to ensure loans
are diversified by industry. The loan portfolios are distributed throughout
the Company's principal trade area, which encompasses fourteen counties in
Indiana. Other than loans disclosed elsewhere in this filing as past-due,
nonaccrual or restructured, the Company is not aware of any loans classified
for regulatory purposes at March 31, 1998, that are expected to have a
material impact on the Company's future operating results, liquidity or
capital resources. The Company is not aware of any material credits in which
there is serious doubt as to the borrower's ability to comply with the loan
repayment terms, other than those disclosed as past due, nonaccrual or
restructured.
The Company continues to actively serve the mortgage needs of its CRA
defined market area by originating both conforming and nonconforming real
estate mortgages. During the first three months of 1998, the Company
originated mortgages for sale in the secondary market totaling $12,589,000.
This program of mortgage sales continues to produce the liquidity needed to
meet the mortgage needs of the markets served by the Company, and to generate
a long-term servicing portfolio. As a part of the CRA commitment to making
real estate financing available in all markets, the Company continues to
originate non-conforming loans which are held-to-maturity or prepayment.
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<PAGE>
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
restructurings totaled $1,352,000 at March 31, 1998, as compared to $1,377,000
at December 31, 1997. The loans classified as troubled debt restructurings at
March 31, 1998, are performing in accordance with the modified terms. At March
31, 1998, there were no loans that would be considered impaired as defined in
SFAS Nos. 114 and 118.
Based upon state banking regulations, the Company's March 31, 1998 legal
loan limit was approximately $9,105,000. The legal loan limit will continue to
increase as the Company's combined equity and allowance for loan losses
continues to increase. At its January 13, 1998, meeting, the Company's Board
of Directors increased the Company's policy limit by $3,000,000, to $7,500,000
for any one borrower. An administrative loan limit of $7,500,000 indicates the
Company's commitment to meet the credit needs of the communities it serves.
As noted above, for the first three months of 1998, deposits have been
growing faster than loans, partially due to the assumptions of deposits in the
first quarter of 1998. Demand deposits have increased $6,178,000, other
transaction accounts have decreased $9,310,000 and time deposits have
increased $60,637,000 for a net increase of $57,505,000. During this same
period, total loans have increased $12,008,000. As a result of these loan and
deposit trends, the Company's average daily loans/deposits ratio amounted to
69.8 percent at March 31, 1998, a decrease from 77.2 percent at year-end 1997.
The Company's average daily loans/total deposits and repurchase agreements
ratio amounted to 66.3 percent at March 31, 1998. This is a decrease from 72.8
percent at year-end 1997.
The Company's primary market risk exposure is interest rate risk. The
Company does not have a material exposure to foreign currency exchange risk,
does not own any derivative financial instruments and does not maintain a
trading portfolio. The Company, through its Asset/Liability Committee (ALCO),
manages interest rate risk by monitoring both its GAP position and the
computer simulated earnings impact of various rate scenarios. The Company then
modifies its long-term risk by attempting to generate the type of loans,
investments, and deposits that currently fit ALCO needs. The current long-term
guideline approved by the Board of Directors defines a neutral rate
sensitivity ratio (GAP/Total Assets) as plus or minus 20 percent. However, the
ALCO is authorized to manage this ratio outside these limits on a short-term
basis, as the committee's expectation of interest rates dictates. Management
has estimated that, as of March 31, 1998, the Company's GAP/Total Assets
ratios were (6.8) percent, (9.9) percent, and (10.8) percent for the three,
six, and twelve month time periods, respectively. For this analysis, savings
accounts and demand deposit accounts have been assumed to be repriceable
beyond twelve months, and therefore are not included as repriceable
-14-
<PAGE>
liabilities in each of these ratios. The December 31, 1997, three, six, and
twelve month GAP ratios were (6.3) percent, (7.3) percent, and (9.6) percent,
respectively.
Management supplements the GAP analysis with a computer simulation
approach to manage the interest rate risk of the Company. This computer
simulation analysis measures the net interest income impact of a 300 basis
point change, both up and down, in interest rates during the next 12 months.
If the change in net interest income under either scenario is less than 3
percent of primary capital, the balance sheet structure is considered to be
within acceptable risk levels. At March 31, 1998, the Company's potential
pretax exposure was well within the Company's policy limit. This policy was
last reviewed and approved by the Board of Directors in May, 1997.
The following table provides information about the Company's financial
instruments used for purposes other than trading that are sensitive to changes
in interest rates. For loans, securities, and liabilities with contractual
maturities, the table presents principal cash flows and related
weighted-average interest rates by contractual maturities as well as the
Company's historical experience of the impact of interest-rate fluctuations on
the prepayment of residential and home equity loans and mortgage-backed
securities. For core deposits (demand deposits, interest-bearing checking,
savings and money market deposits) that have no contractual maturity, the
table presents principal cash flows and, as applicable, related
weighted-average interest rates based upon the Company's historical
experience, management's judgment and statistical analysis, as applicable,
concerning their most likely withdrawal behaviors. Weighted-average variable
rates are based upon rates existing at the reporting date.
(Intentionally left blank)
-15-
<PAGE>
<TABLE>
QUANTITATIVE MARKET RISK DISCLOSURE
<CAPTION>
Principal/Notional Amount Maturing in:
(Dollars in thousands) Fair
---------------------------------------------------------------------------- Value
1999 2000 2001 2002 2003 Thereafter Total 3/31/98
--------- --------- --------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate loans $ 14,382 $ 21,407 $ 24,669 $ 41,827 $ 41,558 $ 45,571 $ 189,414 $ 183,881
Average interest rate 8.87% 9.24% 9.43% 9.00% 8.89% 8.10% 8.83%
Variable interest rate loans $ 104,675 $ 31,711 $ 11,959 $ 27,542 $ 23,315 $ 86,163 $ 285,365 $ 287,219
Average interest rate 9.33% 9.20% 9.70% 9.35% 9.39% 8.48% 9.08%
Fixed interest rate securities $ 8,402 $ 15,246 $ 9,823 $ 19,265 $ 11,020 $ 204,948 $ 268,704 $ 271,244
Average interest rate 5.21% 6.00% 6.75% 7.24% 6.32% 6.61% 6.57%
Variable interest rate securities $ 5,966 $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,966 $ 5,964
Average interest rate 6.63% 6.63%
Other interest-bearing assets $ 14,465 $ 0 $ 0 $ 0 $ 0 $ 0 $ 14,465 $ 14,465
Average interest rate 5.55% 5.55%
Rate sensitive liabilities:
Non-interest bearing checking $ 5,123 $ 4,581 $ 826 $ 791 $ 1,152 $ 86,172 $ 98,645 $ 98,645
Average interest rate
Savings & interest bearing checking $ 8,959 $ 8,094 $ 7,182 $ 6,527 $ 5,227 $ 81,606 $ 117,595 $ 117,595
Average interest rate 2.55% 2.55% 2.55% 2.55% 2.55% 2.55% 2.55%
Time deposits $ 323,476 $ 86,285 $ 27,010 $ 8,705 $ 5,850 $ 2,931 $ 454,257 $ 455,388
Average interest rate 5.44% 5.85% 5.80% 5.60% 5.52% 5.85% 5.55%
Fixed interest rate borrowings $ 81,332 $ 6,849 $ 0 $ 0 $ 0 $ 22,028 $ 110,209 $ 110,352
Average interest rate 5.08% 5.91% 9.13% 5.94%
Variable interest rate borrowings $ 0 $ 10,000 $ 0 $ 0 $ 0 $ 0 $ 10,000 $ 9,996
Average interest rate 5.65% 5.65%
</TABLE>
-16-
<PAGE>
The Company is a member of the FHLB of Indianapolis. Membership has
enabled the Company to participate in the housing programs sponsored by the
FHLB, thereby enhancing the Company's ability to offer additional programs
throughout its trade area. At its meeting in March, 1996, the Board of
Directors of the Company passed a resolution authorizing the Company to borrow
up to $50 million under the FHLB program. As of March 31, 1998, the borrowings
from the FHLB totaled $25,350,000 with $10,000,000 due April 27, 1998,
$4,000,000 due December 7, 1998, $10,000,000 due December 28, 1998, $1,300,000
due June 24, 2003 and $50,000 with annual payments maturing on January 15,
2018. In the second quarter of 1998, the $10,000,000 due April 27, 1998, was
renewed for one year at the same terms as the original borrowing. All
borrowings are collateralized by residential real estate mortgages. Membership
in the FHLB requires an equity investment in FHLB stock. The amount required
is computed annually, and is based upon a formula that considers the Company's
total investment in residential real estate loans, mortgage-backed securities
and any FHLB advances outstanding at year-end. The Company's investment in
FHLB stock at March 31, 1998, was $2,844,000.
As of March 31, 1998, the principal balance of the Company's subordinated
debentures was $20,619,000. The principal balance of the subordinated
debentures less the unamortized issuance costs constitute the guaranteed
preferred beneficial interests in the Company's subordinated debentures.
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banks maintain an 8.0 percent Tier II risk based
capital ratio. The FDIC has also established definitions of `well capitalized'
as a 5.0 percent Tier I leverage capital ratio, a 6.0 percent Tier I risk
based capital ratio and a 10.0 percent Tier II risk based capital ratio. As of
March 31, 1998, the Company's ratios were 6.3 percent, 10.0 percent and 11.7
percent, respectively, excluding the SFAS No. 115 adjustment. These are
comparable to the ratios of 6.7 percent, 10.5 percent and 11.6 percent
reported at December 31, 1997, and the ratios of 6.4 percent, 9.9 percent and
11.1 percent reported at March 31, 1997. The March 31, 1998 and December 31,
1997 ratios include in the Tier I capital the maximum amount of the trust
preferred securities allowed by regulations. Current regulations limit the
amount of trust preferred securities included in Tier I capital to the greater
of the amount of the preferred securities or 25 percent of the total Tier I
capital. All ratios continue to be above `well capitalized' levels.
The Company was examined by the Indiana Department of Financial
Institutions (DFI) as of March 31, 1997, in May, 1997. The Company was also
examined by the FDIC as of March 31, 1996, in September, 1996. Management is
not aware of any regulatory recommendations that if implemented would have a
material effect on liquidity, capital or results of operations.
Total stockholders' equity increased $1,273,000 or 2.6 percent from
December 31, 1997 to $49,529,000 at March 31, 1998. Net income of $2,002,000,
-17-
<PAGE>
less cash dividends paid of $435,000, less the decrease in the accumulated
comprehensive income of $193,000, less the cost of the treasury stock acquired
of $101,000, comprised this increase.
Over the last five years the Company has been growing at an approximate
rate of 18 percent per year. Total assets have grown from $364,580,000 at
March 31, 1993, to $845,717,000 at March 31, 1998. This is an increase of
$481,137,000 or 132.0 percent which equates to an 18.3 percent rate of growth
per year. Approximately 54 percent of this growth is due to acquisitions in
1993, 1995, 1997 and 1998. The remaining 46 percent is a result of growth of
acquired offices, previously existing offices, and new offices constructed.
Stockholders' equity has increased from $24,926,000 to $49,529,000 for the
same time period. That is an increase of $24,603,000 or 98.7 percent which
equates to a 14.7 percent rate of growth per year. Net income for the three
months ended March 31, 1993, compared to the net income for the same period of
1998, increased $653,000 or 48.4 percent from $1,349,000 to $2,002,000. The
income for March 31, 1993 included $325,000 for a required change in
accounting for income taxes. Excluding the amount for the change in
accounting, net income increased $978,000 or 95.5 percent. From March 31,
1993, to March 31, 1998, the number of Lake City Bank offices increased from
20 to 41. This growth has been funded through results of operation, issuance
of trust preferred securities and existing capital. There are no guarantees
that past rates of growth will be continued in future periods.
(Intentionally left blank)
-18-
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
For the three month period ended March 31, 1998, total interest and
dividend income increased $2,546,000 or 20.5 percent to $14,946,000, from
$12,400,000 for the first quarter of 1997. Daily average earning assets for
the first quarter of 1998 increased to $739,186,000, a 21.3 percent increase
over the same period in 1997. On a dollar basis, the growth in earning assets
was primarily in loans, with the majority of loan growth in the commercial
portfolio. However, the average daily balance of the investment portfolio grew
at a faster rate than other earning assets. The tax equivalent yields on
average earning assets decreased by 3 basis points for the three month period
ended March 31, 1998, when compared to the same period of 1997.
The Company's loan portfolio yield increased 1 basis point between the
first quarter of 1998 and the first quarter of 1997. The average daily loan
balances increased 18.0 percent when comparing these same quarters, with the
largest increase in the commercial loan portfolio which is mostly variable
rate. The increase in the average daily loan balances combined with the
increase in the loan yield resulted in a $1,561,000 increase in interest and
fees on loans for the first three months of 1998 compared to the same months
of 1997.
In comparing these same time periods, the yield on the investment
portfolio increased 2 basis points. The average daily balances in the
investment portfolio increased at a faster rate, 27.5 percent, than the loan
portfolio. This resulted in the slight reduction in the yield on average
earning assets since the investment portfolio has a lower yield than the loan
portfolio. The increase in the investment portfolio is a result of the cash
inflows from deposits assumed through recent acquisitions being greater than
the loans acquired. The majority of funds received from these acquisitions
were invested in mortgage-backed securities and the remaining funds received
were invested in municipal securities. As additional high quality loans are
made, this will impact the asset mix and may improve the yield on earning
assets.
Total security income amounted to $4,257,000 for the three month period
ended March 31, 1998. This compares to the $3,300,000 recorded for the same
period in 1997. This $957,000 increase in income reflects the increase in
average daily balances and the slight increase in portfolio yields.
Income from short-term investments amounted to $114,000 for the three
month period ended March 31, 1998. This compares to $86,000 for the same
period in 1997. This increase is the result of higher balances being
maintained in short-term instruments plus a 29 basis point increase in the
average daily tax equivalent yield during the first three months of 1998, as
compared to the similar period in 1997.
-19-
<PAGE>
Total interest expense increased $1,942,000 or 30.3 percent to $8,356,000
for the three month period ended March 31, 1998, from $6,414,000 for the three
month period ended March 31, 1997. This is a result of the overall growth of
deposits (including growth in existing offices and growth resulting from
acquisitions), the change in the deposit mix and the trust preferred
securities issued during 1997. On an average daily basis, total deposits
(including demand deposits) increased 30.3 percent for the three month period
ended March 31, 1998, as compared to the similar period ended March 31, 1997.
When comparing these same periods, the average daily balances of the demand
deposit accounts increased $18,071,000, while the average daily balances of
savings and transaction accounts increased $9,638,000 and $9,157,000,
respectively. The average daily balance of time deposits, which pay a higher
rate of interest as compared to demand deposit and transaction accounts,
increased $111,906,000. On an average daily basis, total deposits (including
demand deposits) and purchased funds increased 24.6 percent for the three
month period ended March 31, 1998, as compared to the three month period ended
March 31, 1997. The Company's daily cost of funds during the three month
period ended March 31, 1998, increased 19 basis points, as compared to the
same period of 1997. The Company's daily cost of funds also reflects the
impact of 9 percent trust preferred securities issued in August, 1997. The
interest related to these securities is included in interest expense on
long-term debt.
The net effect of all factors affecting total interest and dividend
income and total interest expense was to increase net interest income. For the
three month period ended March 31, 1998, net interest income totaled
$6,590,000, an increase of 10.1 percent or $604,000 over the first three
months of 1997.
The variation in net interest income reflects both local and national
economic conditions, local competition and the ALCO's efforts to manage the
interest margin and asset growth.
Provision for Loan Losses
It is the policy of the Company to maintain the allowance for loan losses
at a level that is deemed appropriate based upon loan loss experience, the
nature of the portfolio, the growth expected for the portfolio and the
evaluation of the economic outlook for the current year and subsequent years.
Special consideration is given to nonperforming and nonaccrual loans as well
as factors that management feel deserve recognition during the entire life of
the portfolio. The Company maintains a quarterly loan review program designed
to provide reasonable assurance that the allowance is maintained at an
appropriate level and that changes in the status of loans are reflected in the
financial statements in a timely manner. The adherence to this policy may
result in fluctuations in the provision for loan losses. Consequently, the
increase in net interest income before provision for loan losses, discussed
above, may not necessarily flow through to the net interest income after
-20-
<PAGE>
provision for loan losses.
The process of identifying credit losses that may occur based upon
current circumstances is subjective. Therefore, management 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 (primarily in the
commercial loan portfolio) 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
loan 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 higher in 1998, as compared to
1997. The provision amounted to $120,000 for the three month period ended
March 31, 1998, and $60,000 for the three month period ended March 31, 1997.
These provisions reflect the modest levels of past due accruing loans (90 days
or more) and nonaccrual loans over the same periods. These levels of
non-performing loans reflect both the general economic conditions that have
promoted growth and expansion in the Company's trade area during the last
several years, and a credit risk management strategy that promotes
diversification.
Loans delinquent 30 days or more included in the accompanying financial
statements as accrual loans as of March 31, 1998, totaled approximately
$1,552,000. At March 31, 1998, there were loans totaling $914,000 on
nonaccrual. At December 31, 1997, there were $2,870,000 in loans delinquent 30
days or more included as accruing loans in the financial statements and
$1,058,000 in nonaccrual loans.
At March 31, 1998, 53.5 percent of the Company's allowance for loan
losses was classified as unallocated as compared to 57.7 percent classified as
unallocated at December 31, 1997. To a large extent, this reflects the growth
in total loans with the concentration of growth in the commercial loan
-21-
<PAGE>
portfolio. With the commercial loan growth and the expansion into new markets,
management believes that it is prudent to continue to provide for loan losses,
due to the inherent credit risk involved with the commercial loan portfolio.
As part of the loan review process, management also 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, `Accounting by Creditors
for Impairment of a Loan'. As of March 31, 1998, no loans were considered
impaired.
(Intentionally left blank)
-22-
<PAGE>
Following is a summary of the loan loss experience for the three months
ending March 31, 1998, and the year ending December 31, 1997.
March 31, December 31,
1998 1997
------------- -------------
(in thousands)
Amount of loans outstanding $ 470,642 $ 458,634
------------- -------------
Average daily loans outstanding for the
period $ 463,281 $ 414,033
------------- -------------
Allowance for loan losses at the
beginning of the period $ 5,308 $ 5,306
Charge-offs
Commercial 9 99
Real estate 0 33
Installment 88 190
Credit card and personal lines of credit 21 37
------------- -------------
Total charge-offs 118 359
Recoveries
Commercial 17 18
Real estate 0 0
Installment 16 66
Credit card and personal lines of credit 2 8
------------- -------------
Total recoveries 35 92
------------- -------------
Net charge-offs (recoveries) 83 267
Provision charged to expense 120 269
------------- -------------
Allowance for loan losses at the end of
the period $ 5,345 $ 5,308
============= =============
Ratio of annualized net charge-offs during the period to average daily loans
during the period:
Commercial (0.01)% 0.02 %
Real estate 0.00 % 0.01 %
Installment 0.06 % 0.03 %
Credit card and personal credit lines 0.02 % 0.01 %
------------- -------------
Total 0.07 % 0.07 %
============= =============
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<PAGE>
Net interest income after provision for loan losses totaled $6,470,000
for the three month period ended March 31, 1998. This represents an increase
of 9.2 percent over the same period ended March 31, 1997.
Noninterest Income
Total noninterest income increased $841,000 or 52.6 percent to $2,440,000
for the three month period ended March 31, 1998, from $1,599,000 recorded for
the three month period ended March 31, 1997.
Trust fees decreased $44,000 or 12.3 percent to $315,000 for the three
month period ended March 31, 1998, as compared to $359,000 for the first three
months of 1997. Fee increases were recorded in bond issue fees and
testamentary trust fees with decreases in living trust fees and employee
benefit plan fees.
Service charges on deposit accounts increased 20.0 percent or $148,000
during the three month period ended March 31, 1998, totaling $887,000, as
compared to the same period in 1997. Increases in fees on the LCB Club account
(the Company's low cost checking account service), business checking account
fees and overdraft fees comprised the majority of the increase.
Other income (net) consists of normal recurring fee income, as well as
other income that management classifies as nonrecurring. Other income (net)
increased 104.0 percent or $413,000 to $810,000 for the three month period
ended March 31, 1998, as compared to the same period in 1997. Significant
increases were in discount brokerage income, and ATM fees. In addition to
these increases, a gain on the sale of fixed assets of approximately $63,000
was recorded in other income for the sale of the office on North Main Street,
Columbia City, Indiana. In December, 1997, an office was acquired at 601
Countryside Drive, Columbia City, as one of the six offices acquired from Key
Bank. The decision was to consolidate the offices in that city and sell the
office on North Main Street. This sale was accomplished during the first
quarter of 1998.
The profits from the sale of mortgages during the three month period
ended March 31, 1998, totaled $175,000, as compared to $104,000 during the
same period in 1997. This increase over the prior period is a reflection of
the increase in the volume of mortgages sold during the first three months of
1998 as compared to the first three months of 1997. During the first three
months of 1998 mortgages totaling $9,967,000 were sold on the secondary market
and during the first three months of 1997 mortgages totaling $5,045,000 were
sold.
For the three month period ended March 31, 1998, there were gains on
sales of securities totaling $253,000 as compared to no security gains or
losses for the three month period ended March 31, 1997. The security gains in
-24-
<PAGE>
the first three months of 1998 were the result of sales of securities from the
available-for-sale portfolio.
Noninterest Expense
Noninterest expense increased $1,378,000 or 29.6 percent to $6,034,000
for the three month period ended March 31, 1998, as compared to $4,656,000 for
the first three months of 1997.
For the three months ended March 31, 1998, salaries and employee benefits
increased to $3,299,000, a $759,000 increase or 29.9 percent as compared to
the first three months of 1997. These increases reflect staffing of the eight
offices opened during 1997, the two offices opened during the first quarter of
1998, as well as normal salary increases. Total employees increased to 454 at
March 31, 1998, from 375 at March 31, 1997.
For the three month period ended March 31, 1998, occupancy and equipment
expenses were $878,000, a $95,000 increase or 12.1 percent from the same
period one year ago. This three month performance reflects the ordinary timing
differences incurred with these types of expenses, as well as additional
occupancy expense related to the new locations added. These expenses are
expected to continue to increase in 1998 with the Company's continued growth
and expansion.
For the three month period ended March 31, 1998, other expenses totaled
$1,857,000 as compared to $1,333,000 during the same period in 1997. This is
an increase of 39.3 percent or $524,000. Increases were recorded in business
development expense, data processing expense, courier expense, amortization of
intangible assets and telephone, supplies and postage expense. Business
development expense increased $53,000 or 22.2 percent, data processing expense
increased $55,000 or 18.6 percent, courier expense increased $37,000 or 87.4
percent, and telephone, supplies and postage increased $53,000 or 16.0 percent
when comparing the first three months of 1998 to the same period of 1997. The
amortization of intangible assets totaled $215,000 and related to the offices
acquired during the fourth quarter of 1997 and the first quarter of 1998.
Income Before Income Tax Expense
As a result of the above factors, income before income tax expense
increased to $2,876,000 for the first three months of 1998, as compared to
$2,869,000 for the same period in 1997. This is an increase of $7,000 or .2
percent.
Income Tax Expense
Income tax expense decreased to $874,000 for the first three months of
1998, as compared to $1,042,000 for the same period in 1997. This is a
$168,000 or 16.1 percent decrease. This decrease is a result of adjustments in
deferred tax assets and additional municipal income.
-25-
<PAGE>
The combined State franchise tax expense and the Federal income tax
expense as a percent of income before income tax expense decreased to 30.4
percent during the first three months of 1998, as compared to 36.3 percent
during the same period in 1997. Currently the State franchise tax rate is 8.5
percent and is a deductible expense for computing Federal income tax.
Net Income
As a result of all factors indicated above, net income increased to
$2,002,000 for the first three months of 1998, an increase of $175,000 or 9.6
percent from the $1,827,000 recorded over the same period in 1997. Basic
earnings per share for the first three months of 1998 were $.69 per share as
compared to $.63 per share for the first three months of 1997.
-26-
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1998
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
There were no submissions of matters to a vote by security holders during
the quarter ended March 31, 1998.
At the annual meeting of shareholders held on April 14, 1998, the
shareholders voted on the re-election of the four Class A Directors and the
following five proposals.
1. Proposal to increase capital stock from 10,000,000 shares to
90,000,000 shares.
2. Proposal to delete Director's residency requirement from the
Articles of Incorporation.
3. Proposal to delete super-majority voting from Article of
Incorporation.
4. Proposal to add consideration of community factors to Article of
Incorporation.
5. Proposal to approve Lakeland Financial Corporation 1997 Share
Incentive Plan.
All Class A Directors nominated for re-election received more than the
required number of votes for approval and were therefore re-elected. All five
proposals also received more than the required numbers of votes and were
thereby approved.
-27-
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1998
Part II - Other Information
Item 5 - Other Information
Mr. J. Alan Morgan retired from the Board of Directors of Lakeland
Financial Corporation and the Board of Directors of Lake City Bank. No
successor was named.
The Board of Directors announced Mr. Michael L. Kubacki is joining
Lakeland Financial Corporation and Lake City Bank, and is expected to begin
his duties in July, 1998. Mr. Kubacki has been appointed President of Lakeland
Financial Corporation and President of Lake City Bank, succeeding Mr. R.
Douglas Grant who continues to serve as Chairman and Chief Executive Office.
-28-
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1998
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
quarter ending March 31, 1998. A Form S-8 was filed by the Registrant on April
15, 1998.
-29-
<PAGE>
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
March 31, 1998
Part II - Other Information
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAKELAND FINANCIAL CORPORATION
(Registrant)
Date: May 12, 1998 R. Douglas Grant
R. Douglas Grant - President
Date: May 12, 1998 Terry M. White
Terry M. White - Secretary/Treasurer
-30-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FIRST QUARTER
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 37,087
<INT-BEARING-DEPOSITS> 268
<FED-FUNDS-SOLD> 14,197
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,472
<INVESTMENTS-CARRYING> 205,815
<INVESTMENTS-MARKET> 207,536
<LOANS> 474,779
<ALLOWANCE> 5,345
<TOTAL-ASSETS> 845,717
<DEPOSITS> 670,497
<SHORT-TERM> 74,181
<LIABILITIES-OTHER> 6,883
<LONG-TERM> 44,627
0
0
<COMMON> 1,453
<OTHER-SE> 48,076
<TOTAL-LIABILITIES-AND-EQUITY> 845,717
<INTEREST-LOAN> 10,575
<INTEREST-INVEST> 4,257
<INTEREST-OTHER> 114
<INTEREST-TOTAL> 14,946
<INTEREST-DEPOSIT> 6,594
<INTEREST-EXPENSE> 8,356
<INTEREST-INCOME-NET> 6,590
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 253
<EXPENSE-OTHER> 6,034
<INCOME-PRETAX> 2,876
<INCOME-PRE-EXTRAORDINARY> 2,002
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,002
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 3.62
<LOANS-NON> 914
<LOANS-PAST> 382
<LOANS-TROUBLED> 1,352
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,308
<CHARGE-OFFS> 118
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 5,345
<ALLOWANCE-DOMESTIC> 2,484
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,861
</TABLE>
