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 September 30, 2000
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 October 31, 2000
Common Stock, No Par Value 5,784,105
<PAGE>
LAKELAND FINANCIAL CORPORATION
Form 10-Q Quarterly Report
Table of Contents
PART I.
Page Number
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
PART II.
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 33
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 33
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 33
Item 4. Submission of Matters to a Vote of Security Holders . . . 33
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 33
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 33
Form 10-Q Signature Page . . . . . . . . . . . . . . . . . . . . . 34
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(in thousands)
(Page 1 of 2)
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS Cash and cash equivalents:
Cash and due from banks $ 47,770 $ 59,321
Short-term investments 912 3,783
------------ ------------
Total cash and cash equivalents 48,682 63,104
Securities available-for-sale:
U. S. Treasury and government agency securities 37,842 34,614
Mortgage-backed securities 201,856 192,569
State and municipal securities 33,705 32,714
Other debt securities 12,282 11,524
------------ ------------
Total securities available-for-sale
(carried at fair value) 285,685 271,421
Real estate mortgages held-for-sale 708 862
Loans:
Total loans 695,232 653,898
Less: Allowance for loan losses 6,949 6,522
------------ ------------
Net loans 688,283 647,376
Land, premises and equipment, net 26,869 27,808
Accrued income receivable 6,653 5,420
Intangible assets 9,849 10,522
Other assets 13,274 13,330
------------ ------------
Total assets $ 1,080,003 $ 1,039,843
============ ============
(Continued)
</TABLE>
1
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(in thousands)
(Page 2 of 2)
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
<S> <C> <C>
Noninterest bearing deposits $ 136,250 $ 136,595
Interest bearing deposits 666,887 611,648
------------ ------------
Total deposits 803,137 748,243
Short-term borrowings:
Federal funds purchased 18,850 15,000
U.S. Treasury demand notes 4,000 4,000
Securities sold under agreements
to repurchase 114,982 121,374
Other borrowings 40,000 55,000
------------ ------------
Total short-term borrowings 177,832 195,374
Accrued expenses payable 7,116 4,760
Other liabilities 1,289 1,535
Long-term borrowings 11,443 16,473
Guaranteed preferred beneficial interests in
Company's subordinated debentures 19,284 19,264
------------ ------------
Total liabilities 1,020,101 985,649
SHAREHOLDERS' EQUITY
Common stock: No par value, 90,000,000 shares authorized,
5,813,984 shares issued and 5,788,992 outstanding as of
September 30, 2000, and 5,813,984 shares issued and 5,792,182
outstanding at December 31, 1999 1,453 1,453
Additional paid-in capital 8,537 8,537
Retained earnings 54,181 49,422
Accumulated other comprehensive income/(loss) (3,725) (4,797)
Treasury stock, at cost (544) (421)
------------ ------------
Total shareholders' equity 59,902 54,194
------------ ------------
Total liabilities and shareholders' equity $ 1,080,003 $ 1,039,843
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended September 30, 2000, and 1999
(in thousands except for share data)
(Unaudited)
(Page 1 of 2)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
----------------------------
<S> <C> <C> <C> <C>
Interest and fees on loans: Taxable $ 15,752 $ 13,490 $ 45,291 $ 37,669
Tax exempt 33 46 107 135
------------ ------------ ------------ ------------
Total loan income 15,785 13,536 45,398 37,804
Short-term investments 97 40 240 232
Securities:
U.S. Treasury and government agency securities 727 530 2,190 1,756
Mortgage-backed securities 3,228 2,837 9,491 9,014
State and municipal securities 446 575 1,337 2,007
Other debt securities 115 171 320 367
------------ ------------ ------------ ------------
Total interest and dividend income 20,398 17,689 58,976 51,180
INTEREST EXPENSE
----------------
Interest on deposits 8,484 6,787 23,578 20,305
Interest on short-term borrowings 2,559 1,797 7,370 4,934
Interest on long-term debt 607 676 1,916 2,117
------------ ------------ ------------ ------------
Total interest expense 11,650 9,260 32,864 27,356
------------ ------------ ------------ ------------
NET INTEREST INCOME 8,748 8,429 26,112 23,824
-------------------
Provision for loan losses 92 550 707 1,050
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,656 7,879 25,405 22,774
------------------------- ------------ ------------ ------------ ------------
NONINTEREST INCOME
------------------
Trust fees 530 456 1,586 1,286
Service charges on deposit accounts 1,109 1,105 3,304 3,198
Other income (net) 871 865 2,478 2,498
Net gains on the sale of real estate mortgages held-for-sale 128 381 366 1,136
Net securities gains (losses) 0 481 0 1,340
------------ ------------ ------------ ------------
Total noninterest income 2,638 3,288 7,734 9,458
NONINTEREST EXPENSE
-------------------
Salaries and employee benefits 4,257 4,089 11,881 11,790
Occupancy and equipment expense 1,277 1,402 3,866 4,010
Other expense 2,471 2,456 7,272 6,859
------------ ------------ ------------ ------------
Total noninterest expense 8,005 7,947 23,019 22,659
(Continued)
</TABLE>
3
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended September 30, 2000, and 1999
(in thousands except for share data)
(Unaudited)
(Page 2 of 2)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE 3,289 3,220 10,120 9,573
--------------------------------
Income tax expense 974 1,128 3,102 3,252
------------ ------------ ------------ ------------
NET INCOME $ 2,315 $ 2,092 $ 7,018 $ 6,321
---------- ============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING (Note 2) 5,813,984 5,813,984 5,813,984 5,813,984
BASIC EARNINGS PER COMMON SHARE $ 0.40 $ 0.36 $ 1.21 $ 1.09
------------------------------- ============ ============ ============ ============
DILUTED EARNINGS PER COMMON SHAE SHARE $ 0.40 $ 0.36 $ 1.21 $ 1.09
-------------------------------------- ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(in thousands)
(unaudited)
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
Common Stock:
<S> <C> <C> <C> <C>
Balance at beginning of the period $ 1,453 $ 1,453 $ 1,453 $ 1,453
------- ------- ------- -------
Balance at end of the period 1,453 1,453 1,453 1,453
Paid-in Capital:
Balance at beginning of the period 8,537 8,537 8,537 8,537
------- ------- ------- -------
Balance at end of the period 8,537 8,537 8,537 8,537
Retained Earnings:
Balance at beginning of the period 52,618 46,606 49,422 43,652
Net Income 2,315 $ 2,315 2,092 $ 2,092 7,018 $ 7,018 6,321 $ 6,321
Cash dividends declared ($.13 and $.11
per share for 2000 and 1999) (752) (637) (2,259) (1,912)
------- ------- ------- -------
Balance at end of the period 54,181 48,061 54,181 48,061
Accumulated Other Comprehensive Income/(Loss):
Balance at beginning of the period (5,414) (1,972) (4,797) 1,848
Unrealized gain (loss) on available-for-
sale securities arising during the period 1,689 (1,256) 1,072 (4,563)
Reclassification adjustments for
accumulated (gains) losses included
in net income 0 (296) 0 (809)
------- ------- ------- -------
Other comprehensive income/(loss)(net of taxes
of $1,108, $[1,018], $703 and $[3,524]) 1,689 1,689 (1,552) (1,552) 1,072 1,072 (5,372) (5,372)
------- ------- ------- ------- ------- ------- ------- -------
Total comprehensive income $ 4,004 $ 540 $ 8,090 $ 949
Balance at end of the period (3,725) ======= (3,524) ======= (3,725) ======= (3,524) =======
Treasury Stock:
Balance at beginning of the period (478) (379) (421) (334)
Acquisition of treasury stock (66) (42) (123) (87)
------- ------- ------- -------
Balance at end of the period (544) (421) (544) (421)
------- ------- ------- -------
Total Shareholders' Equity $59,902 $54,106 $59,902 $54,106
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
(Unaudited)
(Page 1 of 2)
<CAPTION>
2000 1999
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,018 $ 6,321
------------ ------------
Adjustments to reconcile net income to net cash from operating activites:
Depreciation 1,829 1,781
Provision for loan losses 707 1,050
Amortization of intangible assets 693 718
Amortization of mortgage servicing rights 179 202
Loans originated for sale (15,897) (55,962)
Net gain on sale of loans (366) (1,136)
Proceeds from sale of loans 16,287 60,014
Net (gain) loss on sale of premises and equipment (2) 11
Net gain on sale of securities available-for-sale 0 (1,340)
Net securities amortization 761 1,594
Increase (decrease) in taxes payable (3,508) 310
Increase in income receivable (1,233) (24)
Increase in accrued expenses payable 5,697 146
Increase in other assets (530) (1,144)
Decrease in other liabilities (246) (40)
------------ ------------
Total adjustments 4,371 6,180
------------ ------------
Net cash from operating activities 11,389 12,501
------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale 0 44,428
Proceeds from maturities and calls of securities available-for-sale 30,417 53,539
Purchases of securities available-for-sale (43,667) (55,649)
Net increase in total loans (41,613) (97,941)
Proceeds from sales of land, premises and equipment 436 83
Purchases of land, premises and equipment (1,324) (2,765)
------------ ------------
Net cash from investing activities (55,751) (58,305)
------------ ------------
(Continued)
</TABLE>
6
<PAGE>
<TABLE>
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
(Unaudited)
(Page 2 of 2)
<CAPTION>
2000 1999
------------ ------------
Cash flows from financing activities:
<S> <C> <C>
Net increase (decrease) in total deposits $ 54,894 $ (18,353)
Proceeds from short-term borrowings 17,083,485 15,351,351
Payments on short-term borrowings (17,101,027) (15,295,671)
Proceeds from long-term borrowings 0 111
Payments on long-term borrowings (5,030) (5,025)
Dividends declared (2,259) (1,912)
Purchase of treasury stock (123) (87)
------------ ------------
Net cash from financing activities 29,940 30,414
------------ ------------
Net increase (decrease) in cash and cash equivalents (14,422) (15,390)
Cash and cash equivalents at beginning of the period 63,104 61,508
------------ ------------
Cash and cash equivalents at end of the period $ 48,682 $ 46,118
============ ============
Cash paid during the period for:
Interest $ 30,913 $ 27,781
============ ============
Income taxes $ 3,642 $ 2,891
============ ============
Loans transferred to other real estate $ 0 $ 185
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(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 inter-company balances and
transactions have been eliminated in consolidation. Also included is the
Bank's wholly-owned subsidiary, LCB Investments Limited (LCB Investments).
The consolidated financial statements have been prepared by the
Company, without audit and 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.
It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's latest annual report to shareholders 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 and the disclosures provided.
Results for the periods ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. 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.
The Company formed Lakeland Trust in July 1997. Lakeland Trust issued
$20 million of 9% Cumulative Trust Preferred Securities (Preferred
Securities). 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. The securities are captioned "Guaranteed Preferred Beneficial
Interests in Company's Subordinated Debentures". The Company records
distributions payable on the Preferred Securities as interest expense in its
consolidated statements of income.
8
<PAGE>
LCB Investments is a single purpose, wholly-owned subsidiary of the
Bank that began operation in November 1999. Its principal office is in
Bermuda, and it was formed to manage a portion of the securities portfolio of
the Bank.
NOTE 2. EARNINGS PER SHARE
Basic earnings per common share is based upon weighted-average common
shares outstanding. Diluted earnings per common share shows the dilutive
effect of additional common shares issueable.
The common shares outstanding for the shareholders' equity section of
the consolidated balance sheet at September 30, 2000 reflects the acquisition
of 28,879 shares of Company common stock to offset a liability for a
directors' deferred compensation plan. These shares are treated as outstanding
when computing the weighted-average common shares outstanding for the
calculation of both basic and diluted earnings per share.
A reconciliation of the numerators and denominators of the basic
earnings per common share and the diluted earnings per common share for the
periods ended September 30, 2000 and 1999 follows. All amounts are in
thousands except share data.
9
<PAGE>
<TABLE>
<CAPTION>
For the three months For the nine months
ended Septmeber 30, ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ------------------ ----------------- -----------------
Basic earnings per common share
<S> <C> <C> <C> <C>
Net income $ 2,315 $ 2,092 $ 7,018 $ 6,321
Weighted-average common
shares outstanding 5,813,984 5,813,984 5,813,984 5,813,984
Basic earnings per
common share $ .40 $ .36 $ 1.21 $ 1.09
Diluted earnings per common share
Net income $ 2,315 $ 2,092 $ 7,018 $ 6,321
Weighted-average common
shares outstanding for
basic earnings per
common share 5,813,984 5,813,984 5,813,984 5,813,984
Add: dilutive effect
of assumed exercises
of stock options 23 14 250 14
Average common shares
and dilutive potential
common shares 5,814,007 5,813,998 5,814,234 5,813,998
Diluted earnings per
common share $ .40 $ .36 $ 1.21 $ 1.09
<FN>
Stock options for 353,670 and 298,295 shares of common stock were not considered in computing diluted earnings per
common share for September 30, 2000 and 1999 because they were antidilutive.
</FN>
</TABLE>
10
<PAGE>
NOTE 3. STOCK OPTIONS
The Lakeland Financial Corporation 1997 Share Incentive Plan reserves
600,000 shares of common stock for which Incentive Share Options (ISO) and
Non-Qualified Share Options (NQSO) may be granted to employees of the Company
and its subsidiaries, and NQSOs which may be granted to directors of the
Company. Most options granted under this plan were issued for 10-year periods
with full vesting five years from the date the option was granted. Information
about options granted, exercised and forfeited during 2000 follows:
Number Risk- Stock Fair
of Exercise Free Price Value of
Options Price Rate Volatility Grants
--------- ---------- ---------- ---------- ----------
Outstanding 1/1/00 290,270
Granted 2/8/00 98,150 $ 15.13 6.73% 64.88% $ 7.26
Granted 5/9/00 14,000 $ 14.13 6.79% 65.55% $ 6.72
Granted 6/13/00 89,500 $ 13.50 6.31% 66.77% $ 6.37
Granted 7/11/00 500 $ 12.38 6.13% 157.01% $ 9.27
Granted 9/5/00 15,000 $ 13.50 5.90% 157.10% $ 10.30
Exercised 0
Forfeited 49,350
Outstanding 9/30/00 458,070
The fair values of the options were estimated using an expected life
of 5 years and expected dividends of $.13 per quarter. There were 20,200
options exercisable as of September 30, 2000.
The Company accounts for the stock options under APB 25. Statement of
Financial Accounting Standards (SFAS) No. 123 requires pro forma disclosures
for companies that do not adopt its fair value accounting method for
stock-based compensation. The following pro forma information presents net
income, basic earnings per common share and diluted earnings per common share
had the fair value method been used to measure compensation cost for stock
option plans. No compensation cost was actually recognized for stock options
in 2000 or 1999.
11
<PAGE>
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net income as reported $ 2,315 $ 2,092 $ 7,018 $ 6,321
Pro forma net income $ 2,097 $ 1,972 $ 6,538 $ 5,962
Basic earnings per common
share as reported $ .40 $ .36 $ 1.21 $ 1.09
Diluted earnings per
common share as reported $ .40 $ .36 $ 1.21 $ 1.09
Pro forma basic earnings
per common share $ .36 $ .34 $ 1.12 $ 1.03
Pro forma diluted earnings
per common share $ .36 $ .34 $ 1.12 $ 1.03
NOTE 4. PENSION PLAN CURTAILMENT
On April 1, 2000 the Lake City Bank Pension Plan was frozen. As a
result of this curtailment, a $500,000 gain was recognized in the income
statement for the second quarter of 2000. The gain is included in the salaries
and employee benefits line of the income statement.
12
<PAGE>
NOTE 5. SECURITIES AVAILABLE-FOR-SALE
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
---------- ---------- ----------
(in thousands)
September 30, 2000
U.S. Treasury securities $ 37,842 $ 64 $ (370)
U.S. Government agencies and
corporations 6,362 0 (315)
Mortgage-backed securities 201,659 346 (3,767)
State and municipal securities 33,705 69 (1,780)
Other debt securities 6,117 18 (433)
---------- ---------- ----------
Total securities available-for-sale
at September 30, 2000 $ 285,685 $ 497 $ (6,665)
========== ========== ==========
December 31, 1999
U.S. Treasury securities $ 34,614 $ 60 $ (579)
U.S. Government agencies and
corporations 6,313 0 (380)
Mortgage-backed securities 192,569 51 (3,727)
State and municipal securities 32,714 37 (2,755)
Other debt securities 5,211 0 (651)
---------- ---------- ----------
Total securities available-for-sale
at December 31, 1999 $ 271,421 $ 148 $ (8,092)
========== ========== ==========
13
<PAGE>
The fair value of available-for-sale debt securities by maturity as
of September 30, 2000, 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.
Fair
Value
----------
(in thousands)
Due in one year or less $ 6,007
Due after one year through five years 41,742
Due after five years through ten years 2,076
Due after ten years 34,201
----------
84,026
Mortgage-backed securities 201,659
----------
Total debt securities $ 285,685
==========
NOTE 6. LOANS
September 30, December 31,
2000 1999
------------ ------------
(in thousands)
Commercial and industrial loans $ 417,055 $ 375,421
Agri-business and agricultural loans 46,762 46,661
Real estate mortgage loans 48,206 42,384
Real estate construction loans 3,194 4,488
Installment loans and credit cards 180,015 184,944
------------ ------------
Total loans $ 695,232 $ 653,898
============ ============
Impaired loans $ 825 $ 246
Non-performing loans $ 1,145 $ 500
14
<PAGE>
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
September 30, 2000
OVERVIEW
Lakeland Financial Corporation (the "Company") is the holding company
for Lake City Bank. The Company is headquartered in Warsaw, Indiana and
operates 42 offices in 15 counties in northern Indiana. The Company earned
$7.0 million for the first nine months of 2000, an increase of 11.0% over the
same period last year. During the third quarter of this year, earnings were
$2.3 million, a 10.7% increase versus $2.1 million in the third quarter of
1999. The most substantial impact on earnings came from net interest income,
which increased $2.3 million during the first nine months of the year versus
the comparable period in 1999. The increase occurred in part as a result of
the increase in loans, and by the gradual rise in interest rates, beginning in
July 1999 and continuing during the first nine months of 2000.
Since September 30, 1995, total Company assets have increased 89.9%,
from $568.6 million to $1.080 billion at September 30, 2000, a 13.7% annual
compounded growth rate. This growth was accomplished through continued growth
in existing markets with de-novo branch activity and the existing network of
offices and acquisitions. Shareholders' equity has increased 63.0% from $36.8
million to $59.9 million over the same time period, a 10.3% annual compounded
growth rate. Net income for the nine months ended September 30, 1995, compared
to the net income for the same period of 2000, increased 24.3% from $5.6
million to $7.0 million. From September 30, 1995, to September 30, 2000, the
number of Lake City Bank offices increased from 28 to 42. The capital
necessary to support this growth has been provided through results of
operation, issuance of trust preferred securities and existing capital. It
should be noted that historical rates of growth may not be indicative of
growth in future periods.
Forward-looking Statements
This release may contain forward-looking statements. Forward-looking
statements are identifiable by the inclusion of such qualifications as
expects, intends, believes, may, likely or similar statements or variations of
such terms which express views concerning trends and the future. These forward
looking statements are not historical facts and instead they are expressions
about management's confidence and strategies and management's expectations
about new and existing programs and products, relationships, opportunities,
technology and market conditions. Actual events and results may differ
15
<PAGE>
significantly from those described in such forward-looking statements, due to
changes in the general economic or market conditions, government regulation,
competition or other factors. For additional information about these factors,
please review our filings with the Securities and Exchange Commission.
The Company wishes to caution readers not to place undo reliance on any
such forward-looking statements, which speak only as of the date made, and
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and
regulatory factors, could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially
from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
Assets
Total assets of the Company were $1.080 billion as of September 30,
2000, an increase of $40.2 million, or 3.9%, when compared to $1.040 billion
as of December 31, 1999. Total loans were $695.2 million at September 30,
2000, an increase of $41.3 million, or 6.3%, versus the December 31, 1999
balance. Total securities increased $14.3 million, or 5.3%, to $285.7 million
as of September 30, 2000, versus $271.4 million at December 31, 1999. Earning
assets increased to $975.6 million as of September 30, 2000, an increase of
$52.1 million, or 5.6%, versus the December 31, 1999, total of $923.4 million.
Funding
Total deposits and securities sold under agreements to repurchase
(repurchase agreements) consist of funds generated within the Company's
primary market area. At September 30, 2000, this funding totaled $918.1
million. This represented a $48.5 million, or 5.6%, increase versus December
31, 1999. The increase was primarily in time deposits, which increased $48.3
million, or 9.7%, when compared to the balance at December 31, 1999, and
interest-bearing demand accounts, which increased $6.9 million, or 6.1%,
during the same period. Repurchase agreements decreased $6.4 million, or 5.3%,
when compared to the balance at December 31, 1999, and noninterest-bearing
demand accounts decreased slightly. The repurchase agreements are a
combination of fixed rate contracts and variable rate corporate cash
management accounts.
In addition to these local funding sources, the Company borrows
through the Treasury, Tax and Loan program, federal fund lines with
16
<PAGE>
correspondent banks and advances from the Federal Home Loan Bank of
Indianapolis (FHLB). Including these non-local sources, funding totaled $992.4
million at September 30, 2000, a $32.3 million, or a 3.4%, increase versus
$960.1 million as of December 31, 1999. The primary increase in non-local
funding sources was advances from the FHLB, which are used for short- and
long-term funding needs.
Earning Assets
On an average daily basis, total earning assets increased 6.5% and
7.0%, respectively, for the nine-month and three-month periods ended September
30, 2000, as compared to the same periods in 1999. On an average daily basis,
total deposits and purchased funds increased 7.1% and 6.9%, respectively, for
the nine-month and three-month periods ended September 30, 2000, as compared
to the same periods in 1999.
Investment Portfolio
The Company's available-for-sale portfolio is managed with
consideration given to factors such as the Company's capital levels, growth
prospects, asset/liability structure and liquidity needs. At September 30,
2000, the securities in the available-for-sale portfolio had a four year
average life and a potential for approximately 10% price depreciation in the
event that rates move up 300 basis points. If rates move down 300 basis
points, the average life would be three years with approximately 7% price
appreciation possible. The composition of this portfolio is primarily CMOs and
mortgage pools issued by GNMA, FNMA and FHLMC, which are directly or
indirectly guaranteed by the federal government. As of September 30, 2000, all
mortgage-backed securities were performing in a manner consistent with
management's original expectations. Future investment activity is difficult to
predict, as it is dependent upon loan and deposit trends and other factors.
Loans
The Company had 66.7% of its loans concentrated in commercial loans
at September 30, 2000 versus 64.6% as of December 31, 1999. Traditionally,
this type of lending may have more credit risk than other types of lending
because of the size and diversity of the credits. The Company manages this
risk by adjusting its 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 $8.5 million. Based upon state banking regulations, the Bank's
legal loan limit as of September 30, 2000, was approximately $11.9 million.
Product diversification is accomplished by offering a wide variety of
financing options. Management reviews the loan portfolio to ensure loans are
diversified by industry. The loans in the portfolios are distributed
throughout the Company's principal trade area, which encompasses 15 counties
in Indiana.
17
<PAGE>
The real estate loan portfolio is impacted by secondary market
activity, which is a function of current interest rates and economic
conditions. As interest rates have gradually risen since mid-1999, the level
of new financings and refinancings has declined. Through September 30, 2000,
the Company sold mortgages totaling $15.9 million into the secondary market as
compared to $55.9 million during the same period in 1999. During these same
two periods, loans originated for sale totaled $15.9 million and $53.0
million, respectively. As a part of the Community Reinvestment Act commitment
to making real estate financing available to a variety of customers, the
Company continues to originate non-conforming loans that are held to maturity
or prepayment.
Loans renegotiated as troubled debt restructurings are those loans
for which either the contractual interest rate has been reduced and/or other
concessions were granted to the borrower. These actions are typically taken as
a result of a deterioration in the financial condition of the borrower which
results in the inability of the borrower to perform under the original terms
of the loan. Loans renegotiated as troubled debt restructurings totaled $1.1
million at September 30, 2000, versus $1.2 million at December 31, 1999. The
loans classified as troubled debt restructurings at September 30, 2000 were
performing in accordance with the modified terms.
For the first nine months of 2000, deposits increased more than
loans. During this nine-month period, time deposits increased $48.3 million,
or 9.7%, from $498.5 million to $546.9 million and other transaction accounts
increased $6.9 million, or 6.1%, during the same period. Repurchase agreements
decreased $6.4 million, or 5.3%, during the first nine months of this year,
and demand accounts, which are noninterest bearing, decreased slightly. During
this same nine-month period, loans increased $41.3 million, or 6.3%.
Commercial loan growth opportunities continue to be strong, while consumer
loan growth opportunities have slowed somewhat. The Company's loan to deposit
ratio was 86.6% as of September 30, 2000, versus 87.4% at December 31, 1999.
Market Risk
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 the computer simulated earnings
impact of various rate scenarios. The Company then modifies its long-term risk
parameters by attempting to generate the type of loans, investments, and
deposits that currently fit ALCO needs. This computer simulation analysis
measures the net interest income impact of a 300 basis point change in
18
<PAGE>
interest rates during the next 12 months. If the change in net interest income
is less than 3% of primary capital, the balance sheet structure is considered
to be within acceptable risk levels. At September 30, 2000, the Company's
potential pretax exposure was within the Company's policy limit. This policy
was last reviewed and approved by the Board of Directors in May, 2000.
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. Additionally, the
Company's historical prepayment experience is included in cash flows for
residential and home equity loans and for mortgage-backed securities. For core
deposits such as demand deposits, interest-bearing checking, savings and money
market deposits that have no contractual maturity, the table presents
principal cash flows based upon management's judgment and statistical
analysis. Weighted-average variable rates are the rates in effect at the
reporting date.
19
<PAGE>
<TABLE>
QUANTITATIVE MARKET RISK DISCLOSURE
<CAPTION>
Principal/Notional Amount Maturing in:
(Dollars in thousands) Fair
--------------------------------------------------------------------------------- Value
Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total 9/30/00
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Rate sensitive assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed interest rate loans $ 107,743 $ 74,947 $ 67,107 $ 61,400 $ 23,440 $ 12,529 $ 347,166 $ 356,939
Average interest rate 8.78% 8.69% 8.64% 8.21% 8.65% 8.17% 8.60%
Variable interest rate loans $ 304,905 $ 1,635 $ 1,487 $ 1,397 $ 1,213 $ 38,137 $ 348,774 $ 355,466
Average interest rate 9.73% 10.43% 10.20% 10.15% 10.66% 8.85% 9.64%
Fixed interest rate securities $ 22,192 $ 45,894 $ 24,516 $ 26,091 $ 19,389 $ 150,464 $ 288,546 $ 282,440
Average interest rate 6.61% 5.65% 6.48% 6.27% 6.65% 6.50% 6.36%
Variable interest rate securities $ 316 $ 323 $ 330 $ 337 $ 346 $ 1,655 $ 3,307 $ 3,245
Average interest rate 6.64% 7.28% 7.26% 7.23% 7.21% 7.23% 7.18%
Other interest-bearing assets $ 912 $ 0 $ 0 $ 0 $ 0 $ 0 $ 912 $ 912
Average interest rate 6.50% 0.00% 0.00% 0.00% 0.00% 0.00% 6.50%
Rate sensitive liabilities:
Non-interest bearing checking $ 7,085 $ 6,322 $ 1,145 $ 1,090 $ 1,594 $ 119,014 $ 136,250 $ 136,250
Average interest rate
Savings & interest bearing checking $ 9,146 $ 8,258 $ 7,333 $ 6,661 $ 5,341 $ 83,284 $ 120,023 $ 120,023
Average interest rate 1.97% 1.79% 1.79% 1.79% 1.79% 1.73% 1.79%
Time deposits $ 478,474 $ 47,847 $ 11,321 $ 4,412 $ 3,095 $ 1,715 $ 546,864 $ 546,909
Average interest rate 5.91% 6.08% 5.87% 5.39% 6.01% 3.82% 5.91%
Fixed interest rate borrowings $ 130,832 $ 17,000 $ 1,443 $ 0 $ 0 $ 19,284 $ 168,559 $ 168,139
Average interest rate 5.80% 5.72% 6.15% 0.00% 0.00% 9.29% 6.19%
Variable interest rate borrowings $ 40,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 40,000 $ 40,000
Average interest rate 6.62% 0.00% 0.00% 0.00% 0.00% 0.00% 6.62%
</TABLE>
20
<PAGE>
Borrowings
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, which enhances the Company's ability to offer additional programs
throughout its trade area. The Company's Board of Directors has authorized
borrowings of up to $100 million under the FHLB program. As of September 30,
2000, the borrowings from the FHLB totaled $51.3 million, with maturities as
follows:
September 30,
2000
--------------
(in thousands)
Due October 23, 2000 5,000
Due October 24, 2000 5,000
Due October 25, 2000 5,000
Due December 18, 2000 10,000
Due December 26, 2000 15,000
Due December 28, 2001 10,000
Due June 24, 2003 1,300
Due January 15, 2018 49
--------------
Total $ 51,349
==============
All borrowings are collateralized by residential real estate
mortgages and mortgage-backed securities. 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
September 30, 2000, was $3.6 million.
Capital and Shareholders' Equity
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banks maintain an 8.0% total risk based capital
ratio. The FDIC has also established definitions of "well capitalized" as a
5.0% Tier I leverage capital ratio, a 6.0% Tier I risk based capital ratio and
a 10.0% total risk based capital ratio. All of the Bank's ratios continue to
be above "well capitalized" levels.
The Company's and Bank's actual capital amounts and ratios are
presented in the following table (in thousands):
21
<PAGE>
<TABLE>
<CAPTION>
Minimum Required To Be
Minimum Required Well Capitalized Under
For Capital Prompt Corrective Action
Actual Adequacy Purposes Regulations
------------------------ ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ----------- ----------- -----------
As of September 30, 2000
Total Capital
(to Risk Weighted Assets)
<S> <C> <C> <C> <C> <C> <C>
Consolidated $ 79,375 10.20% $ 62,247 8.00% $ 77,809 10.00%
Bank $ 80,613 10.34% $ 62,370 8.00% $ 77,962 10.00%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 73,635 9.46% $ 31,123 4.00% $ 46,685 6.00%
Bank $ 73,664 9.45% $ 31,185 4.00% $ 46,777 6.00%
Tier I Capital
(to Average Assets)
Consolidated $ 73,635 6.88% $ 42,798 4.00% $ 53,498 5.00%
Bank $ 73,664 6.90% $ 42,692 4.00% $ 53,364 5.00%
As of December 31, 1999
Total Capital
(to Risk Weighted Assets)
Consolidated $ 74,844 10.26% $ 58,330 8.00% $ 72,913 10.00%
Bank $ 73,980 10.01% $ 59,144 8.00% $ 73,298 10.00%
Tier I Capital
(to Risk Weighted Assets)
Consolidated $ 67,986 9.32% $ 29,165 4.00% $ 43,748 6.00%
Bank $ 67,458 9.12% $ 29,572 4.00% $ 44,358 6.00%
Tier I Capital
(to Average Assets)
Consolidated $ 67,986 6.77% $ 40,167 4.00% $ 50,208 5.00%
Bank $ 67,458 6.72% $ 40,183 4.00% $ 50,228 5.00%
</TABLE>
Total shareholders' equity as of September 30, 2000 increased $5.7
million, or 10.5%, to $59.9 million when compared to December 31, 1999. Net
income of $7.0 million, less dividends of $2.3 million, plus the increase in
the accumulated other comprehensive income of $1.1 million, less $123,000 for
the cost of treasury stock acquired, comprised this increase. The Company has
adopted a dividend reinvestment and stock purchase plan that became available
to the Company's shareholders in July, 2000. The purpose of the dividend
reinvestment plan is to provide participating shareholders with a simple and
convenient method of investing cash dividends paid by the Company on its
shares of common stock into additional shares of common stock. All of the
Company's shareholders of record are eligible to participate in the plan.
22
<PAGE>
RESULTS OF OPERATIONS
Net Income
Net income increased $697,000, or 11.0%, to $7.0 million for the
first nine months of 2000, versus $6.3 million in the same period in 1999. For
the three months ended September 30, 2000, net income was $2.3 million
compared to $2.1 million for the three months ended September 30, 1999. Basic
earnings per share for the first nine months of 2000 was $1.21 per share,
versus $1.09 per share for the first nine months of 1999, and $.40 per share
for the third quarter of 2000 compared to $.36 per share for the same period
of 1999. Diluted earnings per share reflect the potential dilutive impact of
stock options granted under an employee stock option plan. The stock options
did not have an impact on earnings per share as diluted earnings per share
were the same as basic earnings per share for both the nine-month and
three-month periods ended September 30, 2000.
Net Interest Income
The net effect of all factors affecting total interest and dividend
income and total interest expense was an increase in net interest income. For
the nine-month period ended September 30, 2000, net interest income totaled
$26.1 million, an increase of 9.6%, or $2.3 million, versus the first nine
months of 1999. For the three-month period ended September 30, 2000, net
interest income totaled $8.7 million, an increase of 3.8%, or $319,000, over
the same period of 1999. The increase occurred in part as a result of the
increase in loans, and by the gradual rise in interest rates, beginning in
July 1999 and continuing during the first nine months of 2000.
During the first nine months of 2000, total interest and dividend
income increased $7.8 million, or 15.2%, to $59.0 million, versus $51.2
million during the same nine months of 1999. Interest and dividend income
increased $2.7 million, or 15.3%, for the third quarter of 2000, compared to
the 1999 quarter. Daily average earning assets for the first three quarters of
2000 increased to $954.3 million, a 6.5% increase over the same period in
1999. For the third quarter, the daily average earning assets increased to
$969.0 million, a 7.0% increase over the daily average earning assets of the
third quarter of 1999. The tax equivalent yield on average earning assets
increased by 58 basis points to 8.26% for the nine-month period ended
September 30, 2000, when compared to the same period of 1999. For the
three-month period ended September 30, 2000, the yield increased 61 basis
points to 8.46% from the yield for the three-month period ended September 30,
1999.
The increase in the yield on average earning assets reflected
increases in the yields on both loans and securities caused by the rising
interest rate environment. The yield on securities is historically lower than
the yield on loans, and decreasing the ratio of securities to total earning
assets will normally raise the yield on earning assets. The ratio of average
23
<PAGE>
daily securities to average earning assets for the nine-month and three-month
periods ended September 30, 2000 were 29.0% and 29.1% compared to 33.2% and
30.1% for the same periods of 1999. In addition, the overall tax equivalent
yield on loans increased 51 and 70 basis points to 8.92% and 9.19% when
comparing the nine-month and three-month periods. The yield on securities
increased 42 basis points to 6.71% and 42 basis points to 6.73% when comparing
the nine-month and three-month periods.
The average daily loan balances for the first nine months of 2000
increased 13.4% over the average daily loan balances for the same period of
1999. The average daily loan balances for the three-months ended September 30,
2000 increased 8.2% over the average daily loan balances for the three-months
ended September 30, 1999. The loan growth since the first quarter of 1999 was
primarily funded by securities sales and maturities and also partially funded
by increases in deposits and borrowings. The increase in loan interest income
of $7.6 million, or 20.1%, and $2.2 million, or 16.6%, for the nine and
three-month periods in 2000 as compared to the same periods in 1999, primarily
resulted from this loan growth, as well as an increase in the yields.
Income from securities totaled $13.3 million for the first nine
months of 2000, an increase of $194,000, or 1.5%, versus the same period of
1999. The income from securities for the three-month period ended September
30, 2000 was $4.5 million as compared to $4.1 million, an increase of
$403,000, or 9.8%, over the three-month period ended September 30, 1999. This
increase resulted from an increase in the yields on securities offset by the
decrease in average daily balances of securities. The average daily balances
of securities for the nine-month period ended September 30, 2000 decreased
$20.6 million to $277.2 million when compared to the same period of the prior
year. For the three-month period ended September 30, 2000 the average daily
balances of securities increased $8.5 million to $281.5 million when compared
to the same period of 1999.
Income from short-term investments amounted to $240,000 for the
nine-month period and $97,000 for the three-month period ended September 30,
2000. This compares to $232,000 and $40,000 for the same periods in 1999. The
increases of $57,000 and $8,000 for the nine and three-month periods of 2000
over the same periods in 1999 resulted primarily from a 129 and 127 basis
point increase in the yields.
Total interest expense increased $5.5 million or 20.1% to $32.9
million for the nine-month period ended September 30, 2000, from $27.4 million
for the nine-month period ended September 30, 1999 and increased $2.4 million
or 25.8% for the three-month period ended September 30, 2000, from the $9.3
million for the three-month period ended September 30, 1999. This was a result
of the overall growth of deposits in existing offices, changes in the deposit
mix and a 48 basis point increase in the Company's daily cost of funds. On an
average daily basis, total deposits (including demand deposits) increased 4.6%
and 5.7% for the nine and three-month periods ended September 30, 2000, as
24
<PAGE>
compared to the similar periods in 1999. When comparing the same periods, the
average daily balances of the demand deposit accounts rose $16.4 million and
$9.8 million, while the average daily balances of savings and transaction
accounts combined increased $15.1 million and $22.0 million. The average daily
balance of time deposits, which pay a higher rate of interest compared to
demand deposit and transaction accounts, increased $3.9 million for the nine
months ended September 30, 2000, compared to the nine months ended September
30, 1999. For the three-month period ended September 30, 2000, the average
daily balance of time deposits decreased $11.6 million, as compared to the
three-months ended September 30, 1999. These deposit trends are the result of
management's efforts to grow relationship type accounts such as demand deposit
and Investors' Weekly accounts, which pay a lower rate of interest compared to
time deposit accounts and better match the characteristics of the assets being
generated. Management plans to continue these efforts during the remainder of
2000. Average daily balances of borrowings increased $31.3 million and $19.9
million for the nine and three-month periods ended September 30, 2000 compared
to the same periods of 1999, and the rate on borrowings increased 81 and 114
basis points when comparing the same periods. On an average daily basis, total
deposits (including demand deposits) and purchased funds increased 7.1% and
6.9% for the nine and three-month periods ended September 30, 2000, as
compared to the nine and three-month periods ended September 30, 1999.
Provision for Loan Losses
The Company maintains the allowance for loan losses at a level that
is deemed appropriate based upon loan loss experience, the nature of the
portfolio, the growth of the portfolio and the evaluation of current economic
conditions. Special consideration is given to watch list loans, non-performing
loans and non-accrual loans, as well as other factors that management feels
deserve recognition. 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
provision for loan losses.
The provision amounted to $707,000 and $1,050,000 for the nine-month
periods ended September 30, 2000 and 1999,respectively. For the three-month
periods ended September 30, 2000 and 1999, the provision amounted to $92,000
and $550,000, respectively. These provisions reflect a number of factors
including the size of the loan portfolio, the amount of past due accruing
loans (90 days or more), the amount of non-accrual loans and management's
overall view on credit quality.
25
<PAGE>
As of September 30, 2000, loans delinquent 90 days or more that were
included in the accompanying financial statements as accrual loans totaled
approximately $881,000. At September 30, 2000, loans totaling $264,000 were on
non-accrual. At December 31, 1999, there were $171,000 in loans delinquent 90
days or more included as accruing loans in the financial statements and there
were $329,000 on non-accrual. 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.
As a result of management's analysis of the adequacy of the
allowance, the ratio of the allowance for loan losses to total loans was
approximately 1.00% for September 30, 2000, as well as for December 31 and
September 30, 1999.
As part of the loan review process, management reviews all loans
classified as `special mention' or below, as well as other loans that might
require classification as impaired. As of September 30, 2000, loan balances
totaling $825,000 were classified as impaired and as of December 31, 1999,
$246,000 were classified as impaired.
Following is a summary of the loan loss experience for the nine
months ended September 30, 2000, and the year ended December 31, 1999.
26
<PAGE>
September 30, December 31,
2000 1999
------------- -------------
(in thousands)
Amount of loans outstanding $ 695,232 $ 653,898
------------- -------------
Average daily loans outstanding for
the period $ 671,544 $ 642,307
------------- -------------
Allowance for loan losses at the
beginning of the period $ 6,522 $ 5,510
Charge-offs:
Commercial 0 147
Real estate 0 6
Installment 378 252
Credit card and personal credit lines 26 30
------------- -------------
Total charge-offs 404 435
Recoveries:
Commercial 45 10
Real estate 0 0
Installment 75 114
Credit card and personal credit lines 4 13
------------- -------------
Total recoveries 124 137
------------- -------------
Net charge-offs 280 298
Provision charged to expense 707 1,310
------------- -------------
Allowance for loan losses at the end of
the period $ 6,949 $ 6,522
============= =============
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% 0.00%
Installment 0.06% 0.03%
Credit card and personal credit lines 0.00% 0.00%
------------- -------------
Total 0.05% 0.05%
============= =============
27
<PAGE>
Net interest income after provision for loan losses totaled $25.4
million and $8.7 million for the nine and three-month periods ended September
30, 2000. This represented increases of 11.6% and 9.9% over the same periods
ended September 30, 1999.
Noninterest Income
Noninterest income categories for the nine and three-month periods
ended September 30, 2000, and 1999 are shown in the following tables:
Nine Months ended
September 30, 2000
----------------------------------
Percent
2000 1999 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 1,586 $ 1,286 23.3%
Service charges on deposits 3,304 3,198 3.3
Other income (net) 2,478 2,498 (0.8)
Net gains on the sale of real estate
mortgages held-for-sale 366 1,136 (67.8)
Net securities gains 0 1,340 (100.0)
---------- ---------- ----------
Total noninterest income $ 7,734 $ 9,458 (18.2)%
========== ========== ==========
Three Months ended
September 30, 2000
----------------------------------
Percent
2000 1999 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 530 $ 456 16.2%
Service charges on deposits 1,109 1,105 0.4
Other income (net) 871 865 0.7
Net gains on the sale of real estate
mortgages held-for-sale 128 381 (66.4)
Net securities gains 0 481 (100.0)
---------- ---------- ----------
Total noninterest income $ 2,638 $ 3,288 (19.8)%
========== ========== ==========
Trust fees increased 24.6% in the first three quarters of 2000 versus
the same period in 1999. This increase was primarily in employee benefit
plans, agency and testamentary trusts. Brokerage fees increased 21.0% in the
first three quarters of 2000 versus the same period in 1999. This increase was
28
<PAGE>
the result of increased volume as customer acceptance of the product appeared
to increase.
The primary sources for the increase in service charges on deposit
accounts were fees related to business checking accounts.
Other income consists of normal recurring fee income, as well as
other income that management classifies as non-recurring. The primary
decreases for the none-month period ended September 30, 2000 were in other
real estate income and mortgage fee income. For the three-month period ended
September 30, 2000 the primary increases were in other real estate income and
credit card fee income.
The decrease in profits from the sale of mortgages reflected a
decrease in the volume of mortgages sold during the first nine months of 2000
versus sales during the first nine months of 1999. This decrease in volume was
a result of the rising interest rate environment and a decrease in demand for
home mortgages, which began in the last half of 1999. Management does not
anticipate that this trend will shift during the balance of 2000.
Noninterest Expense
Noninterest expense categories for the nine and three-month periods
ended September 30, 2000, and 1999 are shown in the following tables:
Nine Months ended
September 30, 2000
----------------------------------
Percent
2000 1999 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 11,881 $ 11,790 0.8%
Occupancy and equipment expense 3,866 4,010 (3.6)
Other expense 7,272 6,859 6.0
---------- ---------- ----------
Total noninterest expense $ 23,019 $ 22,659 1.6%
========== ========== ==========
29
<PAGE>
Three Months ended
September 30, 2000
----------------------------------
Percent
2000 1999 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 4,257 $ 4,089 4.1%
Occupancy and equipment expense 1,277 1,402 (8.9)
Other expense 2,471 2,456 0.6
---------- ---------- ----------
Total noninterest expense $ 8,005 $ 7,947 0.7%
========== ========== ==========
The increase in salaries and employee benefits reflected normal
salary increases and higher employee insurance premiums, offset by the pension
plan curtailment gain of $500,000 recognized in the second quarter of 2000.
Total employees decreased to 479 at September 30, 2000, from 485 at September
30, 1999. This decrease resulted primarily from the closing of two offices
during the second quarter of 2000.
The decrease in occupancy and equipment expense was the result of
closing two offices in the second quarter of 2000. Also, the growth in these
expenses has lessened with the completion of the Year 2000 project and the
completion of a major technology upgrade.
When comparing other expense for the nine and three-month periods
ended September 30, 2000 to the same periods of 1999, a significant increase
was noted in professional fees (up $372,000, or 76.1%, and $269,000, or
78.4%). This increase was primarily due to non-recurring expenses related to
employee benefit plans.
Income Before Income Tax Expense
Income before income tax expense increased $547,000, or 5.7%, to
$10.1 million for the first nine months of 2000, versus $9.6 million for the
same period in 1999. For the three months ended September 30, 2000, income
before income taxes was $3.3 million versus $3.2 million for the three months
ended September 30, 1999. This was due primarily to the increase in net
interest income.
Income Tax Expense
Income tax expense decreased $150,000, or 4.6%, for the first nine
months of 2000, compared to the same period in 1999. Income tax expense for
the third quarter of 2000 decreased $154,000, or 13.7%, compared to the third
quarter of 1999.
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The combined state franchise tax expense and the federal income tax
expense as a percentage of income before income tax expense decreased to 30.7%
during the first nine months of 2000, compared to 34.0% during the same period
in 1999. It decreased to 29.6% for the three months ended September 30, 2000,
compared to 35.0% for the same three months in 1999. The decreases were
primarily a result of lower state franchise tax expense.
YEAR 2000
The Company had a successful Year 2000 and leap year rollover. At this
point, the Company has not experienced any Year 2000 issues as a result of the
rollover, and is not aware of any customers that have experienced any material
Year 2000 issues. This success can be attributed to the two years of planning
and preparation for the Year 2000. Part of the preparation was evaluating,
upgrading and/or replacing all hardware, software, and electrical and
mechanical equipment that was not year 2000 compliant. Through this evaluation
process, systems that were identified as not Year 2000 ready were either
upgraded or retired. The Company upgraded 19 systems and retired 23 systems
based on the results of the evaluation process. As part of this preparation,
the Company contacted all vendors, corporate depositors, and all large
corporate lending customers to assess their Year 2000 efforts. While the
rollover went smoothly, Year 2000 monitoring will continue for much of the
year to assure that all potential Year 2000 issues are addressed.
Recent Regulatory Developments
The Gramm-Leach-Bliley Act (the "Act"), which was enacted in
November, 1999, allows eligible bank holding companies to engage in a wider
range of nonbanking activities, including greater authority to engage in
securities and insurance activities. Under the Act, an eligible bank holding
company that elects to become a financial holding company may engage in any
activity that the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), in consultation with the Secretary of the Treasury,
determines by regulation or order is financial in nature, incidental to any
such financial activity, or complementary to any such financial activity and
does not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. National banks are also
authorized by the Act to engage, through "financial subsidiaries," in certain
activity that is permissible for financial holding companies (as described
above) and certain activity that the Secretary of the Treasury, in
consultation with the Federal Reserve, determines is financial in nature or
incidental to any such financial activity.
Although various bank regulatory agencies have issued regulations as
mandated by the Act, except for the jointly issued privacy regulations, the
Act and its implementing regulations have had little impact on the daily
operations of the Company and the Bank and, at this time, it is not possible
31
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to predict the impact the Act and its implementing regulations may have on the
Company or the Bank. As of the date of this filing, the Company has not
applied for or received approval to operate as a financial holding company. In
addition, the Bank has not applied for or received approval to establish any
financial subsidiaries. Less than 10% of all bank holding companies have
elected to become financial holding companies.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" on pages 18-20.
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LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2000
Part II - Other Information
Item 1. Legal proceedings
-----------------
There are no material pending legal proceedings to which the Company
or its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
27 Financial Data Schedule
b. Reports
None
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LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2000
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: November 14, 2000 /s/ Michael L. Kubacki
Michael L. Kubacki - President and Chief
Executive Officer
Date: November 14, 2000 /s/ David M. Findlay
David M. Findlay - Executive Vice President
and Chief Financial Officer
34
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EXHIBIT INDEX
Exhibit
No. Description Page
------- ------------------------------------------- -----
27 Financial Data Schedule (EDGAR filing only)
35
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