SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1995.
[ ] 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 33-27312
Lakeland Bancorp, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2953275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Oak Ridge Road, Oak Ridge, N.J. 07438-8906
(Address of principal executive offices) (Zip Code)
(201) 697-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 _______
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1995, 1,616,727, common shares, $2.50 par value, were
outstanding.
<PAGE>
LAKELAND BANCORP, INC.
INDEX
Page
Number
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Statements of 2
Condition as of December 31, 1994,
and September 30, 1995 (Unaudited)
Consolidated Statements of Income 3
for the Three and Nine Months Ended
September 30, 1994 and 1995 (Unaudited)
Consolidated Statements of Cash Flows 4-5
for the Nine Months Ended
September 30, 1994 and 1995 (Unaudited)
Notes to Consolidated Financial 6-9
Statements (Unaudited)
Item 2. Management's Discussion and Analysis 10-19
of Financial Condition and Results of
Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</page>
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the
following consolidated financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission. Lakeland Bancorp,
Inc. (the "registrant" or the "Company") believes that the disclosures
presented are adequate to assure that the information presented is not
misleading in any material respect. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the
registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
The results of operations for the three and nine month period ended
September 30, 1995, are not necessarily indicative of the results to be
expected for the entire fiscal year.
</page>
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
December 31, September 30,
1994 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 16,211,222 $ 13,877,487
Federal funds sold 1,300,000 8,800,000
__________ __________
Cash and cash equivalents 17,511,222 22,677,487
Securities available for sale,
at estimated fair value 84,430,286 79,330,292
Securities held to maturity,
estimated fair value of
$43,882,000 in 1994 and $46,366,000
in 1995 44,872,434 46,025,962
Loans, net 172,196,797 183,538,824
Premises and equipment, net 8,261,801 7,989,276
Accrued interest receivable 3,663,145 3,783,701
Other assets 2,652,087 1,667,418
___________ ___________
Total Assets $ 333,587,772 $ 345,012,960
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest-bearing demand $ 57,786,252 $ 55,604,739
Savings and interest-bearing demand 178,068,491 158,216,428
Club accounts 4,382,874 3,874,378
Time 57,324,563 83,469,031
Time of $100,000 and over 9,559,163 12,598,479
___________ ___________
Total deposits 307,121,343 313,763,055
Other liabilities 305,386 694,889
___________ ___________
Total liabilities 307,426,729 314,457,944
___________ ___________
Stockholders' equity
Common stock (par value $2.50 per share):
1994 1995
<C> <C> <C> <C> <C>
Authorized shares 3,379,098 3,456,284
Issued and outstanding shares 1,527,131 1,616,727 3,817,828 4,041,818
Surplus 17,736,878 20,379,560
Undivided profits 5,410,825 5,313,585
Unrealized (loss) gain on securities
available for sale, net (804,488) 820,053
___________ ____________
Total stockholders' equity 26,161,043 30,555,016
Total liabilities and stockholders' equity $ 333,587,772 $ 345,012,960
=========== ===========
</TABLE>
<TABLE>
LAKELAND BANCORP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees $3,526,752 $4,035,342 $10,068,524 $ 11,758,551
Federal funds sold 101,219 159,254 295,520 361,025
Securities:
U.S. Treasury 1,261,655 1,081,880 3,693,574 3,296,151
U.S. Government agencies 443,578 417,262 1,340,912 1,179,516
State and political
subdivisions 247,544 209,749 747,232 635,902
Other 121,712 135,696 334,078 396,917
_________ _________ __________ __________
Total interest income 5,702,460 6,039,183 16,479,840 17,628,062
_________ _________ __________ __________
INTEREST EXPENSE:
Deposits 1,942,816 2,389,330 5,680,388 6,671,380
_________ _________ _________ _________
Borrowed money - - - 13,318
Total interest expense 1,942,816 2,389,330 5,680,388 6,684,698
Net interest income 3,759,644 3,649,853 10,799,452 10,943,364
PROVISION FOR LOAN LOSSES 41,678 98,685 105,763 107,465
________ _________ _________ __________
Net iinterest income
after provision for
loan losses 3,717,966 3,551,168 10,693,689 10,835,899
_________ _________ __________ __________
OTHER INCOME:
Service charges on deposit
accounts 379,343 391,937 1,137,608 1,178,097
Other income 91,755 74,184 206,416 225,980
Gain on sales and calls of
securities available for sale - - - 11,015
Gain on calls of securities
held to maturity - - - 90
Gain on sale of premises
and equipment 13,165 - 13,165 -
______ ______ _______ _______
Total other income 484,263 466,121 1,357,189 1,415,182
_______ ________ _________ _________
OTHER EXPENSES
Salaries and benefits 1,338,183 1,324,116 3,681,839 4,028,763
Occupancy expense, net 267,494 256,245 807,455 757,946
Furniture and equipment 203,527 225,277 606,977 670,489
Other 601,539 374,542 1,769,274 1,611,560
_________ _________ _________ _________
Total other expense 2,410,743 2,180,180 6,865,545 7,068,758
INCOME BEFORE INCOME TAXES 1,791,486 1,837,109 5,185,333 5,182,323
INCOME TAXES 552,796 612,996 1,569,457 1,654,244
_________ _________ _________ _________
NET INCOME $1,238,690 $1,224,113 $ 3,615,876 $ 3,528,079
========= ========= ========= =========
Net income per common share $ .78 $ .76 $ 2.27 $ 2.19
Weighted average number of ========= ========= ========= =========
shares outstanding 1,597,563 1,614,771 1,594,285 1,610,472
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
LAKELAND BANCORP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1994 1995
Cash flows from operating activities:
Net income $ 3,615,876 $ 3,528,079
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Net amortization of premiums
and discounts on securities 1,717,785 1,311,390
Amortization of unearned
interest and deferred loan
cost and fees 41,373 57,446
Depreciation and amortization
of premises and equipment 608,054 658,283
Provision for loan losses 105,763 107,465
Gain on sales and calls of securities
available for sale - (11,015)
Gain on calls of securities held to maturity - (90)
Gain on sale of premises and equipment (13,165) -
Gain on sale of other real estate (9,420) -
(Increase) in accured interest receivable (118,655) (120,556)
(Increase) in other assets (608,874) (207,471)
Increase in other liabilities 50,086 389,503
_________ _________
Net cash provided by operating
activities 5,388,823 5,713,034
_________ _________
Cash flows from investing activities:
Proceeds from repayments and maturities of
securities available for sale 10,598,800 14,891,641
Proceeds from sales of securities
available for sale - 5,086,032
Proceeds from calls of securities
available for sale 300,000 500,000
Purchases of securities available for sale (15,178,705) (13,517,050)
Proceeds from repayments and maturities of
securities held to maturity 7,608,312 8,453,300
Proceeds from calls of securities
held to maturity - 100,000
Purchases of securities held to maturity (9,548,805) (10,143,411)
Proceeds from sale of student loans - 303,281
Proceeds from sale of participation
interest in loan - 400,000
Net increase in loans receivable (17,778,667) (12,255,711)
Loan recoveries 99,659 123,988
Proceeds from sale of bank premises 28,865 -
Additions to premises and equipment, net (854,993) (385,758)
Proceeds from sale of real estate owned 10,809 13,854
__________ ___________
Net cash (used in) investing activities (24,714,725) (6,429,834)
__________ ___________
Cash flows from financing activities:
Net increase in deposits 13,248,862 6,641,712
Proceeds from sale of common stock 163,800 409,200
Cash dividends paid on common stock (898,358) (1,167,847)
__________ ___________
Net cash provided by financing
activities 12,514,304 5,883,065
__________ __________
Net (decrease) increase in cash and cash
equivalents (6,811,598) 5,166,265
Cash and cash equivalents - beginning 25,615,849 17,511,222
__________ __________
Cash and cash equivalents - ending $ 18,804,251 $ 22,677,487
========== ==========
See accompanying notes to consolidated financials statements.
LAKELAND BANCORP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1994 1995
Supplemental disclosures of cash flow information:
Cash paid during the nine month period for:
Income taxes (federal and state) $ 1,890,192 $ 1,783,672
Interest 5,650,170 6,353,103
Supplemental schedule of noncash
investing and financing activities:
Transfer of securities from held to
maturity to available for sale $92,666,375 $ -
Unrealized (loss) gain on securities
available for sale, net of deferred
income taxes (113,435) 1,624,541
Charge off of loans receivable to
allowance for loan losses 180,422 131,453
Transfer of loans receivable to real
estate owned 291,833 70,254
Loan to facilitate the sale of
real estate owned - 148,750
Stock dividend 3,584,309 2,457,472
LAKELAND BANCORP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. Reference is made to Lakeland
Bancorp, Inc.'s (the "Corporation") Annual Report on Form 10-K for the year
ended December 31,1994, for information regarding the Corporation's audited
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements have been included.
The results of operations for the three and nine months ended September 30,
1995, are not necessarily indicative of the results which may be expected
for the entire fiscal year.
2. NET INCOME PER COMMON SHARE
Net income per share of common stock is calculated based on the weighted
average number of shares of common stock outstanding during the period. On
May 24, 1995, the Corporation's Board of Directors authorized a 5% stock
dividend which was distributed on June 30, 1995. Per share amounts have
been retroactively restated to give effect of the stock dividend.
3. NEW ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("Statement") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Statement No. 115 generally requires that debt and equity securities that
have readily determinable fair values be carried at fair value unless they
are classified as held to maturity. Securities can be classified as held
to maturity and carried at amortized cost only if the reporting entity has
a positive intent and ability to hold those securities to maturity. If not
classified as held to maturity, such securities must be classified as
trading securities or securities available for sale. Unrealized holding
gains or losses for securities available for sale are to be excluded from
earnings and reported as a separate component of stockholders' equity.
Unrealized holding gains and losses for trading securities are to be
included in earnings. The statement's effective date is for fiscal years
beginning after December 15, 1993. Upon adoption of Statement No. 115,
effective January 1, 1994, $92,666,375 of investment securities were
classified as available for sale, the effect of which was to increase
stockholders' equity, net of deferred income taxes, by approximately
$1,866,000. The adoption of Statement No. 115 had no effect on net income.
In May 1993, the FASB issued Statement No. 114 "Accounting by Creditors for
Impairment of a Loan." Statement No. 114 generally requires all creditors
to account for impaired loans, except for large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment and those
loans that are accounted for at fair value or at the lower of cost or
fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate. Statement No. 114
also provides that in-substance foreclosed loans should not be included
in real estate owned for financial reporting purposes, but rather
should be included in the loan portfolio. Statement No. 114 is effective
for fiscal years beginning after December 15, 1994. In October 1994,
the FASB amended certain provisions of Statement No. 114 via the issuance
of Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." Statement No. 118 amends
Statement No. 114 by eliminating provisions describing how a creditor
should report income on an impaired loan and increasing disclosure
requirements as to information on recorded investments in certain impaired
loans and how a creditor recognizes related interest income. The effective
date of Statement No. 118 is the same as for Statement No. 114. The
provisions of Statement No. 114, as amended by Statement No. 118, were
adopted effective January 1, 1995. Such adoption did not have a material
adverse effect on the Corporation's consolidated financial condition or
results of operations.
4. SECURITIES AVAILABLE FOR SALE
December 31, 1994
Amortized Gross Unrealized Carrying
Cost Gains Losses Value
U.S. Treasury $ 47,139,986 $ 20,158 $ 964,019 $ 46,196,125
U.S. Government agencies 16,262,173 19,915 341,838 15,940,250
States and political
subsidivisions 17,424,791 101,042 141,648 17,384,185
Other debt securities 3,743,470 - 124,689 3,618,781
Equity security 1,204,882 86,063 - 1,290,945
__________ _______ _________ __________
$ 85,775,302 $ 227,178 $1,572,194 $ 84,430,286
========== ======= ========= ==========
<TABLE>
September 30, 1995
Amortized Gross Unrealized Carrying
Costs Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 39,729,014 $ 348,693 $ 67,519 $ 40,010,188
U.S. Government agencies 15,669,578 77,634 17,524 15,729,688
States and political subdivisions 16,852,511 310,993 157,725 17,005,779
Other debt securities 4,494,992 34,290 10,156 4,519,126
Equity security 1,204,882 860,630 - 2,065,512
__________ _________ _______ __________
$ 77,950,977 $ 1,632,240 $ 252,924 $ 79,330,293
========== ========= ======= ==========
4. SECURITIES AVAILABLE FOR SALE (Cont'd).
The following is a summary of securities available for sale by maturity:
September 30, 1995
Amortized Carrying
Cost Value
Due in one year or less $ 27,968,570 $ 28,186,975
Due after one year through five years 48,737,525 49,037,806
Due after five years through ten years 40,000 40,000
Equity security 1,204,882 2,065,512
__________ __________
$ 77,950,977 $ 79,330,293
========== ==========
5. SECURITIES HELD TO MATURITY
December 31, 1994
Carrying Gross Unrealized Estimated
Value Gains Losses Fair Value
U.S. Treasury $28,865,887 $ 24,715 $ 759,758 $ 28,130,844
U. S. Government agencies 9,773,308 22,239 132,766 9,662,781
States and political
subsidivisions 2,069,081 32,689 - 2,101,770
Other debt securities 4,164,158 2,063 179,799 3,986,422
__________ ______ _________ __________
$44,872,434 $ 81,706 $ 1,072,323 $ 43,881,817
========== ====== ========= ==========
September 30, 1995
Carrying Gross Unrealized Estimated
Value Gains Losses Fair Value
U.S. Treasury $29,653,545 $354,896 $197,941 $29,810,500
U.S. Government agencies 11,028,187 167,405 16,436 11,179,156
State and political subdivision 1,566,336 53,519 9,567 1,610,288
Other debt securities 3,777,894 5,586 17,730 3,765,750
__________ _______ _______ __________
$46,025,962 $581,406 $241,674 $46,365,694
========== ======= ======= ==========
LAKELAND BANCORP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Contd)
A summary of securities held to maturity by maturity follows:
September 30, 1995
Carrying Estimated
Value Fair Value
Due in one year or less $ 12,465,019 $ 12,684,584
Due after on eyear through five years 33,360,943 33,478,360
Due after ten years 200,000 202,750
__________ __________
$ 46,025,962 $ 46,365,694
========== ==========
6. LOANS, NET
December 31, September 30,
1994 1995
Loans $ 175,244,413 $ 186,722,443
Less: Unearned income (47,616) (83,619)
Allowance for loans losses (3,000,000) (3,100,000)
___________ ___________
$ 172,196,797 $ 183,538,824
=========== ===========
A summary of the activity in the allowance for loan losses is as follows:
Nine Months
Ended September 30,
1994 1995
Balance - beginning $ 3,000,000 $ 3,000,000
Provisions charged to operations 105,763 107,465
Loans charged off (180,422) (131,453)
Recoveries of loans previously charged off 99,659 123,988
_________ _________
Balance - ending $ 3,025,000 $ 3,100,000
========= =========
PART I -- ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Month Summary
The third quarter of 1995 resulted in decreased earnings for Lakeland
Bancorp, Inc. (the "Company") when compared to the same period in 1994.
Net income for the third quarter decreased $14,577 or 1.18% and net income
per share decreased $.02 or 2.56% compared to the same period in 1994. The
decline reflects decreases of $109,791 in net interest income and $18,142
in other income, combined with increases in the provision for loan losses
of $57,007 and income taxes of $60,200, partially offset by a decrease in
other expenses of $230,563.
The Company's annualized return on average assets and average
stockholders' equity for the third quarter of 1995 were 1.45% and 16.31%,
respectively, compared to 1.47% and 19.43%, respectively, for the same
period in 1994.
Results of Operations
Total interest income increased $336,723 or 5.90% for the three
months ended September 30, 1995, when compared to the same period in 1994.
This increase resulted from increases of $508,590 or 14.42% in interest
earned on the loan portfolio and $58,035 or 57.34% in interest earned on
federal funds sold, which were partially offset by a decrease of $229,902
or 11.08% in interest earned on securities.
The increase in interest income on loans was attributable to an
increase in average balances of $18.1 million (principally real estate
mortgage and commercial loans) along with a 29 basis point increase in
average yield. The increase in interest income on federal funds sold was
attributable primarily to a 118 basis point increase in average yield. The
decrease in interest income on the securities portfolio was primarily a
result of a decrease in average balances of $14.2 million. The average
balance decrease in this category reflects the Company's investment of
funds into higher yielding loans.
Interest expense on deposits increased $446,514 or 22.98% for the
third quarter of 1995 compared to the same period in 1994. This increase
is attributable to a 77 basis point increase in the average rate paid on
interest-bearing deposits, which more than offset a decrease in average
balances of $6.1 million in interest-bearing deposits.
Net interest income decreased $109,791 or 2.92% as the increase in
interest income of $336,723 was more than offset by the increase in
interest expense of $446,514. The decrease was the result of a decline in
net interest margin, which more than offset an increase in average net
earning assets. The annualized net interest margin (the average yield on
interest-earning assets, less the average cost of interest-bearing
liabilities) decreased 49 basis points from 4.34% to 3.85%. While the
average yield on earning assets increased 28 basis points from 7.31% to
7.59%, the average rate paid on interest-bearing liabilities increased 77
basis points from 2.97% to 3.74%.
The provision for loan losses increased $57,007 during this period.
During the third quarter of 1995, the Company charged off $103,355 and
recovered $4,670 previously charged off compared to $125,440 and $8,762,
respectively, during the same period in 1994. The allowance for loan
losses at September 30, 1995, was 1.66% of total loans, compared to 1.71%
at June 30, 1995, and 1.82% at September 30, 1994. The Company believes,
based on management's ongoing review of loan quality, economic condition,
loss experience, and loan growth, that the allowance for loan losses is
adequate.
The following table sets forth for the nine months ending September
30, 1994, and 1995, and for each of the five years ended December 31, 1990,
through 1994, the historical relationships among the amount of loans
outstanding, the allowance for loan losses, the provision for loan losses,
the amount of loans charged-off and the amount of loan recoveries:
</TABLE>
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1994 1993 1992 1991 1990
(Dollars in Thousands)
Balance of allowance at beginning
of period $ 3,000 $ 3,000 $ 3,000 $ 2,450 $ 2,035 $ 1,400 $ 780
_____ _____ _____ _____ _____ _____ ___
Charge-offs:
Commercial 92 89 234 57 256 267 446
Installment 25 37 85 107 87 89 78
Mortgage 14 54 23 35 45 - -
___ ___ ____ ___ ___ ___ ___
Total charge-offs 131 180 342 199 388 356 524
Recoveries:
Commercial 107 66 69 13 1 9 14
Installment 17 33 48 41 13 27 14
___ ___ ___ __ __ __ __
Total recoveries 124 99 117 54 14 36 28
___ __ ___ ___ ___ ___ ___
Net charge-offs 7 81 225 145 374 320 496
___ ___ ___ ___ ___ ___ _____
Provision for loan losses 107 106 225 695 789 955 1,116
___ ___ ___ ___ ___ ___ _____
Balance of allowance at
end of period $ 3,100 $ 3,025 $ 3,000 $ 3,000 $ 2,450 $ 2,035 $ 1,400
===== ===== ===== ===== ====== ===== =====
Ratio of net charge-offs to average
loans outstanding .00% .05% .14% .11% . 34% .32% .52%
Balance of allowance at end of period
as a percent of loans 1.66% 1.71% 1.71% 2.01% 2.02% 1.94% 1.44%
</TABLE>
On January 1, 1995, the Company adopted SFAS 114 ("Accounting by Creditors
for Impairment of a Loan") and SFAS 118 ("Accounting by Creditors for
Impairment of a Loan --Income Recognition and Disclosures") as required by
generally accepted accounting principles. In doing so, the Company has
identified loans for which the provisions of these pronouncements apply and
has established criteria to determine whether such loans are impaired.
SFAS 114 provides that the provisions of such Statement are not applicable
to large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment. Accordingly, management has determined that SFAS
114 and 118 do not apply to the following groups of smaller-balance
homogeneous loans:
CATEGORY INVESTMENT
Mortgage: Residential $350,000 or less
Mortgage: Non-Residential 200,000 or less
Commercial: Unsecured 75,000 or less
Commercial: Secured 200,000 or less
Consumer All loans
Home Equity 100,000 or less
A loan evaluated under SFAS 114 is deemed impaired when, based on
current information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. An insignificant delay, which is defined as up to 90 days
by the Company, will not cause a loan to be classified as impaired. A loan
is not impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest accrued at the contractual
interest rate for the period of delay. Thus, a demand loan or other loan
with no stated maturity is not impaired if the Company expects to collect
all amounts due, including interest accrued at the contractual interest
rate, during the period the loan is outstanding. All loans identified as
impaired are evaluated independently. The Company does not aggregate such
loans for evaluation purposes.
The Company's policy concerning non-accrual loans states that loans
are placed on a non-accrual status when payments are 90 days delinquent or
more. Therefore, a loan will be considered to be impaired, when it is 90
days delinquent and it exceeds the balance guidelines for SFAS 114 non-
applicability stated above. It is, therefore, possible for a loan to be on
non-accrual status and not be impaired if the balance falls within the
above stated guidelines.
SFAS 114 also requires that loans renegotiated, as part of a troubled
debt restructuring, be classified as impaired and measured for impairment
by discounting the total expected cash flow under the renegotiated terms at
the loan's original effective interest rate. This requirement applies only
to loans renegotiated on or after the effective date of SFAS 114.
Loans, or portions thereof, are charged-off when it is determined
that a loss has occurred. Until such time, an allowance for loan loss is
maintained for estimated losses. With regard to interest income
recognition for payments received on impaired loans, as well as all non-
accrual loans, the Company follows FDIC guidelines, which apply any
payments to principal as long as there is doubt as to the collectibility of
the loan balance.
As of September 30, 1995, based on the above criteria, the Company
classified four commercial loans, including one renegotiated loan,
totalling $1,060,000 and four renegotiated residential mortgage loans,
totalling $476,000, as impaired. The impairment of these loans is measured
using the present value of future cash flows for the five renegotiated
loans and is based on the fair value of the underlying collateral for the
remaining three commercial loans. Based upon such evaluation, $212,000 has
been allocated to the allowance for loan losses for impairment.
The following schedule sets forth certain information regarding the
Company's non-accrual, past due and renegotiated loans and other real
estate owned (as such terms are defined in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994) as of September 30, 1995,
and as of December 31 of each of the last five years:
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1995 1994 1993 1992 1991 1990
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $ 1,533 $ 1,501 $ 483 $ 213 $ 1,124 $ 24
Past due loans 592 554 2,934 3,714 1,223 2,716
Renegotiated loans 2,332 1,740 2,366 -- -- --
_____ _____ _____ ____ _____ _____
Total non-accrual, past due
and renegotiated loans 4,457 3,795 5,783 3,927 2,347 2,740
Other real estate owned 527 629 458 -- -- --
_____ _____ _____ _____ _____ _____
Total $ 4,984 $ 4,424 $ 6,241 $ 3,927 $ 2,347 $ 2,740
===== ===== ===== ===== ===== =====
</TABLE>
Included in the above schedule are two non-accrual commercial loans,
totalling $629,000, one commercial past due loan, totalling $288,000, and
five renegotiated loans, totalling $619,000, which represents all loans
categorized as impaired. Therefore, SFAS 114 has no impact on the
comparability of data in the above credit risk table.
At September 30, 1995, non-accrual loans totaled $1,533,000, a
decrease of $123,000 compared to June 30, 1995. This net change is
primarily the result of the charging off of one commercial loan along with
payments received on other commercial loans. Of the total non-accrual
loans at September 30, 1995, all are either in foreclosure, in various
stages of litigation, or on a repayment schedule.
Other income decreased $18,142 or 3.75%. Service charges on deposit
accounts increased $12,594 or 3.32%, and other income decreased by $17,571
as compared to the third quarter of 1994. Additionally, there was a gain on
the sale of premises and equipment in 1994, totalling $13,165.
Other expenses decreased by $230,563 or 9.56%. Salaries and benefits
decreased by $14,067 or 1.05%. Occupancy expense decreased $11,249 or
4.21%. This was primarily the result of lower maintenance costs. An
increase of $21,750 or 10.69% in furniture and fixtures expense was
primarily the result of higher depreciation expenses due to asset additions
at the Company's twelve offices. Other non-interest expenses decreased by
$226,997 or 37.74%. This was primarily due to a $191,535 refund received
from the FDIC during the third quarter. This refund represented a
reduction in the FDIC assessed deposit insurance rate from 23 basis points
to four basis points retroactive to June 1, 1995. Management anticipates a
$150,000 reduction in quarterly expenses related to FDIC deposit insurance
to continue in the near-term.
Income taxes for the third quarter of 1995 totalled $612,996 or 33.4%
of income before income taxes, as compared to $552,796 or 30.9% in the
comparable 1994 period.
PART I -- ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Nine Month Summary
The first nine months of 1995 resulted in decreased earnings for the
Company, when compared to the same period in 1994. Net income for the
first nine months decreased $87,797 or 2.43% and net income per share
decreased $.08 or 3.52% compared to the same period in 1994. Increases of
$143,912 in net interest income and $57,993 in other income were more than
offset by increases in other expenses of $203,213 and income taxes of
$84,787.
The Company's annualized return on average assets and average
stockholders' equity for the first nine months of 1995 were 1.42% and
16.48%, respectively, compared to 1.46% and 19.41% for the same period in
1994.
Results of Operations
Total interest income increased $1,148,222 or 6.97% for the nine
months ended September 30, 1995, when compared to the same period in 1994.
This increase resulted primarily from increases of $1,690,027 or 16.79% in
interest earned on the loan portfolio and $65,505 or 22.17% on federal
funds sold, which were partially offset by a decrease of $607,310 or 9.93%
in interest earned on the securities portfolio.
The increase in interest income on loans was attributable to an
increase in average balances of $20.5 million (principally real estate
mortgage and commercial loans) along with a 32 basis point increase in
average yield. The decrease in interest income on the securities portfolio
was primarily a result of a decrease in average balances of $12.4 million.
The average balance decrease in this category reflects the Company's
investment of funds into higher yielding loans.
Interest expense on deposits increased $990,992 or 17.45% for the
nine months of 1995 compared to the same period in 1994. This increase is
attributable to a 64 basis point increase in the average rate paid on
interest-bearing deposits, which more than offset a decrease in average
balances of $8.7 million in interest-bearing deposits. Total interest
expense increased $1,004,310 or 17.68%, reflecting the aforementioned
deposit factors along with $13,318 in interest expense incurred in the
first quarter of 1995 on federal funds purchased.
Net interest income increased $143,912 or 1.33% primarily as the
result of increased balances of net earning assets, which more than offset
a decline in net interest margin. The growth in net earning assets was
primarily due to a 13% expansion in the loan portfolio funded largely by
non-interest earning deposits. The annualized net interest margin decreased
28 basis points from 4.23% to 3.95%. While the average yield on earning
assets increased 36 basis points from 7.20% to 7.56%, the average rate paid
on interest-bearing liabilities increased 64 basis points from 2.97% to
3.61%.
Other income increased $57,993 or 4.27%. Service charges on deposit
accounts increased $40,489 or 3.56%, gains on securities transactions
totalled $11,105 in 1995, and miscellaneous income increased by $19,564 or
9.48% as compared to the first nine months of 1994.
Other expenses increased by $203,213 or 2.96%. Salaries and benefits
increased by $346,924 or 9.42% due to normal salary and benefit cost
increases. Occupancy expense decreased $49,509 or 6.13%. This was
primarily the result of lower maintenance costs. An increase of $63,512 or
10.46% in furniture and equipment expense was primarily the result of
higher depreciation expenses due to asset additions at the Company's twelve
offices. A decrease of $157,714 or 8.91% in other expenses is primarily
due to a $191,535 refund received from the FDIC during the third quarter of
1995, representing a 19 basis point deposit premium reduction retroactive
to June 1, 1995. Exclusive of the deposit insurance refund, other expenses
increased 1.91% from the prior period in 1994.
Income taxes for the first nine months of 1995 totalled $1,654,244 or
31.9% of income before income taxes as opposed to $1,569,457 or 30.3% in
the comparable prior period.
Financial Condition
The Company's total assets increased $11.4 million or 3.42% from
December 31, 1994, to September 30, 1995. This increase is primarily
attributable to a $7.5 million increase in federal funds sold and a $11.3
million increase in the loan portfolio, which was partially offset by a
$3.9 million decrease in the securities portfolio and a $1.0 million
decrease in other assets.
At September 30, 1995, the Company's securities portfolio of
$125,356,254 is segregated into classifications of "available for sale" and
"held to maturity" in accordance with FASB Statement No. 115. As required,
available for sale securities are carried at fair value. Unrealized gains
and losses of $1,632,240 and $252,924, respectively, contained in the
available for sale portfolio, have been recorded, net of deferred taxes, as
a separate component of stockholders' equity. The effect of such
adjustment at September 30, 1995, is to increase stockholders' equity by
$820,053. Securities held to maturity continue to be carried at historical
cost and, at September 30, 1995, contain unrealized gains and losses of
$581,406 and $241,674, respectively. For the entire securities portfolio,
net unrealized gain stands at $1,719,048 at September 30, 1995, as compared
with a $2,335,633 unrealized loss at December 31, 1994. Such improvement is
a reflection of the decline in market interest rates experienced during the
first nine months of 1995 and its effect on debt security market values.
See notes 3, 4, and 5 of the Notes to Consolidated Financial
Statements.
Total deposits increased $6.6 million or 2.16% from December 31,
1994, to September 30, 1995. Savings, club, and interest-bearing demand
deposits decreased $20.4 million, while time deposits increased by $29.2
million. This shifting of deposits reflects the transferring of lower
interest rate savings and transaction account deposits to higher yielding
time deposits. Time deposits at September 30, 1995, represented 30.62% of
total deposits compared to 21.78% at December 31, 1994.
For the nine months ended September 30, 1995, cash and cash
equivalents increased $5.2 million to $22.7 million at September 30, 1995.
Cash provided by a $6.6 million net increase in deposits, $5.7 million in
operating activities, as well as $5.2 million from securities transactions,
were partially offset by cash required to fund a $10.1 million excess of
loans originated over repayments and to pay dividends on common stock of
$1.2 million.
CAPITAL RESOURCES
In March 1989, the FDIC adopted a risk-based capital policy statement
which imposed a minimum capital standard on insured banks. The minimum
ratio of risk-based capital to risk-weighted assets (including certain off-
balance sheet items, such as standby letters of credit) is now 8%. At
least half of the total capital is to be comprised of common stock equity
and qualifying perpetual preferred stock, less goodwill ("Tier I capital").
The remainder ("Tier II capital") may consist of mandatory convertible debt
securities, qualifying subordinated debt, other preferred stock and a
portion of the allowance for loan losses. The Federal Reserve Board adopted
a similar risk-based capital guideline for the Company which is computed on
a consolidated basis.
In addition, the Federal Reserve Board has established leverage ratio
guidelines (Tier I capital to average quarterly assets, less goodwill) for
bank holding companies. These guidelines provide for a minimum leverage
ratio of 3% for bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. All
other holding companies will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
The following table reflects the Company's capital ratios as of
September 30, 1995:
Amount Ratio
(In Thousands)
Risk-Based Capital Ratios:
Actual Tier I Capital $ 29,735 16.65%
Tier I Capital minimum amount 7,142 4.00%
______ _____
Excess $ 22,593 12.65%
====== =====
Actual Combined Tier I and Tier II Capital $ 31,978 17.91%
Combined Tier I and Tier II
Capital minimum requirement 14,285 8.00%
______ ____
Excess $ 17,393 9.91%
====== ====
Amount Ratio
Leverage Ratio:
Actual Tier I Capital to average
third quarter assets $ 29,735 8.76%
Minimum leverage target * *
______ ____
Excess* * *
====== ====
* No formal minimum leverage target (other than the three percent floor
described above) has been established for the Company or the Bank as of
September 30, 1995.
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Changes in Securities Not Applicable
Item 3 Defaults Upon Senior Securities Not Applicable
Item 5 Other Information Not Applicable
Item 6 Exhibits and Reports on Form 8-K None
(b) Current Reports on Form 8-K filed during the quarter ended September
30, 1995: None
SIGNATURE
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 Bancorp, Inc.
(Registrant)
/s/Arthur L. Zande
Arthur L. Zande
Executive Vice President
(Chief Executive Officer)
/s/William J. Eckhardt
William J. Eckhardt
Vice President and Treasurer
(Chief Financial Officer)
Date
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $13,877
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,330
<INVESTMENTS-CARRYING> 46,026
<INVESTMENTS-MARKET> 46,366
<LOANS> 186,639
<ALLOWANCE> 3,100
<TOTAL-ASSETS> 345,013
<DEPOSITS> 313,763
<SHORT-TERM> 0
<LIABILITIES-OTHER> 695
<LONG-TERM> 0
<COMMON> 4,042
0
0
<OTHER-SE> 26,513
<TOTAL-LIABILITIES-AND-EQUITY> 345,013
<INTEREST-LOAN> 11,759
<INTEREST-INVEST> 5,508
<INTEREST-OTHER> 361
<INTEREST-TOTAL> 17,628
<INTEREST-DEPOSIT> 6,671
<INTEREST-EXPENSE> 6,685
<INTEREST-INCOME-NET> 10,943
<LOAN-LOSSES> 107
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 7,069
<INCOME-PRETAX> 5,182
<INCOME-PRE-EXTRAORDINARY> 3,528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,528
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.19
<YIELD-ACTUAL> 7.56
<LOANS-NON> 1,533
<LOANS-PAST> 592
<LOANS-TROUBLED> 2,332
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,000
<CHARGE-OFFS> 131
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 3,100
<ALLOWANCE-DOMESTIC> 3,100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
