<PAGE>
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 MARCH 31, 1996.
[ ] 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 Number)
250 Oak Ridge Road, Oak Ridge, New Jersey 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 March 31, 1996, 3,264,224 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 Condition as of
December 31, 1995 and March 31, 1996 (Unaudited) 2
Consolidated Statements of Income for the
Three Months Ended March 31, 1995 and 1996 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1996 (Unaudited) 4 - 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<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, 1995.
The results of operations for the three month period ended March 31,
1996, are not necessarily indicative of the results to be expected for the
entire fiscal year.
-1-
<PAGE>
LAKELAND BANCORP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, March 31,
ASSETS 1995 1996
------------ ------------
Cash and due from banks $ 16,448,253 $ 15,433,642
Federal funds sold 17,325,000 14,875,000
------------ ------------
Cash and cash equivalents 33,773,253 30,308,642
Securities available for sale, at estimated fair value 79,197,499 75,330,404
Securities held to maturity, estimated fair value of
$47,416,000 in 1995 and $46,835,000 in 1996 46,774,150 46,574,290
Loans, net 187,812,123 189,768,341
Premises and equipment, net 8,170,123 8,454,959
Accrued interest receivable 3,626,861 3,727,571
Other assets 1,307,159 1,370,884
------------ ------------
Total assets $360,661,168 $355,535,091
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
-----------
Deposits:
Non-interest-bearing demand $ 62,590,393 $ 56,140,575
Savings and interest-bearing demand 162,567,499 160,665,820
Club accounts 2,306,027 2,875,334
Time 86,398,671 89,303,406
Time of $100,000 and over 14,079,311 12,573,965
------------ ------------
Total deposits 327,941,901 321,559,100
Other liabilities 679,446 1,202,028
------------ ------------
Total liabilities 328,621,347 322,761,128
------------ ------------
Stockholders' equity
--------------------
Common stock (par value $2.50 per share):
Authorized 6,912,568 shares
in 1995 and 1996; issued and
outstanding 3,246,954 in 1995
and 3,264,224 in 1996 8,117,385 8,160,560
Surplus 16,551,493 16,846,268
Undivided profits 6,176,754 6,969,855
Unrealized gain on
securities available for sale, net 1,194,189 797,280
------------ ------------
Total stockholders' equity 32,039,821 32,773,963
------------ ------------
Total liabilities and stockholders' equity $360,661,168 $355,535,091
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
--------------------------
1995 1996
INTEREST INCOME: ----------- -----------
Loans and fees $ 3,806,869 $ 4,177,686
Federal funds sold 36,923 167,116
Securities:
U.S. Treasury 1,112,647 980,501
U.S. Government agencies 389,769 534,844
State and political subdivisions 222,044 204,058
Other 128,605 137,710
----------- -----------
Total interest income 5,696,857 6,201,915
INTEREST EXPENSE:
Deposits 1,999,280 2,429,198
Borrowed money 13,318 -
----------- -----------
Total interest expense 2,012,598 2,429,198
----------- -----------
Net interest income 3,684,259 3,772,717
PROVISION FOR LOAN LOSSES 34,116 35,087
----------- -----------
Net interest income
after provision for loan losses 3,650,143 3,737,630
----------- -----------
OTHER INCOME:
Service charges on deposit accounts 392,253 381,282
Gains on calls of securities 11,191 227
Other income 82,497 121,487
----------- -----------
Total other income 485,941 502,996
----------- -----------
OTHER EXPENSES:
Salaries and benefits 1,351,651 1,325,623
Occupancy expense, net 249,567 312,237
Furniture and equipment 224,798 232,955
Other 641,722 521,418
----------- -----------
Total other expense 2,467,738 2,392,233
----------- -----------
INCOME BEFORE INCOME TAXES 1,668,346 1,848,393
INCOME TAXES 481,101 632,219
----------- -----------
NET INCOME $ 1,187,245 $ 1,216,174
=========== ===========
Net income per common share $ .37 $ .37
=========== ===========
Weighted average number of shares outstanding 3,211,801 3,259,041
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
1995 1996
Cash flows from operating activities: ------------ ------------
Net income $ 1,187,245 $ 1,216,174
Adjustments to reconcile net income to
net cash provided by operating activities:
Net amortization of premiums and discounts on securities 479,358 362,840
Amortization of unearned interest and deferred loan costs and fees 28,147 19,728
Depreciation and amortization of premises and equipment 220,115 227,253
Provision for loan losses 34,116 35,087
(Gain) loss on sales and calls of securities available for sale (11,191) 98
Gain from calls of securities held to maturity - (325)
Decrease (increase) in accrued interest receivable 65,085 (100,710)
(Increase) decrease in other assets (111,658) 50,471
Increase in other liabilities 521,360 522,582
------------ ------------
Net cash provided by operating activities 2,412,577 2,333,198
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of
and repayments on securities available for sale 4,789,015 4,855,299
Proceeds from calls of securities available for sale - 1,999,903
Proceeds from sales of securities available for sale 5,086,032 -
Purchases of securities available for sale (156,000) (3,872,356)
Proceeds from maturities of
and repayments on securities held to maturity 3,650,000 2,901,740
Proceeds from calls of securities held to maturity - 500,000
Purchases of securities held to maturity (3,543,531) (3,343,518)
Net increase in loans receivable (3,644,438) (2,127,022)
Loan recoveries 8,169 12,769
Additions to premises and equipment (35,849) (512,089)
Proceeds from sales of real estate owned 13,854 255,389
------------ ------------
Net cash provided by investing activities 6,167,252 670,115
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 4,436,505 (6,382,801)
Proceeds from sale of common stock 136,400 337,950
Cash dividends paid on common stock (381,783) (423,073)
------------ ------------
Net cash provided by (used in) financing activities 4,191,122 (6,467,924)
------------ ------------
Net increase (decrease) in cash and cash equivalents 12,770,951 (3,464,611)
Cash and cash equivalents - beginning 17,511,222 33,773,253
------------ ------------
Cash and cash equivalents - ending $ 30,282,173 $ 30,308,642
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
----------------------------
1995 1996
Supplemental disclosures of cash flow information: ----------------------------
Cash paid during the three month period for:
Federal income taxes $ - $ 8,579
Interest 1,862,547 2,446,349
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on securities
available for sale, net of deferred income taxes $ 878,385 $ (396,909)
Charge off of loans receivable to allowance for loan losses 22,285 12,856
Loan receivable transferred to real estate owned - 103,220
Loan to facilitate the sale of real estate owned 148,750 -
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
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, 1995, 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 months ended March 31,
1996, 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. On September 13, 1995, the Corporation's Board of
Directors authorized a 100% stock dividend, which was distributed on October 25,
1995. Per share amounts have been retroactively restated to give effect to these
stock dividends.
3. NEW ACCOUNTING STANDARDS
- ----------------------------
Effective January 1, 1995, the Corporation adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("Statement") Nos. 114, "Accounting by Creditors for Impairment of a Loan" and
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". The provisions of these statements are
applicable to all loans, uncollateralized as well as collateralized, except
large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment and loans that are measured at fair value or at the
lower of cost or fair value and to all loans that are renegotiated in a
troubled debt restructuring involving a modification of terms.
Statement No. 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent,
except that loans renegotiated as part of a trouble debt restructuring
subsequent to the adoption of Statement Nos. 114 and 118 must be measured for
impairment by discounting the total expected cash flow under the renegotiated
terms at each loan's original effective interest rate.
-6-
<PAGE>
LAKELAND BANCORP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NEW ACCOUNTING STANDARDS (Cont'd.)
- ----------------------------
A loan evaluated for impairment pursuant to Statement No. 114 is deemed to be
impaired when, based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. An insignificant payment delay, which
is defined as up to 90 days by the Corporation, will not cause a loan to be
classified as impaired. A loan is not impaired during a period of delay in
payment if the Corporation 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
Corporation ex-pects 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 Corporation does
not aggregate such loans for evaluation purposes.
Payments received on impaired loans are applied to principal, accrued interest
receivable and interest income, in that order.
The adoption of Statements No. 114 and 118 did not have a material effect on
the Corporation's consolidated financial condition or results of operations.
4. SECURITIES AVAILABLE FOR SALE
- ---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1995
------------------------------------------------
Amortized Gross Unrealized Carrying
----------------
Cost Gains Losses Value
----------- ---------- ---------- -----------
U.S. Treasury $35,579,991 $ 494,926 $ 24,573 $36,050,344
U.S. Government agencies 19,762,429 190,384 - 19,952,813
States and political subdivisions 16,168,610 363,572 60,684 16,471,498
Other debt securities 4,485,032 39,005 38,830 4,485,207
Equity security 1,204,882 1,032,755 - 2,237,637
----------- ---------- ---------- -----------
$77,200,944 $2,120,642 $ 124,087 $79,197,499
=========== ========== ========== ===========
March 31, 1996
------------------------------------------------
Amortized Gross Unrealized Carrying
----------------
Cost Gains Losses Value
------------------------------------------------
U.S. Treasury $32,446,874 $ 317,314 $ 17,563 $32,746,625
U.S. Government agencies 18,711,006 90,937 78,849 18,723,094
States and political subdivisions 16,861,022 115,959 19,347 16,957,634
Other debt securities 4,773,339 27,726 6,557 4,794,508
Equity security 1,204,882 903,661 - 2,108,543
----------- ---------- ---------- -----------
$73,997,123 $1,455,597 $ 122,316 $75,330,404
=========== ========== ========== ===========
</TABLE>
-7-
<PAGE>
LAKELAND BANCORP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. SECURITIES AVAILABLE FOR SALE (Cont'd.)
- ---------------------------------
The following is a summary of securities available for sale by maturity:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1995 March 31, 1996
------------------------- -------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
----------- ----------- ----------- -----------
Due in one year or less $29,443,072 $29,693,695 $31,769,206 $31,806,246
Due after one year
through five years 46,512,990 47,226,167 40,983,035 41,375,615
Due after five years
through ten years 25,000 25,000 25,000 25,000
Due after ten years 15,000 15,000 15,000 15,000
Equity security 1,204,882 2,237,637 1,204,882 2,108,543
----------- ----------- ----------- -----------
$77,200,944 $79,197,499 $73,997,123 $75,330,404
=========== =========== =========== ===========
5. SECURITIES HELD TO MATURITY
- -------------------------------
December 31, 1995
---------------------------------------------------
Carrying Gross Unrealized Estimated
----------------
Value Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Treasury $29,618,315 $ 363,177 $ 461 $29,981,031
U.S. Government agencies 12,443,474 234,035 790 12,676,719
States and political subdivisions 1,245,975 35,815 2,720 1,279,070
Other debt securities 3,466,386 15,384 2,261 3,479,509
----------- ---------- ---------- -----------
$46,774,150 $ 648,411 $ 6,232 $47,416,329
============ ========== ========== ===========
March 31, 1996
---------------------------------------------------
Carrying Gross Unrealized Estimated
Value Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Treasury $29,021,093 $ 239,213 $ 85,525 $29,174,781
U.S. Government agencies 12,913,135 144,768 48,715 13,009,188
States and political subdivisions 1,184,823 11,095 1,505 1,194,413
Other debt securities 3,455,239 8,374 7,209 3,456,404
----------- ---------- ---------- -----------
$46,574,290 $ 403,450 $ 142,954 $46,834,786
=========== ========== ========== ===========
</TABLE>
-8-
<PAGE>
LAKELAND BANCORP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. SECURITIES HELD TO MATURITY (Cont'd.)
- -------------------------------
A summary of securities held to maturity by maturity follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> C>
December 31 March 31
------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
Due in one year or less $13,447,140 $13,582,192 $14,480,024 $14,516,429
Due after one year
through five years 33,127,010 33,632,199 31,894,266 32,118,357
Due after ten years 200,000 201,938 200,000 200,000
----------- ----------- ----------- -----------
$46,774,150 $47,416,329 $46,574,290 $46,834,786
=========== =========== =========== ===========
</TABLE>
6. LOANS, NET
- --------------
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, March 31,
1995 1996
------------ ------------
Loans $190,814,088 $192,790,006
Less: Unearned income (91,965) (76,665)
Allowance for loan losses (2,910,000) (2,945,000)
------------ ------------
$187,812,123 $189,768,341
============= =============
</TABLE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months
Ended March 31,
-----------------------
1995 1996
---------- ----------
Balance - beginning $3,000,000 $2,910,000
Provisions charged to operations 34,116 35,087
Loans charged off (22,285) (12,856)
Recoveries of loans previously charged off 8,169 12,769
---------- ---------
Balance - ending $3,020,000 $2,945,000
========== ==========
</TABLE>
-9-
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. LOANS, NET (Cont'd.)
- ------------------------
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, March 31,
1995 1996
------------ -----------
Recorded investment in impaired loans:
With recorded allowances $1,920,196 $2,439,494
Without recorded allowances 472,098 468,621
------------ -----------
Total impaired loans 2,392,294 2,908,115
Related allowance for loan losses 378,528 405,528
------------ -----------
Net impaired loans $2,013,766 $2,502,587
=========== ==========
</TABLE>
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
-----------------------
1995 1996
----------- ----------
Average recorded investment $ 823,329 $2,560,484
Interest income recognized - 9,769
</TABLE>
-10-
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH SUMMARY
The first three months of 1996 resulted in increased earnings for Lakeland
Bancorp, Inc. (the "Company"), when compared to the same period in 1995. Net
income increased $28,929, or 2.44%, to $1,216,174 for the first three months of
1996 from $1,187,245 for the same period in 1995. Net income per share remained
the same at $.37. Increases of $88,458 in net interest income and $17,055 in
other income and a decrease of $75,505 in other expenses more than offset an
increase in income tax expense of $151,118.
The Company's annualized return on average assets and average stockholders'
equity for the first three months of 1996 were 1.39% and 14.95%, respectively,
compared to 1.46% and 17.59%, respectively, for the same period in 1995.
RESULTS OF OPERATIONS
Total interest income increased $505,058, or 8.87% to $6,201,915 for the
three months ended March 31, 1996, when compared to $5,696,857 for the same
period in 1995. The overall increase in this category was a result of increases
of $370,817 or 9.74% in interest earned on the loan portfolio, $130,193 or
352.61% in interest earned on federal funds sold, and $4,048 or .22% in interest
earned on the securities portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $14.5 million. The increase in interest income
on federal funds sold was attributable to an increase in average balances of
$10.4 million which more than offset a 144 basis point decrease in yield. The
slight increase in interest income on securities was attributable to a $1.8
million increase in average balances, which offset a
7 basis point decrease in yield.
Interest expense on deposits increased $429,918 or 21.50% to $2,429,198 for
the first quarter of 1996 compared to $1,999,280 for the same period in 1995.
This increase is attributable to a 43 basis point increase in the average rate
paid on interest-bearing deposits along with an increase of $16.4 million in
average balances. Total interest expense increased $416,600 or 20.70%,
reflecting the aforementioned deposit factors along with $13,318 in interest
expense incurred in the first quarter of 1995 on federal funds purchased.
-11-
<PAGE>
Net interest income increased $88,458 or 2.40% to $3,772,717 for the first
three months of 1996 from $3,684,259 for the same period in 1995, primarily as
the result of increased balances of net earning assets, which more than offset a
43 basis point decrease in net interest margin. The annualized net interest
margin (the average yield on interest earning assets, less the average cost of
interest-bearing liabilities) decreased from 4.19% to 3.76%. While the average
yield on earning assets remained the same at 7.58%, the average rate paid on
interest-bearing liabilities increased 43 basis points from 3.39% to 3.82%.
The provision for loan losses remained virtually unchanged at $35,087 for
the three months ended March 31, 1996, as compared with $34,116 for the same
prior year period. During the first quarter of 1996, the Company charged off
loans of $12,856 and recovered $12,769 in previously charged off loans compared
to $22,285 and $8,169, respectively, during the same period in 1995. The
allowance for loan losses at March 31, 1996, was 1.53% of total loans, compared
to 1.53% at December 31, 1995, and 1.69% at March 31, 1995. 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 three months ending March 31, 1996
and 1995, and for each of the years in the five years ended December 31, 1995,
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>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
March 31, YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period........................... $2,910 $3,000 $3,000 $3,000 $2,450 $2,035 $1,400
------ ------ ------ ------ ------ ------ ------
Charge-offs:
Commercial.......................... 3 -- 114 234 57 256 267
Installment......................... 10 8 33 85 107 87 89
Mortgage............................ -- 14 217 23 35 45 --
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 13 22 364 342 199 388 356
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 6 4 108 69 13 1 9
Installment......................... 7 4 37 48 41 13 27
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 13 8 145 117 54 14 36
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ -- 14 219 225 145 374 320
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 35 34 129 225 695 789 955
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $2,945 $3,020 $2,910 $3,000 $3,000 $2,450 $2,035
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding................... --% .01% .12% .14% .11% .34% .32%
Balance of allowance at end of period
as a percent of loans............... 1.53% 1.69% 1.53% 1.71% 2.01% 2.02% 1.94%
</TABLE>
-12-
<PAGE>
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("Statement") Nos. 114 ("Accounting by Creditors for Impairment of a
Loan") and 118 ("Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures") as required by generally accepted accounting
principles. See Note 6 of the Notes to Consolidated Financial Statements. 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. Statement No. 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 Statement Nos. 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 Statement No. 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,
unless the asset is both well secured and in the process of collection.
Therefore, a loan will be considered to be impaired when it is 90 days
delinquent and it exceeds the balance guidelines for Statement No. 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.
-13-
<PAGE>
Statement No. 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 Statement No. 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 March 31, 1996, based on the above criteria, the Company classified
four commercial loans, totalling $1,291,344, and five renegotiated mortgage
loans, totalling $1,616,772, 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 four commercial loans. Based upon such evaluation of these impaired
loans, $405,528 has been allocated to the allowance for loan losses.
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, 1995) as of March 31, 1996, and as of December 31 of
each of the last five years:
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
--------- -------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $1,393 $1,545 $1,501 $ 483 $ 213 $1,124
Past due loans.................. 2,205 59 554 2,934 3,714 1,223
Renegotiated loans.............. 1,027 2,325 1,740 2,366 -- --
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 4,625 3,929 3,795 5,783 3,927 2,347
Other real estate owned......... 103 255 629 458 -- --
------ ------ ------ ------ ------ ------
Total........................ $4,728 $4,184 $4,424 $6,241 $3,927 $2,347
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at March 31, 1996, are three non-accrual
commercial loans, totalling $751,941, one commercial loan and one mortgage loan
past due over 90 days, totalling $1,687,554, and four renegotiated loans,
totalling $468,621, which represents all loans categorized as impaired.
Therefore, Statement No. 114 has no impact on the comparability of data in the
above credit risk table.
-14-
<PAGE>
At March 31, 1996, non-accrual loans totaled $1,393,443, a decrease of
$151,090 compared to December 31, 1995. This net change is primarily the result
of the addition of one commercial loan, which was previously included in the
restructured loan category, along with the removal of three commercial loans and
one home equity loan. Of the total non-accrual loans at March 31, 1996, all are
either in foreclosure, in various stages of litigation, or on a repayment
schedule. At March 31, 1996, loans past due 90 days or more and still accruing
totalled $2,205,363, an increase of $2,145,502 compared to December 31, 1995.
This net change is primarily the result of the addition of three commercial
loans and one mortgage loan, which are past due minimally over 90 days and
expected to be resolved within the next quarter, and one renegotiated mortgage
loan becoming past due over 90 days. At March 31, 1996, renegotiated loans
totalled $1,026,472, a decrease of $1,298,608 compared to December 31, 1995.
This net change is primarily the result of the previously noted renegotiated
commercial loan being placed in the non-accrual category and the previously
noted renegotiated mortgage loan becoming past due over 90 days.
Other income increased $17,055 or 3.51% to $502,996 for the first three
months of 1996 from $485,941 for the same period in 1995.
Other expenses decreased by $75,505 or 3.06% to $2,392,233 for the first
three months of 1996 from $2,467,738 for the same period in 1995. Salaries and
benefits decreased by $26,028 or 1.93%. While salaries increased by $36,179 or
3.64% due to normal salary increases, benefit expense decreased by $62,207 or
20.26% as the Company has realized a cost reduction due to a change in health
insurance plans. Occupancy expense increased $62,670 or 25.11%. This was
primarily the result of an increase of $38,654 or 57.38% in building
maintenance, which was the result of higher costs associated with the harsh
winter, as compared to the mild winter in 1995. The increase of $8,157 or 3.63%
in furniture and fixtures expense is primarily the result of higher depreciation
expenses due to asset additions at the Company's thirteen offices. Other
expenses decreased $120,304 or 18.75%. Significant sources of changes in other
expenses included FDIC Insurance expense, which totalled the statutory minimum
of $500 in 1996 as compared to $187,429 in 1995, and other real estate owned
expense, which totalled $59,226 in 1996 as compared to no expense in 1995. The
1996 expense was predominantly due to the payment of prior year real estate
taxes for a property which was maintained in other real estate owned.
Income tax expense increased $151,118 or 31.41% to $632,219 for the first
three months of 1996 from $481,101 for the same period in 1995. $70,437 of this
increase relates to the recording of a $4,330 expense of prior year taxes in
1996, as compared to a $66,107 income tax credit recorded in 1995, relating to
an overpayment of federal taxes in 1994. The remainder of the increase in
income tax expense was due to higher pre-tax earnings.
-15-
<PAGE>
FINANCIAL CONDITION
The Company's total assets decreased $5.1 million or 1.42% from December
31, 1995, to March 31, 1996. A $3.5 million decrease in cash and cash
equivalents and a $4.1 million decrease in the Company's securities portfolio
more than offset a $2.0 million increase in the loan portfolio. The decrease in
cash and cash equivalents resulted primarily from a $6.4 million decrease in
deposits as well as cash dividend payments of $.4 million.
At March 31, 1996, the Company's securities portfolio of $121.9 million is
segregated into classifications of "available for sale" and "held to maturity".
As required, available for sale securities are carried at fair value.
Unrealized gains and losses of $1,456,000 and $122,000, 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 March 31, 1996, is to increase stockholders' equity by $797,000. Securities
held to maturity continue to be carried at historical cost and, at March 31,
1996, contain unrealized gains and losses of $403,000 and $143,000,
respectively. For the entire securities portfolio, net unrealized gains stand
at $1,594,000 at March 31, 1996, as compared with a $2,639,000 net unrealized
gain at
December 31, 1995. Such decline is a reflection of the increase in market
interest rates experienced during the first three months of 1996 and its effect
on debt security market values.
See notes 4 and 5 of the Notes to Consolidated Financial Statements.
Total deposits decreased $6.4 million or 1.95% from December 31, 1995, to
March 31, 1996. This was primarily due to a decrease of $6.5 million in non-
interest bearing demand deposits. Time deposits at March 31, 1996, represented
31.68% of total deposits as compared to 30.64% at December 31, 1995.
Stockholders' equity increased $734,000 or 2.29% as net income of $1.2
million and $338,000 in dividend reinvestments were partially offset by
dividends paid to stockholders of $423,000 and a $397,000 decrease in the equity
component related to available for sale securities.
-16-
<PAGE>
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 March 31,
1996.
AMOUNT RATIO
(In Thousands)
RISK-BASED CAPITAL RATIOS:
Actual Tier I Capital $31,977 17.33%
Tier I Capital minimum amount 7,381 4.00%
------- -----
Excess $24,596 13.33%
======= =====
Actual Combined Tier I and Tier II Capital $34,291 18.58%
Combined Tier I and Tier II Capital minimum
requirement 14.762 8.00%
------- -----
Excess $19,529 10.58%
======= =====
AMOUNT RATIO
LEVERAGE RATIO:
Actual Tier I Capital to average first quarter
assets $31,977 9.11%
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 March
31, 1996.
-17-
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Change 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
(a) Exhibits:
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K Filed During The Quarter Ended March 31,
1996: None
-18-
<PAGE>
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)
May 9, 1996
- -------------
Date
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,434
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,330
<INVESTMENTS-CARRYING> 46,574
<INVESTMENTS-MARKET> 46,835
<LOANS> 192,713
<ALLOWANCE> 2,945
<TOTAL-ASSETS> 355,535
<DEPOSITS> 321,559
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,202
<LONG-TERM> 0
0
0
<COMMON> 8,161
<OTHER-SE> 24,613
<TOTAL-LIABILITIES-AND-EQUITY> 355,535
<INTEREST-LOAN> 4,178
<INTEREST-INVEST> 1,857
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 6,202
<INTEREST-DEPOSIT> 2,429
<INTEREST-EXPENSE> 2,429
<INTEREST-INCOME-NET> 3,773
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,392
<INCOME-PRETAX> 1,848
<INCOME-PRE-EXTRAORDINARY> 1,216
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,216
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 7.58
<LOANS-NON> 1,393
<LOANS-PAST> 2,205
<LOANS-TROUBLED> 1,027
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,910
<CHARGE-OFFS> 13
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 2,945
<ALLOWANCE-DOMESTIC> 2,945
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
