<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 JUNE 30, 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 June 30, 1996, 3,275,149 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 June 30, 1996 (Unaudited) 2
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1995 and 1996 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 - 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<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 and six month periods ended June
30, 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>
December 31, June 30,
ASSETS 1995 1996
------ ------------ -----------
<S> <C> <C>
Cash and due from banks $ 16,448,253 $ 18,910,919
Federal funds sold 17,325,000 3,300,000
------------ ------------
Cash and cash equivalents 33,773,253 22,210,919
Securities available for sale, at estimated fair value 79,197,499 77,088,381
Securities held to maturity, estimated fair value of
$47,416,000 in 1995 and $46,933,000 in 1996 46,774,150 47,132,732
Loans, net 187,812,123 203,246,287
Premises and equipment, net 8,170,123 8,595,418
Accrued interest receivable 3,626,861 3,652,702
Other assets 1,307,159 1,656,032
------------ ------------
Total assets $360,661,168 $363,582,471
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
-----------
Deposits:
Non-interest-bearing demand $ 62,590,393 $ 61,867,270
Savings and interest-bearing demand 162,567,499 163,530,176
Club accounts 2,306,027 2,963,601
Time 86,398,671 88,383,071
Time of $100,000 and over 14,079,311 12,681,837
------------ ------------
Total deposits 327,941,901 329,425,955
Other liabilities 679,446 587,483
------------ ------------
Total liabilities 328,621,347 330,013,438
------------ ------------
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 3,275,149 in 1996 8,117,385 8,187,873
Surplus 16,551,493 17,057,155
Undivided profits 6,176,754 7,843,178
Unrealized gain on
securities available for sale, net 1,194,189 480,827
------------ ------------
Total stockholders' equity 32,039,821 33,569,033
------------ ------------
Total liabilities and stockholders' equity $360,661,168 $363,582,471
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1996 1995 1996
------------------ -----------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans and fees $ 3,916,340 $ 4,347,514 $ 7,723,209 $ 8,525,200
Federal funds sold 164,848 157,352 201,771 324,468
Securities:
U.S. Treasury 1,101,624 958,374 2,214,271 1,938,875
U.S. Government agencies 372,485 537,901 762,254 1,072,745
State and --------------------------------------------------
political subdivisions 204,109 198,684 426,153 402,742
Other 132,616 145,202 261,221 282,912
Total interest income 5,892,022 6,345,027 11,588,879 12,546,942
--------------------------------------------------
INTEREST EXPENSE:
Deposits 2,282,770 2,405,127 4,282,050 4,834,325
Borrowed money - - 13,318 -
--------------------------------------------------
Total interest expense 2,282,770 2,405,127 4,295,368 4,834,325
--------------------------------------------------
Net interest income 3,609,252 3,939,900 7,293,511 7,712,617
PROVISION FOR LOAN LOSSES (25,336) 83,908 8,780 118,995
Net interest income after --------------------------------------------------
provision for loan losses 3,634,588 3,855,992 7,284,731 7,593,622
--------------------------------------------------
OTHER INCOME:
Service charges
on deposit accounts 393,907 438,343 786,160 861,505
Other income 69,299 100,419 151,796 180,026
Gains (losses) on sales and calls
of securities available for sale (176) - 11,015 (98)
Gains on calls of
securities held to maturity 90 - 90 325
------------------------------------------------
Total other income 463,120 538,762 949,061 1,041,758
------------------------------------------------
OTHER EXPENSES:
Salaries and benefits 1,352,996 1,412,430 2,704,647 2,738,053
Occupancy expense, net 252,134 277,412 501,701 589,649
Furniture and equipment 220,414 195,443 445,212 428,398
Other 595,296 534,399 1,237,018 1,055,817
------------------------------------------------
Total other expense 2,420,840 2,419,684 4,888,578 4,811,917
------------------------------------------------
INCOME BEFORE INCOME TAXES 1,676,868 1,975,070 3,345,214 3,823,463
INCOME TAXES 560,147 676,839 1,041,248 1,309,058
------------------------------------------------
NET INCOME $ 1,116,721 $ 1,298,231 $ 2,303,966 $ 2,514,405
=================================================
Net income per common share $ .35 $ .40 $ .72 $ .77
===============================================
Weighted average
number of shares outstanding 3,221,292 3,271,946 3,216,574 3,265,494
================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,303,966 $ 2,514,405
Adjustments to reconcile net income to
net cash provided by operating activities:
Net amortization of premiums and discounts on securities 911,133 703,302
Amortization of unearned interest and deferred loan costs and fees 39,292 41,106
Depreciation and amortization of premises and equipment 438,761 418,230
Provision for loan losses 8,780 118,995
(Gain) loss on sales and calls of securities available for sale (11,015) 98
Gain from calls of securities held to maturity (90) (325)
Decrease (increase) in accrued interest receivable 202,109 (25,841)
(Increase) in other assets (440,269) (21,740)
Increase (decrease) in other liabilities 268,028 (91,963)
------------- -----------
Net cash provided by operating activities 3,720,695 3,656,267
------------- -----------
Cash flows from investing activities:
Proceeds from repayments and maturities of securities available for sale 11,351,079 13,758,599
Proceeds from sales of securities available for sale 5,086,032 -
Proceeds from calls of securities available for sale 500,000 2,999,902
Purchases of securities available for sale (8,923,707) (16,260,068)
Proceeds from repayments and maturities of securities held to maturity 6,452,103 7,509,801
Proceeds from calls of securities held to maturity 100,000 900,000
Purchases of securities held to maturity (8,077,161) (9,053,437)
Net increase in loans receivable (5,792,308) (15,712,152)
Loan recoveries 119,318 14,667
Additions to premises and equipment, net (176,821) (843,525)
Proceeds from sales of real estate owned 13,854 255,389
------------- -----------
Net cash provided by (used in) investing activities 652,389 (16,430,824)
------------- -----------
Cash flows from financing activities:
Net increase in deposits 5,505,492 1,484,054
Proceeds from sale of common stock 277,200 576,150
Cash dividends paid on common stock (764,666) (847,981)
------------- -----------
Net cash provided by financing activities 5,018,026 1,212,223
------------- -----------
Net (decrease) increase in cash and cash equivalents 9,391,110 (11,562,334)
Cash and cash equivalents - beginning 17,511,222 33,773,253
------------- -----------
Cash and cash equivalents - ending $ 26,902,332 $ 22,210,919
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
-------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the six month period for:
Income taxes (federal and state) $ 1,117,625 $ 1,261,080
Interest 4,025,835 4,860,371
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on securities
available for sale, net of deferred income taxes $ 1,452,724 $ 479,302
Charge off of loans receivable to allowance for loan losses 28,098 93,662
Transfer of loans receivable to real estate owned 70,254 103,220
Loan to facilitate the sale of real estate owned 148,750 -
Stock dividend 2,457,472 -
</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 and six months ended June
30, 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>
December 31, 1995
--------------------------------------------
Amortized Gross Unrealized Carrying
----------------
Cost Gains Losses Value
--------------------------------------------
<S> <C> <C> <C> <C>
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
=================================================
<CAPTION>
June 30, 1996
---------------------------------------------
Amortized Gross Unrealized Carrying
-----------------
Cost Gains Losses Value
----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $31,790,175 $ 136,210 $ 35,041 $31,891,344
U.S. Government agencies 20,663,818 19,882 262,325 20,421,375
States and political subdivisions 17,455,596 62,616 59,948 17,458,264
Other debt securities 5,170,019 12,811 17,007 5,165,823
Equity security 1,204,882 946,693 - 2,151,575
-------------------------------------------------
$76,284,490 $1,178,212 $ 374,321 $77,088,381
=================================================
</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>
December 31, 1995 June 30, 1996
----------------------------------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $29,443,072 $29,693,695 $29,376,992 $29,325,583
Due after one year
through five years 46,512,990 47,226,167 45,667,616 45,576,223
Due after five years
through ten years 25,000 25,000 25,000 25,000
Due after ten years 15,000 15,000 10,000 10,000
Equity security 1,204,882 2,237,637 1,204,882 2,151,575
-----------------------------------------------------
$77,200,944 $79,197,499 $76,284,490 $77,088,381
=====================================================
<CAPTION>
5. SECURITIES HELD TO MATURITY
December 31, 1995
----------------------------------------------------
Carrying Gross Unrealized Estimated
----------------
Value Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
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
===================================================
<CAPTION>
June 30, 1996
-------------------------------------------------------
Carrying Gross Unrealized Estimated
----------------
Value Gains Losses Fair Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $29,591,205 $ 86,177 $ 206,585 $29,470,797
U.S. Government agencies 12,609,046 72,383 140,023 12,541,406
States and political subdivisions 1,488,389 7,377 5,322 1,490,444
Other debt securities 3,444,092 811 14,423 3,430,480
------------------------------------------------------
$47,132,732 $ 166,748 $ 366,353 $46,933,127
======================================================
</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>
December 31, 1995 June 30,
-----------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $13,447,140 $13,582,192 $13,616,188 $13,585,843
Due after one year
through five years 33,127,010 33,632,199 33,316,544 33,149,659
Due after ten years 200,000 201,938 200,000 197,625
-----------------------------------------------------
$46,774,150 $47,416,329 $47,132,732 $46,933,127
=====================================================
<CAPTION>
6. LOANS, NET
- --------------
December 31, June 30,
1995 1996
---------------------------
<S> <C> <C>
Loans $190,814,088 $206,253,176
Less: Unearned income (91,965) (56,889)
Allowance for loan losses (2,910,000) (2,950,000)
$187,812,123 $203,246,287
============================
<CAPTION>
A summary of the activity in the allowance for loan losses is as follows:
Six Months
Ended June 30,
----------------------
1995 1996
-----------------------
<S> <C> <C>
Balance - beginning $3,000,000 $2,910,000
Provisions charged to operations 8,780 118,995
Loans charged off (28,098) (93,662)
Recoveries of loans previously charged off 119,318 14,667
------------------------
Balance - ending $3,100,000 $2,950,000
========================
</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>
December 31, June 30,
1995 1996
-------------------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $1,920,196 $2,153,159
Without recorded allowances 472,098 464,874
------------------------
Total impaired loans 2,392,294 2,618,033
Related allowance for loan losses 378,528 537,444
------------------------
Net impaired loans $2,013,766 $2,080,589
========================
<CAPTION>
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
Six Months Ended
June 30,
-----------------
1995 1996
-----------------
<S> <C> <C>
Average recorded investment $ 962,770 $2,661,779
Interest income recognized - 61,737
</TABLE>
- 10 -
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH SUMMARY
The second quarter of 1996 resulted in increased earnings for Lakeland
Bancorp, Inc. (the "Company"), when compared to the same period in 1995. Net
income increased $181,510, or 16.25%, to $1,298,231 for the second three months
of 1996 from $1,116,721 for the same period in 1995. Net income per share
increased $.05 or 14.29%. Increases of $330,648 in net interest income and
$75,642 in other income more than offset increases in income tax expense of
$116,692 and $109,244 in the provision for loan losses.
The Company's annualized return on average assets and average stockholders'
equity for the second three months of 1996 were 1.44% and 15.64%, respectively,
compared to 1.31% and 15.57%, respectively, for the same period in 1995.
RESULTS OF OPERATIONS
Total interest income increased $453,005, or 7.69% to $6,345,027 for the
three months ended June 30, 1996, when compared to $5,892,022 for the same
period in 1995. The overall increase in this category was a result of increases
of $431,174 or 11.01% in interest earned on the loan portfolio and $29,327 or
1.62% in interest earned on the securities portfolio, which was partially offset
by a decrease in interest earned on federal funds sold of $7,496 or 4.55%.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $19.1 million. The slight increase in interest
income on securities was attributable to a $589,000 increase in average
balances, along with a 6 basis point increase in yield. The slight decrease in
interest income on federal funds sold was attributable to a 67 basis point
decrease in yield, offset in part by an increase in average balances of
$650,000.
Interest expense on deposits increased $122,357 or 5.36% to $2,405,127 for
the second quarter of 1996 compared to $2,282,770 for the same period in 1995.
This increase is attributable to an increase of $14.3 million in average
balances.
Net interest income increased $330,648 or 9.16% to $3,939,900 for the
second three months of 1996 from $3,609,252 for the same period in 1995,
primarily as the result of increased balances of net earning assets, along with
a 9 basis point increase in net interest margin. The annualized net interest
margin (the average yield on interest-earning assets, less the average cost of
interest-bearing liabilities) increased from 3.89% to 3.98%. While the average
yield on earning assets increased 7 basis points from 7.56% to 7.63%, the
average rate paid on interest-bearing liabilities decreased 2 basis points from
3.67% to 3.65%.
- 11 -
<PAGE>
The provision for loan losses increased $109,244 to $83,908 for the three
months ended June 30, 1996, as compared to a $25,336 credit balance for the same
prior year period. During the second quarter of 1996, the Company charged off
loans of $80,806 and recovered $1,898 in previously charged off loans compared
to $5,813 and $111,149, respectively, during the same period in 1995. The
allowance for loan losses at June 30, 1996, was 1.43% of total loans, compared
to 1.53% at December 31, 1995, and 1.71% at June 30, 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 six months ending June 30, 1996 and
1995, and for each of the years in the five years ended December 31, 1995, the
historical relationships among the allowance for loan losses, the provision for
loan losses, the amount of loans charged-off and the amount of loan recoveries:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
June 30, 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.......................... 70 2 114 234 57 256 267
Installment......................... 24 14 33 85 107 87 89
Mortgage............................ -- 14 217 23 35 45 --
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 94 30 364 342 199 388 356
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 7 109 108 69 13 1 9
Installment......................... 8 12 37 48 41 13 27
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 15 121 145 117 54 14 36
------ ------ ------ ------ ------ ------ ------
Net charge-offs.(recoveries)........... 79 <91> 219 225 145 374 320
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 119 9 129 225 695 789 955
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $2,950 $3,100 $2,910 $3,000 $3,000 $2,450 $2,035
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding (1)............... .08% (.10%) .12% .14% .11% .34% .32%
Balance of allowance at end of period
as a percent of loans............... 1.43% 1.71% 1.53% 1.71% 2.01% 2.02% 1.94%
</TABLE>
(1) annualized for the six month periods ended June 30, 1996, and 1995.
- 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 June 30, 1996, based on the above criteria, the Company classified
three commercial loans, including one renegotiated loan of $1,471,990, totalling
$2,153,159, and four renegotiated mortgage loans, totalling $464,874, as
impaired. The impairment of these loans is measured using the present value of
future cash flows for the four renegotiated loans and is based on the fair value
of the underlying collateral for the remaining three commercial loans. Based
upon such evaluation of these impaired loans, $537,444 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 June 30, 1996, and as of December 31 of
each of the last five years:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ----------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $ 815 $1,545 $1,501 $ 483 $ 213 $1,124
Past due loans.................. 1,704 59 554 2,934 3,714 1,223
Renegotiated loans.............. 2,041 2,325 1,740 2,366 -- --
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 4,560 3,929 3,795 5,783 3,927 2,347
Other real estate owned......... 103 255 629 458 -- --
------ ------ ------ ------ ------ ------
Total........................ $4,663 $4,184 $4,424 $6,241 $3,927 $2,347
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at June 30, 1996, is one non-accrual
commercial loan, totalling $142,515, one commercial loan past due over 90 days,
totalling $538,654, and five renegotiated loans, totalling $1,936,864, 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.
At June 30, 1996, non-accrual loans totaled $815,411, a decrease of
$578,032 compared to March 31, 1996. This net change is primarily the result of
the reduction of one commercial loan, which has been renegotiated, and a payment
on another commercial loan that is in litigation. Of the total non-accrual loans
at June 30, 1996, all are either in foreclosure, in various stages of
litigation, or on a repayment schedule. At June 30, 1996, loans past due 90 days
or more and still accruing totalled $1,703,896, a decrease of $501,467 compared
to March 31, 1996.
This net change is primarily the result of the addition of three
- 14 -
<PAGE>
commercial loans and two mortgage loans, which are past due minimally over 90
days and expected to be resolved within the next quarter, and the reduction of
one mortgage loan, which has been renegotiated and one commercial loan, which
has been making scheduled payments. At June 30, 1996, renegotiated loans
totalled $2,040,576, an increase of $1,014,104 compared to March 31, 1996. This
net change is primarily the result of the previously noted renegotiated loans
being placed on an accrual status, partially offset by one renegotiated
commercial loan, which has been paid in full.
Other income increased $75,642 or 16.33% to $538,762 for the second three
months of 1996 from $463,120 for the same period in 1995.
Other expenses decreased by $1,156 or .05% to $2,419,684. Salaries and
benefits increased by $59,434 or 4.39% due to normal salary increases.
Occupancy expense increased $25,278 or 10.03%. This was primarily the result of
higher costs associated with operating the Company's thirteen offices. The
decrease of $24,971 or 11.33% in furniture and fixtures expense is primarily the
result of furniture and fixtures in the administrative building becoming fully
depreciated in March of 1996. Other non-interest expenses decreased $60,897 or
10.23%. A significant source of change in other expenses is FDIC Insurance
expense, which totalled the statutory minimum of $500 in 1996 as compared to
$187,429 in 1995. Excluding the effect of the decrease in FDIC insurance
expense, other non-interest expenses increased $126,532, largely due to
increases in advertising, postage, and stationery and supplies expenses,
aggregating $69,948 and reflecting increased marketing efforts.
Income taxes for the second quarter of 1996 totalled $676,839 or 34.3% of
income before income taxes, as compared to $560,147 or 33.4% in the comparable
1995 period.
- 15 -
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTH SUMMARY
The first six months of 1996 resulted in increased earnings for the
Company, when compared to the same period in 1995. Net income increased
$210,439, or 9.13%, to $2,514,405 for the first six months of 1996 from
$2,303,966 for the same period in 1995. Net income per share increased $.05 or
6.94%. Increases of $419,106 in net interest income and $92,697 in other income
and a decrease of $76,661 in other expenses more than offset increases in income
tax expense of $267,810 and the provision for loan losses of $110,215.
The Company's annualized return on average assets and average stockholders'
equity for the first six months of 1996 were 1.42% and 15.29%, respectively,
compared to 1.40% and 16.56%, respectively, for the same period in 1995.
RESULTS OF OPERATIONS
Total interest income increased $958,063, or 8.27% to $12,546,942 for the
six months ended June 30, 1996, when compared to $11,588,879 for the same period
in 1995. The overall increase in this category was a result of increases of
$801,991 or 10.38% in interest earned on the loan portfolio, $122,697 or 60.81%
in interest earned on federal funds sold, and $33,375 or .91% in interest earned
on the securities portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $17.3 million. The increase in interest income
on federal funds sold was attributable to an increase in average balances of
$5.6 million which more than offset a 81 basis point decrease in yield. The
slight increase in interest income on securities was attributable to a $1.1
million increase in average balances.
Interest expense on deposits increased $552,275 or 12.90% to $4,834,325 for
the first six months of 1996 compared to $4,282,050 for the same period in 1995.
This increase is attributable to a 21 basis point increase in the average rate
paid on interest-bearing deposits along with an increase of $15.2 million in
average balances. Total interest expense increased $538,957 or 12.55%,
reflecting the aforementioned deposit factors along with $13,318 in interest
expense incurred in the first quarter of 1995 on federal funds purchased.
- 16 -
<PAGE>
Net interest income increased $419,106 or 5.75% to $7,712,617 for the first
six months of 1996 from $7,293,511 for the same period in 1995, primarily as the
result of increased balances of net earning assets, which more than offset a 18
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 4.02% to 3.84%. While the average
yield on earning assets increased 3 basis points from 7.56% to 7.59%, the
average rate paid on interest-bearing liabilities increased 21 basis points from
3.54% to 3.75%.
Other income increased $92,697 or 9.77% to $1,041,758 for the first six
months of 1996 from $949,061 for the same period in 1995. This was primarily
the result of an increase of $75,345 or 9.58% in service charges on deposits.
Other expenses decreased by $76,661 or 1.57% to $4,811,917 for the first
six months of 1996 from $4,888,578 for the same period in 1995. Salaries and
benefits increased by $33,406 or 1.24%. While salaries increased by $88,645 or
4.48% due to normal salary increases, benefit expense decreased by $55,239 or
7.59% as the Company has realized a cost reduction due to a change in health
insurance plans. Occupancy expense increased $87,948 or 17.53%. This was
primarily the result of an increase of $46,332 or 34.53% in building
maintenance, which was the result of higher costs associated with the harsh 1996
winter, as compared to the mild winter in 1995. The decrease of $16,814 or 3.78%
in furniture and fixtures expense is primarily the result of furniture and
fixtures in the administration building becoming fully depreciated in March
1996. Other expenses decreased $181,201 or 14.65%. Significant sources of
changes in other expenses included FDIC Insurance expense, which totalled the
statutory minimum of $1,000 in 1996 as compared to $374,858 in 1995, and other
real estate owned expense, which totalled $59,226 in 1996 as compared to no
expense in 1995 and was predominantly due to the payment of prior year real
estate taxes for a property which was maintained in other real estate owned.
Exclusive of FDIC insurance and other real estate owned expenses, other expenses
increased $133,432 due primarily to increased marketing expenses incurred in the
second quarter, as previously discussed.
Income tax expense increased $267,810 or 25.72% to $1,309,058 for the first
six months of 1996 from $1,041,248 for the same period in 1995. $70,437 of this
increase relates to the recording of a $4,330 expense of 1995 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.
- 17 -
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased $2.9 million or .81% from December 31,
1995, to June 30, 1996. A $15.4 million increase in loans more than offset an
$11.6 million decrease in cash and cash equivalents, and a $1.8 million decrease
in the Company's securities portfolio. The 8.2% increase in the loan portfolio
is the result of increased loan demand and was funded by the redeployment of
amounts previously invested in federal funds.
At June 30, 1996, the Company's securities portfolio of $124.2 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 $1,178,000 and $374,000, 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 June 30, 1996, is to increase stockholders' equity by $481,000. Securities
held to maturity continue to be carried at historical cost and, at June 30,
1996, contain unrealized gains and losses of $167,000 and $366,000,
respectively. For the entire securities portfolio, net unrealized gains stand
at $604,000 at June 30, 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 six 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 increased $1.5 million from
December 31, 1995, to June 30, 1996. Time deposits at
June 30, 1996, represented 31.58% of total deposits as compared to 30.64% at
December 31, 1995.
Stockholders' equity increased $1.5 million or 4.77% as net income of $2.5
million and $576,000 in dividend reinvestments were partially offset by
dividends paid to stockholders of $848,000 and a $713,000 decrease in the equity
component related to available for sale securities.
- 18 -
<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 June 30,
1996.
<TABLE>
<CAPTION>
AMOUNT RATIO
(In Thousands)
RISK-BASED CAPITAL RATIOS:
<S> <C> <C>
Actual Tier I Capital $33,088 17.04%
Tier I Capital minimum amount 7,766 4.00%
------- -----
Excess $25,322 13.04%
======= =====
Actual Combined Tier I and Tier II Capital $35,521 18.30%
Combined Tier I and Tier II Capital minimum
requirement 15,531 8.00%
------- -----
Excess $19,990 10.30%
======= =====
AMOUNT RATIO
LEVERAGE RATIO:
Actual Tier I Capital to average second quarter
assets $33,088 9.16%
Minimum leverage target* * *
------- -----
Excess $ * * %
======= =====
</TABLE>
* No formal minimum leverage target (other than the three percent floor
described above) has been established for the Company or the Bank as of June
30, 1996.
- 19 -
<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 June 30,
1996: None
- 20 -
<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)
August 7, 1996
- --------------
Date
- 21 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,911
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,088
<INVESTMENTS-CARRYING> 47,133
<INVESTMENTS-MARKET> 46,933
<LOANS> 206,196
<ALLOWANCE> 2,950
<TOTAL-ASSETS> 363,582
<DEPOSITS> 329,426
<SHORT-TERM> 0
<LIABILITIES-OTHER> 587
<LONG-TERM> 0
0
0
<COMMON> 8,188
<OTHER-SE> 25,381
<TOTAL-LIABILITIES-AND-EQUITY> 363,582
<INTEREST-LOAN> 8,525
<INTEREST-INVEST> 3,698
<INTEREST-OTHER> 324
<INTEREST-TOTAL> 12,547
<INTEREST-DEPOSIT> 4,834
<INTEREST-EXPENSE> 4,834
<INTEREST-INCOME-NET> 7,713
<LOAN-LOSSES> 119
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,812
<INCOME-PRETAX> 3,823
<INCOME-PRE-EXTRAORDINARY> 2,514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,514
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 7.59
<LOANS-NON> 815
<LOANS-PAST> 1,704
<LOANS-TROUBLED> 2,041
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,910
<CHARGE-OFFS> 94
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 2,950
<ALLOWANCE-DOMESTIC> 2,950
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
