<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 SEPTEMBER 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 incorporation (IRS Employer
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.
X Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1996, 3,287,709 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 September 30, 1996 (Unaudited) 2
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1995 and 1996
(Unaudited) 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 nine month periods ended September
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>
ASSETS
- ------
December 31, September 30,
1995 1996
----------- ------------
<S> <C> <C>
Cash and due from banks $ 16,448,253 $ 18,478,708
Federal funds sold 17,325,000 1,500,000
------------ ------------
Cash and cash equivalents 33,773,253 19,978,708
Securities available for sale, at estimated fair value 79,197,499 69,753,066
Securities held to maturity, estimated fair value of
$47,416,000 in 1995 and $48,171,000 in 1996 46,774,150 48,105,244
Loans, net 187,812,123 214,827,173
Premises and equipment, net 8,170,123 9,001,432
Accrued interest receivable 3,626,861 3,557,070
Other assets 1,307,159 1,259,125
------------ ------------
Total assets $360,661,168 $366,481,818
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
- -----------
Deposits:
Non-interest-bearing demand $ 62,590,393 $ 65,112,262
Savings and interest-bearing demand 162,567,499 160,898,605
Club accounts 2,306,027 3,422,662
Time 86,398,671 86,618,364
Time of $100,000 and over 14,079,311 14,646,110
------------ ------------
Total deposits 327,941,901 330,698,003
Other liabilities 679,446 644,596
------------ ------------
Total liabilities 328,621,347 331,342,599
------------ ------------
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 3,287,709 in 1996 8,117,385 8,219,273
Surplus 16,551,493 17,312,185
Undivided profits 6,176,754 8,782,601
Unrealized gain on securities available for sale, net 1,194,189 825,160
------------ ------------
Total stockholders' equity 32,039,821 35,139,219
------------ ------------
Total liabilities and stockholders' equity $360,661,168 $366,481,818
============ ============
</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 Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1995 1996 1995 1996
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees $4,035,342 $4,560,677 $11,758,551 $13,085,877
Federal funds sold 159,254 77,275 361,025 401,743
Securities:
U.S. Treasury 1,081,880 912,097 3,296,151 2,850,972
U.S. Government agencies 417,262 527,351 1,179,516 1,600,096
States and political
subdivisions 209,749 200,716 635,902 603,458
Other 135,696 136,663 396,917 419,575
---------- ---------- ----------- -----------
Total interest income 6,039,183 6,414,779 17,628,062 18,961,721
---------- ---------- ----------- -----------
INTEREST EXPENSE:
Deposits 2,389,330 2,413,288 6,671,380 7,247,613
Borrowed money - - 13,318 -
---------- ---------- ----------- -----------
Total interest expense 2,389,330 2,413,288 6,684,698 7,247,613
---------- ---------- ----------- -----------
Net interest income 3,649,853 4,001,491 10,943,364 11,714,108
PROVISION FOR LOAN LOSSES 98,685 50,096 107,465 169,091
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 3,551,168 3,951,395 10,835,899 11,545,017
---------- ---------- ----------- -----------
OTHER INCOME:
Service charges on
deposit accounts 391,937 452,331 1,178,097 1,313,836
Other income 74,184 85,875 225,980 265,901
Gains (losses) on sales
and calls
of securities available for
sale - 1,223 11,015 1,125
Gains on calls of
securities held
to maturity - - 90 325
---------- ---------- ----------- -----------
Total other income 466,121 539,429 1,415,182 1,581,187
---------- ---------- ----------- -----------
OTHER EXPENSES:
Salaries and benefits 1,324,116 1,375,983 4,028,763 4,114,036
Occupancy expense, net 256,245 285,239 757,946 874,888
Furniture and equipment 225,277 186,570 670,489 614,968
Other 374,542 565,619 1,611,560 1,621,436
---------- ---------- ----------- -----------
Total other expense 2,180,180 2,413,411 7,068,758 7,225,328
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,837,109 2,077,413 5,182,323 5,900,876
INCOME TAXES 612,996 711,584 1,654,244 2,020,642
---------- ---------- ----------- -----------
NET INCOME $1,224,113 $1,365,829 $ 3,528,079 $ 3,880,234
========== ========== =========== ===========
Net income per common share $.38 $.42 $1.10 $1.19
========== ========== =========== ===========
Weighted average number of
shares outstanding 3,229,542 3,283,962 3,220,944 3,271,695
========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,528,079 $ 3,880,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Net amortization of premiums and discounts on securities 1,311,390 1,016,340
Amortization of unearned interest and deferred loan costs and fees 57,446 53,492
Depreciation and amortization of premises and equipment 658,283 605,548
Provision for loan losses 107,465 169,091
Gain on sales and calls of securities available for sale (11,015) (1,125)
Gain from calls of securities held to maturity (90) (325)
(Increase) decrease in accrued interest receivable (120,556) 69,791
(Increase) decrease in other assets (207,471) 40,592
Increase (decrease) in other liabilities 389,503 (34,850)
----------- ------------
Net cash provided by operating activities 5,713,034 5,798,788
----------- ------------
Cash flows from investing activities:
Proceeds from repayments and maturities on securities available for sale 14,891,641 17,711,465
Proceeds from sales of securities available for sale 5,086,032 4,017,037
Proceeds from calls of securities available for sale 500,000 2,999,902
Purchases of securities available for sale (13,517,050) (16,490,374)
Proceeds from repayments and maturities of securities held to maturity 8,453,300 10,211,193
Proceeds from calls of securities held to maturity 100,000 900,000
Purchases of securities held to maturity (10,143,411) (12,867,750)
Proceeds from sale of student loans 303,281 -
Proceeds from sale of participation interest in loan 400,000 -
Net increase in loans receivable (12,255,711) (27,362,683)
Loan recoveries 123,988 21,830
Additions to premises and equipment (385,758) (1,436,857)
Proceeds from sales of real estate owned 13,854 358,609
----------- ------------
Net cash (used in) investing activities (6,429,834) (21,937,628)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 6,641,712 2,756,102
Proceeds from sales of common stock 409,200 862,580
Cash dividends paid on common stock (1,167,847) (1,274,387)
----------- ------------
Net cash provided by financing activities 5,883,065 2,344,295
----------- ------------
Net increase (decrease) in cash and cash equivalents 5,166,265 (13,794,545)
Cash and cash equivalents - beginning 17,511,222 33,773,253
----------- ------------
Cash and cash equivalents - ending $ 22,677,487 $ 19,978,708
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the nine month period for:
Income taxes (federal and state) $1,783,672 $2,079,080
Interest 6,353,103 7,264,367
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on securities
available for sale, net of deferred income taxes $1,624,541 $(369,029)
Charge off of loans receivable to allowance for loan losses 131,453 125,921
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 nine months ended
September 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 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 this stock dividend.
3. NEW ACCOUNTING STANDARDS
- ----------------------------
Effective January 1, 1995, the Corporation adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("Statement") No. 114, "Accounting by Creditors for Impairment of a Loan" and
Statement 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 troubled debt restructuring subsequent to the
adoption of Statements No. 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 rates for the period of delay.
Thus a demand loan or other loan with no stated maturity is not impaired if the
Corporation 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 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
----------------------------------------------
Gross Unrealized
Amortized ------------------- 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
=========== ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------
Gross Unrealized
Amortized ------------------- Carrying
Cost Gains Losses Value
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $25,380,718 $ 182,648 $ 4,085 $25,559,281
U.S. Government agencies 20,619,071 61,316 126,856 20,553,531
States and political subdivisions 16,456,535 82,945 21,611 16,517,869
Other debt securities 4,712,281 9,454 9,114 4,712,621
Equity security 1,204,882 1,204,882 - 2,409,764
----------- ---------- -------- -----------
$68,373,487 $1,541,245 $161,666 $69,753,066
=========== ========== ======== ===========
</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 September 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 $26,998,479 $27,029,510
Due after one year through
five years 46,512,990 47,226,167 40,135,126 40,278,792
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 2,409,764
----------- ----------- ----------- -----------
$77,200,944 $79,197,499 $68,373,487 $69,753,066
=========== =========== =========== ===========
</TABLE>
5. SECURITIES HELD TO MATURITY
- -------------------------------
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------
Gross Unrealized
Carrying ----------------- 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
=========== ======== ======== ===========
September 30, 1996
--------------------------
Gross Unrealized
Carrying ---------------- Estimated
Value Gains Losses Fair Value
----------- -------- -------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $31,611,328 $153,130 $ 94,770 $31,669,688
U.S. Government Agencies 11,973,725 71,824 59,987 11,985,562
States and political
subdivisions 1,386,475 4,840 1,955 11,389,360
Other debt securities 3,133,716 1,614 9,052 3,126,278
----------- -------- -------- -----------
$48,105,244 $231,408 $165,764 $48,170,888
=========== ======== ======== ===========
</TABLE>
8
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. SECURITIES HELD TO MATURITY (Cont'd)
- -------------------------------
The following is a summary of securities available for sale by maturity:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
---------------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $13,447,140 $13,582,192 $13,944,813 $13,926,777
Due after one year through
five years 33,127,010 33,632,199 33,960,431 34,045,236
Due after 10 years 200,000 201,938 200,000 198,875
----------- ----------- ----------- -----------
$46,774,150 $47,416,329 $48,105,244 $48,170,888
=========== =========== =========== ===========
</TABLE>
6. LOANS, NET
----------
December 31, September 30,
1995 1996
------------ ------------
Loans $190,814,088 $217,851,350
Less: Unearned income (91,965) (49,177)
Allowance for loan losses (2,910,000) (2,975,000)
------------ ------------
$187,812,123 $214,827,173
============ ============
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Balance - beginning $ 3,000,000 $ 2,910,000
Provisions charged to operations 107,465 169,091
Loans charged off (131,453) (125,921)
Recoveries of loans previously charged off 123,988 21,830
------------ ------------
Balance - ending $ 3,100,000 $ 2,975,000
============ ============
</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, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $1,920,196 $2,603,179
Without recorded allowances 472,098 442,636
---------- ----------
Total impaired loans 2,392,294 3,045,815
Related allowance for loan losses 378,528 645,963
---------- ----------
Net impaired loans $2,013,766 $2,080,589
========== ==========
</TABLE>
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
Nine Months Ended
September 30,
----------------------
1995 1996
---------- ----------
Average recorded investment $1,439,378 $2,718,494
Interest income recognized 27,764 90,798
10
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH SUMMARY
The third quarter of 1996 resulted in increased earnings for Lakeland
Bancorp, Inc. (the "Company"), when compared to the same period in 1995. Net
income increased $141,716, or 11.58%, to $1,365,829 for the third quarter of
1996 from $1,224,113 for the same period in 1995. Net income per share
increased $.04 or 10.53%. Increases of $351,638 in net interest income and
$73,308 in other income along with a decrease of $48,589 in the provision for
loan losses more than offset increases of $98,588 in income tax expense and
$233,231 in other expenses.
The Company's annualized return on average assets and average stockholders'
equity for the third quarter of 1996 were 1.50% and 15.90%, respectively,
compared to 1.45% and 16.31%, respectively, for the same period in 1995.
RESULTS OF OPERATIONS
Total interest income increased $375,596, or 6.22% to $6,414,779 for the
three months ended September 30, 1996, when compared to $6,039,183 for the same
period in 1995. The overall increase in this category was a result of an
increase of $525,335 or 13.02% in interest earned on the loan portfolio, which
more than offset decreases in interest earned on federal funds sold of $81,979
or 51.48% and $67,760 or 3.67% in interest earned on the securities portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $29.4 million, which more than offset a 23 basis
point decrease in yield. The decrease in interest income on securities was
primarily attributable to a $4.6 million decrease in average balances as
proceeds from the sale or maturity of investment securities were used to expand
the Company's loan base. The decrease in interest income on federal funds sold
was attributable to a 44 basis point decrease in yield, along with a decrease in
average balances of $5.2 million.
Interest expense on deposits increased $23,958 or 1.00% to $2,413,288 for
the third quarter of 1996 compared to $2,389,330 for the same period in 1995.
This increase is attributable to an increase of $13.9 million in average
balances, which more than offset a 16 basis point decrease in cost.
Net interest income increased $351,638 or 9.63% to $4,001,491 for the third
three months of 1996 from $3,649,853 for the same period in 1995, primarily as
the result of increased balances in the loan portfolio, along with a 17 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 3.82% to 3.99%. While the average yield on
earning assets increased 1 basis point from 7.59% to 7.60%, the average rate
paid on interest-bearing liabilities decreased 16 basis points from 3.77% to
3.61%.
-11-
<PAGE>
The provision for loan losses decreased $48,589 to $50,096 for the three
months ended September 30, 1996, as compared to $98,685 for the same prior year
period. During the third quarter of 1996, the Company charged off loans of
$32,259 and recovered $7,163 in previously charged off loans compared to
$103,355 and $4,670, respectively, during the same period in 1995. The
allowance for loan losses at September 30, 1996, was 1.37% of total loans,
compared to 1.53% at December 31, 1995, and 1.66% at September 30, 1995. The
Company believes, based on management's ongoing review of loan quality, economic
conditions, 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,
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>
NINE MONTHS ENDED
September 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 92 114 234 57 256 267
Installment......................... 33 25 33 85 107 87 89
Mortgage............................ 23 14 217 23 35 45 --
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 126 131 364 342 199 388 356
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 8 107 108 69 13 1 9
Installment......................... 14 17 37 48 41 13 27
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 22 124 145 117 54 14 36
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 104 7 219 225 145 374 320
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 169 107 129 225 695 789 955
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $2,975 $3,100 $2,910 $3,000 $3,000 $2,450 $2,035
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding (1)............... .05% .00% .12% .14% .11% .34% .32%
Balance of allowance at end of period
as a percent of loans............... 1.37% 1.66% 1.53% 1.71% 2.01% 2.02% 1.94%
</TABLE>
(1) annualized for the nine month periods ended September 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 September 30, 1996, based on the above criteria, the Company
classified three commercial loans, including one renegotiated loan, and five
mortgage loans, including four renegotiated mortgage loans, totalling
$3,045,815, 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, $645,965
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 September 30, 1996, and as of
December 31 of each of the last five years:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $1,207 $1,545 $1,501 $ 483 $ 213 $1,124
Past due loans.................. 2,446 59 554 2,934 3,714 1,223
Renegotiated loans.............. 2,220 2,325 1,740 2,366 -- --
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 5,873 3,929 3,795 5,783 3,927 2,347
Other real estate owned......... -- 255 629 458 -- --
------ ------ ------ ------ ------ ------
Total........................ $5,873 $4,184 $4,424 $6,241 $3,927 $2,347
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at September 30, 1996, is one non-accrual
commercial loan, totalling $142,515; one non-accrual mortgage loan, totalling
$436,466; one commercial loan past due over 90 days, totalling $536,154; and,
five renegotiated loans, totalling $1,930,680 (three loans totaling $289,243
were restructured prior to 1995 and are not considered to be impaired), 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 September 30, 1996, non-accrual loans totaled $1,206,532, an increase of
$391,121 as compared to June 30, 1996. This net change is primarily the result
of the addition of one mortgage loan, along with the reduction of two mortgage
loans. Of the total non-accrual loans at September 30, 1996, all are either in
foreclosure, in various stages of litigation, or on a repayment schedule. At
September 30, 1996, loans past due 90 days or more and still accruing totalled
$2,446,409, an increase of $742,513
-14-
<PAGE>
as compared to June 30, 1996. This net change is primarily the result of the
addition of three commercial loans and three mortgage loans, which are past due
minimally over 90 days, and the reduction of one mortgage loan and four
commercial loans, which have been making scheduled payments. At September 30,
1996, renegotiated loans totalled $2,220,377, an increase of $179,801 compared
to June 30, 1996.
Other income increased $73,308 or 15.73% to $539,429 for the third quarter
of 1996 from $466,121 for the same period in 1995. Increased service charges on
a larger deposit base accounts for $60,394 of this increase.
Other expenses increased by $233,231 or 10.70% to $2,413,411. Salaries and
benefits increased by $51,867 or 3.92% due to normal salary increases.
Occupancy expense increased $28,994 or 11.31%. This was primarily the result of
higher costs associated with operating the Company's thirteen offices. The
decrease of $38,707 or 17.18% 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 increased $191,077 or
51.02%. A significant source of change in other expenses is FDIC Insurance
expense, which totalled the statutory minimum of $500 in 1996 as compared to a
net credit of $53,259 for the third quarter of 1995 after a $191,535 refund was
received from the FDIC in September 1995. Excluding the effect of FDIC
insurance expense, other non-interest expenses increased $137,318, largely due
to increases in advertising, automatic teller machine, postage, and stationery
and supplies expenses, reflecting increased marketing efforts and the increased
size and branch network of the Bank.
Income taxes for the third quarter of 1996 totalled $711,584 or 34.3% of
income before income taxes, as compared to $612,996 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
NINE MONTH SUMMARY
The first nine months of 1996 resulted in increased earnings for the
Company, when compared to the same period in 1995. Net income increased
$352,155, or 9.98%, to $3,880,234 for the first nine months of 1996 from
$3,528,079 for the same period in 1995. Net income per share increased $.09 or
8.18%. Increases of $770,744 in net interest income and $166,005 in other
income more than offset increases in income tax expense of $366,398, the
provision for loan losses of $61,626, and other expenses of $156,570.
The Company's annualized return on average assets and average stockholders'
equity for the first nine months of 1996 were 1.45% and 15.48%, respectively,
compared to 1.42% and 16.48%, respectively, for the same period in 1995.
RESULTS OF OPERATIONS
Total interest income increased $1,333,659, or 7.57% to $18,961,721 for the
nine months ended September 30, 1996, when compared to $17,628,062 for the same
period in 1995. The overall increase in this category was a result of increases
of $1,327,326 or 11.29% in interest earned on the loan portfolio and $40,718 or
11.28% in interest earned on federal funds sold, which were partially offset by
a decrease of $34,385 or .62% in interest earned on the securities portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $21.4 million, which more than offset a 4 basis
point decline in yield. The increase in interest income on federal funds sold
was attributable to an increase in average balances of $2.0 million, which more
than offset a 63 basis point decrease in yield. The slight decrease in interest
income on securities was attributable to a $1.9 million decrease in average
balances.
Interest expense on deposits increased $576,233 or 8.64% to $7,247,613 for
the first nine months of 1996 compared to $6,671,380 for the same period in
1995. This increase is attributable to an 8 basis point increase in the average
rate paid on interest-bearing deposits along with an increase of
$14.7 million in average balances. Total interest expense increased $562,915 or
8.42%, 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 $770,744 or 7.04% to $11,714,108 for the
first nine months of 1996 from $10,943,364 for the same period in 1995,
primarily as the result of increased balances of net earning assets, which more
than offset a 2 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 3.95% to 3.93%. While the
average yield on earning assets increased 6 basis points from 7.56% to 7.62%,
the average rate paid on interest-bearing liabilities increased 8 basis points
from 3.61% to 3.69%.
The provision for loan losses increased $61,626 to $169,091 during this
period, as compared to $107,465 during the same period in 1995. For the first
nine months, the Company charged off loans totalling $125,921 and recovered
$21,830 in previously charged off loans, compared to $131,453 and $123,988,
respectively, during the same period in 1995.
Other income increased $166,005 or 11.73% to $1,581,187 for the first nine
months of 1996 from $1,415,182 for the same period in 1995. This was primarily
the result of an increase of $135,739 or 11.52% in service charges on deposits.
Other expenses increased by $156,570 or 2.21% to $7,225,328 for the first
nine months of 1996 from $7,068,758 for the same period in 1995. Salaries and
benefits increased by $85,273 or 2.12%. While salaries increased by $163,908 or
5.28% due to normal salary increases, benefit expense decreased by $78,635 or
8.50% as the Company has realized a cost reduction due to a change in health
insurance plans. Occupancy expense increased $116,942 or 15.43%. This was
primarily the result of an increase of $62,441 or 32.08% 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 $55,521 or
8.28% 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 increased $9,876 or .61%.
Significant sources of changes in other expenses included FDIC Insurance
expense, which totalled the statutory minimum of $1,500 in 1996 as compared to
$321,598 in 1995, and other real estate owned expense, which totalled $61,100 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 $268,874 due primarily to increased
advertising, automatic teller machine, postage, stationery, and supplies
expenses, reflecting increased marketing efforts and the increased size and
branch network of the bank.
Income tax expense increased $366,398 or 22.15% to $2,020,642, or 34.2% of
income before income taxes, for the first nine months of 1996 from $1,654,244,
or 31.9% of income before income taxes, for the same period in 1995. $70,437 of
this increase relates to the recording of a $4,330 expense for 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 $5.8 million or 1.61% from $360.7
million at December 31, 1995, to $366.5 million at September 30, 1996. A $27.0
million increase in loans more than offset decreases of $13.8 million in cash
and cash equivalents and $8.1 million in the Company's securities portfolio.
The 14.2% 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 and the securities portfolio.
At September 30, 1996, the Company's securities portfolio of $117.9 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 $1,541,245 and $161,666, 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, 1996, is to increase stockholders' equity by $825,160.
Securities held to maturity continue to be carried at historical cost and, at
September 30, 1996, contain unrealized gains and losses of $231,408 and
$165,764, respectively. For the entire securities portfolio, net unrealized
gains stand at $1,445,223 at September 30, 1996, as compared with a $2,638,734
net unrealized gain at December 31, 1995. Such decline is a reflection of the
increase in market interest rates experienced during the first nine 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 $2.8 million, or .84%, from December 31, 1995, to
September 30, 1996. Time deposits at September 30, 1996, represented 30.62% of
total deposits as compared to 30.64% at December 31, 1995.
Stockholders' equity increased $3.1 million or 9.67% as net income of $3.9
million and $858,000 in proceeds from stock sold via dividend reinvestments were
partially offset by dividends paid to stockholders of $1,274,000 and a $369,000
decrease in the equity component related to available for sale securities.
Cash and cash equivalents decreased by $13.8 million, during the first nine
months of 1996. This decrease reflects $21.9 million of cash and cash
equivalents used in investing activities. This was primarily due to a $27.4
million excess of loans originated over repayments and $1.4 million in additions
to premises and equipment offset partially by the excess of proceeds from
called, sold, and repaid securities over issues purchased totaling a net $6.5
million decrease in the Company's investment securities activities. The funds
used in investing activities was partially offset by $5.8 million cash and cash
equivalents provided by other operating activities (principally from net income
of $3.9 million); and, $2.3 million in net cash provided by financing
activities, which is the result of a $2.8 million increase in deposits and
$863,000 in net proceeds from the issuance of Common Stock pursuant to the
Company's dividend reinvestment plan, partially offset by $1.3 million for
dividends paid on the Company's Common Stock.
-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 September
30, 1996.
<TABLE>
<CAPTION>
AMOUNT RATIO
(In Thousands)
<S> <C> <C>
RISK-BASED CAPITAL RATIOS:
Actual Tier I Capital $34,314 16.87%
Tier I Capital minimum amount 8,136 4.00%
------- -----
Excess $26,178 12.87%
======= =====
Actual Combined Tier I and Tier II Capital $36,859 18.12%
Combined Tier I and Tier II Capital minimum
requirement 16,271 8.00%
------- -----
Excess $20,588 10.12%
======= =====
AMOUNT RATIO
LEVERAGE RATIO:
Actual Tier I Capital to average third quarter
assets $34,314 9.41%
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
September 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 September
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)
November 8, 1996
- ----------------
Date
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,479
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,753
<INVESTMENTS-CARRYING> 48,105
<INVESTMENTS-MARKET> 48,171
<LOANS> 217,802
<ALLOWANCE> 2,975
<TOTAL-ASSETS> 366,482
<DEPOSITS> 330,698
<SHORT-TERM> 0
<LIABILITIES-OTHER> 645
<LONG-TERM> 0
0
0
<COMMON> 8,219
<OTHER-SE> 26,920
<TOTAL-LIABILITIES-AND-EQUITY> 366,482
<INTEREST-LOAN> 13,086
<INTEREST-INVEST> 5,474
<INTEREST-OTHER> 402
<INTEREST-TOTAL> 18,962
<INTEREST-DEPOSIT> 7,248
<INTEREST-EXPENSE> 7,248
<INTEREST-INCOME-NET> 11,714
<LOAN-LOSSES> 169
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,225
<INCOME-PRETAX> 5,901
<INCOME-PRE-EXTRAORDINARY> 3,880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,880
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 7.62
<LOANS-NON> 1,207
<LOANS-PAST> 2,446
<LOANS-TROUBLED> 2,220
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,910
<CHARGE-OFFS> 126
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 2,975
<ALLOWANCE-DOMESTIC> 2,975
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
