<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, 1997.
[_] 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, 1997, 3,390,490 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, 1996 and June 30, 1997 (Unaudited) 2
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1996 and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1997 (Unaudited) 4-5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<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, 1996.
The results of operations for the three and six month periods ended June
30, 1997, 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,
------------- ------------
1996 1997
------------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 20,395,240 $ 21,261,191
Federal funds sold 2,750,000 12,750,000
------------- ------------
Cash and cash equivalents 23,145,240 34,011,191
Securities available for sale, at estimated fair value 68,550,491 79,135,018
Securities held to maturity; estimated fair value of
$48,668,000 in 1996 and $49,602,000 in 1997 48,408,044 49,457,268
Loans 222,949,524 224,198,527
Premises and equipment 9,798,976 11,187,990
Accrued interest receivable 3,485,531 3,617,568
Other assets 1,206,974 1,125,564
------------- ------------
Total assets $377,544,780 $402,733,126
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
Deposits:
Non-interest-bearing demand $ 67,346,528 $ 73,031,452
Savings and interest-bearing demand 161,746,887 171,481,626
Club accounts 1,917,278 2,655,088
Time 95,137,066 105,355,827
Time of $100,000 and over 13,935,937 10,438,179
------------- ------------
Total deposits 340,083,696 362,962,172
Other liabilities 641,729 852,083
------------- ------------
Total liabilities 340,725,425 363,814,255
------------- ------------
Commitments - -
Stockholders' equity
- --------------------
Common stock (par value $2.50 per share):
Authorized shares 7,050,819 in 1996 and 1997; issued and
outstanding shares 3,375,590 in
1996 and 3,390,490 in 1997 8,438,975 8,476,225
Surplus 19,190,852 19,531,814
Undivided profits 7,946,013 9,503,665
Unrealized gain on securities available for sale, net 1,243,515 1,407,167
------------- ------------
Total stockholders' equity 36,819,355 38,918,871
------------- ------------
Total liabilities and stockholders' equity $377,544,780 $402,733,126
============= ============
</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,
----------------------- --------------------------
1996 1997 1996 1997
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and fees $4,347,514 $4,677,657 $ 8,525,200 $ 9,482,847
Federal funds sold 157,352 208,697 324,468 387,738
Securities:
U.S. Treasury 958,374 992,303 1,938,875 1,902,352
U.S. Government agencies 537,901 535,712 1,072,745 1,035,361
States and political subdivisions 198,684 209,925 402,742 400,477
Other 145,202 90,362 282,912 191,008
----------- ---------- ----------- -----------
Total interest income 6,345,027 6,714,656 12,546,942 13,399,783
========== ========== ========== ==========
INTEREST EXPENSE:
Deposits 2,405,127 2,592,298 4,834,325 5,243,830
Borrowed money - 2,856 - 9,900
----------- ---------- ----------- -----------
Total interest expense 2,405,127 2,595,154 4,834,325 5,253,730
----------- ---------- ----------- -----------
Net interest income 3,939,900 4,119,502 7,712,617 8,146,053
PROVISION FOR LOAN LOSSES 83,908 32,652 118,995 113,211
----------- ---------- ----------- -----------
Net interest income after provision
for loan losses 3,855,992 4,086,850 7,593,622 8,032,842
----------- ---------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 438,343 491,840 861,505 997,506
Other income 100,419 108,000 180,026 216,217
Losses on sales and calls of securities
available for sale - - (98) (804)
Gains on calls of securities held to maturity - - 325 -
----------- ---------- ----------- -----------
Total other income 538,762 599,840 1,041,758 1,212,919
----------- ---------- ----------- -----------
OTHER EXPENSES:
Salaries and benefits 1,412,430 1,551,432 2,738,053 3,072,661
Occupancy expense, net 277,412 320,118 589,649 635,664
Furniture and equipment 195,443 216,236 428,398 418,034
other 534,399 646,946 1,055,817 1,269,677
----------- ---------- ----------- -----------
Total other expenses 2,419,684 2,734,732 4,811,917 5,396,036
----------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,975,070 1,951,958 3,823,463 3,849,725
INCOME TAXES 676,839 657,621 1,309,058 1,312,140
----------- ---------- ----------- -----------
NET INCOME $ 1,298,231 $1,294,337 $ 2,514,405 $ 2,537,585
=========== ========== =========== ===========
Net income per common share $ 0.39 $ 0.38 $ $0.75 $ 0.75
=========== ========== =========== ===========
Weighted average number of shares
outstanding 3,337,385 3,386,646 3,330,804 3,382,876
=========== ========== =========== ===========
</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,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,514,405 $2,537,585
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums and discounts on securities 703,302 517,943
Amortization of unearned interest and deferred loan costs and fees 41,106 101,301
Depreciation and amortization of premises and equipment 418,230 409,012
Provision for loan losses 118,995 113,211
Loss on sales and calls of securities available for sale 98 804
Gain from calls of securities held to maturity (325) -
Gain on sale of student loans - (10,604)
(Increase) in accrued interest receivable (25,841) (132,037)
(Increase) decrease in other assets (21,740) 71,454
(Decrease) increase in other liabilities (91,963) 210,354
Net cash provided by operating activities 3,656,267 3,819,023
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of and repayments on securities available for sale 13,758,599 13,007,120
Proceeds from calls of securities available for sale 2,999,902 3,499,196
Purchases of securities available for sale (16,260,068) (27,103,697)
Proceeds from maturities of and repayments on securities held to maturity 7,509,801 6,707,511
Proceeds from calls of securities held to maturity 900,000 -
Purchases of securities held to maturity (9,053,437) (7,989,020)
Net increase in loans receivable (15,712,152) (3,778,385)
Proceeds from sale of student loans - 2,309,124
Loan recoveries 14,667 16,350
Additions to premises and equipment (843,525) (1,476,026)
Purchase of real estate held for investment - (100,000)
Proceeds from sales of real estate owned 255,389 -
------------ ------------
Net cash (used in) investing activities (16,430,824) (14,907,827)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 1,484,054 22,878,476
Proceeds from sale of common stock 576,150 378,212
Repayment of borrowed money (322,000)
Cash dividends paid on common stock (847,981) (979,933)
------------ ------------
Net cash provided by financing
activities 1,212,223 21,954,755
------------ -----------
Net (decrease) increase in Cash and cash equivalents (11,562,334) 10,865,951
Cash and cash equivalents - beginning 33,773,253 23,145,240
------------ ------------
Cash and cash equivalents - ending $ 22,210,919 $ 34,011,191
============ ============
</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,
-------------------------
1996 1997
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the six month period for:
Income taxes $1,261,080 $1,258,502
Interest 4,860,371 5,107,789
Supplemental schedule of noncash investing and financing activities:
Unrealized gain on securities available for sale, net of deferred income taxes $ 479,302 $ 163,652
Charge off of loans receivable to allowance for loan losses 93,662 204,561
Loan receivable transferred to real estate owned 103,220 -
Mortgage payable incurred in connection with purchase of premises - 322,000
</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, 1996, 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, 1997, 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 October 30,
1996, the Corporation's Board of Directors authorized a 2% stock dividend, which
was distributed on December 10, 1996. Per share amounts have been retroactively
restated to give effect to this stock dividend.
3. SECURITIES AVAILABLE FOR SALE
- ---------------------------------
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Gross Unrealized Carrying
-------------------
Cost Gains Losses Value
----------- ---------- ------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $25,527,311 $ 194,284 $ 1,095 $25,720,500
U.S. Government agencies 20,803,314 78,340 48,685 20,832,969
States and political subdivisions 15,329,500 123,655 4,274 15,448,881
Other debt securities 3,606,461 17,706 2,168 3,621,999
Equity security 1,204,882 1,721,260 - 2,926,142
----------- ---------- ------- -----------
$66,471,468 $2,135,245 $56,222 $68,550,491
=========== ========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------
Amortized Gross Unrealized Carrying
-------------------
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $33,065,913 $ 161,851 $ 3,397 $33,224,367
U.S. Government agencies 21,739,256 46,905 55,206 21,730,955
States and political subdivisions 17,971,347 92,405 7,937 18,055,815
Other debt securities 2,800,991 10,823 1,359 2,810,455
Equity security 1,204,882 2,108,544 - 3,313,426
----------- ---------- ------- -----------
$76,782,389 $2,420,528 $67,899 $79,135,018
=========== ========== ======= ===========
</TABLE>
6.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. SECURITIES AVAILABLE FOR SALE (Cont'd)
- ---------------------------------
The following is a summary of securities available for sale by maturity:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
-------------------------- ------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less 25,339,254 $ 25,433,405 $22,781,104 $22,845,751
Due after one year
through five years 39,892,332 40,155,944 52,766,403 52,945,841
Due after five years
through ten years 25,000 25,000 25,000 25,000
Due after ten years 10,000 10,000 5,000 5,000
Equity security 1,204,882 2,926,142 1,204,882 3,313,426
------------ ------------ ----------- -----------
$ 66,471,468 $68,550,491 $76,782,389 $79,135,018
============ ============ =========== ===========
</TABLE>
4. SECURITIES HELD TO MATURITY
- -------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
Carrying Gross Unrealized Estimated
-------------------
Value Gains Losses Fair Value
------------ -------- ------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 32,725,897 $231,547 $52,819 $32,904,625
U.S. Government agencies 11,638,493 93,969 26,775 11,705,687
States and political subdivisions 1,218,945 6,709 - 1,225,654
Other debt securities 2,824,709 8,582 1,169 2,832,122
------------ -------- ------- -----------
$ 48,408,044 $340,807 $80,763 $48,668,088
============ ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------
Carrying Gross Unrealized Estimated
-------------------
Value Gains Losses Fair Value
------------ -------- ------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 33,760,688 $174,170 $56,147 $33,878,711
U.S. Government agencies 11,666,278 57,151 30,883 11,692,546
States and political subdivisions 1,721,760 7,537 886 1,728,411
Other debt securities 2,308,542 1,606 7,377 2,302,771
------------ -------- ------- -----------
$ 49,457,268 $240,464 $95,293 $49,602,439
============ ======== ======= ===========
</TABLE>
7.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. SECURITIES HELD TO MATURITY (Cont'd)
- -------------------------------
A summary of the securities held to maturity by maturity follows:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $14,636,079 $14,628,059 $14,980,727 $15,051,457
Due after one year
through five years 33,571,965 33,837,966 34,276,541 34,355,982
Due after ten years 200,000 202,063 200,000 195,000
----------- ----------- ----------- -----------
$48,408,044 $48,668,088 $49,457,268 $49,602,439
=========== =========== =========== ===========
</TABLE>
5. LOANS
- ---------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Loans $226,019,901 $227,238,469
Less: Unearned income (70,377) (114,942)
Allowance for loan losses (3,000,000) (2,925,000)
------------ ------------
$222,949,524 $224,198,527
============ ============
</TABLE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Balance - beginning $2,910,000 $3,000,000
Provisions charged to operations 118,995 113,211
Loans charged off (93,662) (204,561)
Recoveries of loans previously charged off 14,667 16,350
---------- ----------
Balance - ending $2,950,000 $2,925,000
========== ==========
</TABLE>
8.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. LOANS (Cont'd)
- --------
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------- ----------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $2,513,216 $1,052,957
Without recorded allowances 457,320 1,148,428
---------- ----------
Total impaired loans 2,970,536 2,201,385
Related allowance for loan losses 684,655 563,861
---------- ----------
Net impaired loans $2,285,881 $1,637,524
========== ==========
</TABLE>
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Average recorded investment $2,661,779 $2,803,742
Interest income recognized 61,737 44,731
</TABLE>
9.
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH SUMMARY
The second quarter of 1997 resulted in slightly decreased earnings for
Lakeland Bancorp, Inc. (the "Company"), when compared to the same period in
1996. Net income decreased $3,894, or .30%, to $1,294,337 for the second three
months of 1997 from $1,298,231 for the same period in 1996. Net income per
share decreased $.01 or 2.56%. Increases of $179,602 in net interest income and
$61,078 in other income along with decreases in the provision for loan losses of
$51,256 and income tax expense of $19,218 were offset by an increase in other
expenses of $315,048.
The Company's annualized return on average assets and average stockholders'
equity for the second three months of 1997 were 1.27% and 13.22%, respectively,
compared to 1.44% and 15.64%, respectively, for the same period in 1996.
RESULTS OF OPERATIONS
Total interest income increased $369,629, or 5.83% to $6,714,656 for the
three months ended June 30, 1997, when compared to $6,345,027 for the same
period in 1996. The overall increase in this category was a result of increases
of $330,143 or 7.59% in interest earned on the loan portfolio and $51,345 or
32.63% in interest earned on federal funds sold, which were partially offset by
a decrease in interest earned on the investment portfolio of $11,859 or .64%.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $27.3 million, which was partially offset by a
51 basis point decrease in yield. The increase in interest income on federal
funds sold was attributable to a $3.3 million increase in average balances,
along with a 21 basis point increase in yield. The slight decrease in interest
income on the investment portfolio was attributable to an 8 basis point decrease
in yield, offset in part by an increase in average balances of $908,000.
Interest expense on deposits increased $187,171 or 7.78% to $2,592,298 for
the second quarter of 1997 compared to $2,405,127 for the same period in 1996.
This increase is attributable to an increase of $25.4 million in average
balances.
Net interest income increased $179,602 or 4.56% to $4,119,502 for the
second three months of 1997 from $3,939,900 for the same period in 1996,
primarily as the result of increased balances of average net earning assets,
which was partially offset by a 20 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
3.96% to 3.76%. While the average yield on earning assets decreased 25 basis
points from 7.61% to 7.36%, the average rate paid on interest-bearing
liabilities decreased 5 basis points from 3.65% to 3.60%.
-10-
<PAGE>
The provision for loan losses decreased $51,256 to $32,652 for the three
months ended June 30, 1997, as compared to $83,908 for the same prior year
period. During the second quarter of 1997, the Company charged off loans of
$136,828 and recovered $4,176 in previously charged off loans compared to
$80,806 and $1,898, respectively, during the same period in 1996. The allowance
for loan losses at June 30, 1997, was 1.29% of total loans, compared to 1.33% at
December 31, 1996, and 1.43% at June 30, 1996. 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.
This statement represents a forward-looking statement. Actual results could
differ materially from this statement based upon a number of conditions,
including the financial viability of the Company's loan customers, the value of
the Company's collateral, and general economic conditions.
The following table sets forth for the six months ended June 30, 1997 and
1996, and for each of the years in the five years ended December 31, 1996, 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,
-----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period............................... $ 3,000 $2,910 $2,910 $3,000 $3,000 $2,450 $2,035
------- ------ ------ ------ ------ ------ ------
Charge-offs:
Commercial.............................. 175 70 321 114 234 57 256
Installment............................. 30 24 85 33 85 107 87
Mortgage................................ -- -- 70 217 23 35 45
---- ------ ------ ------ ------ ------ ------
Total charge-offs.................... 205 94 476 364 342 199 388
---- ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.............................. 7 7 10 108 69 13 1
Installment............................. 10 8 22 37 48 41 13
---- ------ ------ ------ ------ ------ ------
Total recoveries..................... 17 15 32 145 117 54 14
---- ------ ------ ------ ------ ------ ------
Net charge-offs............................ 188 79 444 219 225 145 374
---- ------ ------ ------ ------ ------ ------
Provision for loan losses.................. 113 119 534 129 225 695 789
---- ------ ------ ------ ------ ------ ------
Balance of allowance at end of period...... $ 2,925 $2,950 $3,000 $2,910 $3,000 $3,000 $2,450
======= ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding (1)................... .17% .08% .22% .12% .14% .11% .34%
Balance of allowance at end of period
as a percent of loans................... 1.29% 1.43% 1.33% 1.53% 1.71% 2.01% 2.02%
</TABLE>
(1) annualized for the six month periods ended June 30, 1997, and 1996.
-11-
<PAGE>
The Company has established criteria to identify loans which may be
impaired. Large groups of smaller-balance homogeneous loans are collectively
evaluated for impairment, while other larger-balance loans are independently
evaluated. Management has determined that the following are deemed 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 for impairment 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. Loan impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, if the loan is collateral dependent, the
fair value of the related collateral. Loan allowances required, based upon
impaired loan evaluations, are included in the allowance for loan loss.
The Company's policy concerning non-accrual loans states that loans,
without consideration as to loan balance, 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. Due to the difference in measurement
criteria, the populations of non-accrual and impaired loans, while having many
common elements, will be different in the aggregate.
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, 1997, based on the above criteria, the Company classified
four commercial loans, totalling $770,759, and six mortgage loans, totalling
$1,430,626, as impaired. The impairment of these loans is measured using the
present value of future cash flows for the six classified loans, which have been
renegotiated, and is based on the fair value of the underlying collateral for
the remaining four loans. Based upon such evaluation of these impaired loans,
$563,861 has been allocated to the allowance for loan losses.
-12-
<PAGE>
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, 1996) as of June 30, 1997, and as of December 31 of
each of the last five years:
<TABLE>
<CAPTION>
June 30, DECEMBER 31,
-------- ----------------------------------
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $1,750 $1,308 $1,545 $1,501 $ 483 $ 213
Past due loans.................. 747 1,456 59 554 2,934 3,714
Renegotiated loans.............. 1,390 2,567 2,325 1,740 2,366 --
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 3,887 5,331 3,929 3,795 5,783 3,927
Other real estate owned......... 100 -- 255 629 458 --
------ ------ ------ ------ ------ ------
Total........................ $3,987 $5,331 $4,184 $4,424 $6,241 $3,927
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at June 30, 1997, are one non-accrual
commercial loan and three non-accrual mortgage loans, totalling $1,095,623, and
six renegotiated loans, totalling $1,105,762, which represents all loans
categorized as impaired.
At June 30, 1997, non-accrual loans totaled $1,750,000, an increase of
$611,000 compared to March 31, 1997. This net change is primarily the result of
the addition of one commercial loan in this category, totalling $544,000. Of the
total non-accrual loans at June 30, 1997, all are either in foreclosure, in
various stages of litigation, or on a repayment schedule. At June 30, 1997,
loans past due 90 days or more and still accruing totalled $747,000, a decrease
of $1,092,000 compared to March 31, 1997. This net change is primarily the
result of the payoff of one commercial loan, totalling $1,468,000, which was
partially offset by the addition of four commercial loans, totalling $485,000 to
this category. At June 30, 1997, renegotiated loans totalled $1,390,000, an
increase of $60,000 compared to March 31, 1997. This net change is primarily the
result of the addition of two commercial loans to this category.
Other income increased $61,078 or 11.34% to $599,840 for the second three
months of 1997 from $538,762 for the same period in 1996. $53,259 of this
increase represents fee income generated from an ATM surcharge in 1997, which
was not initiated until later in 1996.
Other expenses increased by $315,048 or 13.02% to $2,734,732 for the second
three months of 1997 from $2,419,684 for the same period in 1996. Salaries and
benefits increased by $139,002 or 9.84%, due to increased staff levels,
partially due to an additional branch office being opened, and normal salary
increases. Occupancy expense increased $42,706 or 15.39%. Furniture and
fixtures expense increased $20,793 or 10.64%. The increase in the previous two
categories is primarily the result of branch expansion and renovations, as well
as the increased cost of maintaining the fourteen locations. Other expenses
increased $112,547 or 21.06%. Advertising expense increased $7,268 or 15.67%
due to an increase in the annual marketing budget. Postage expense increased
$17,319 or 23.33% due to a change in postal rates and increased volume. Also,
the Company received a $30,000 insurance recovery in 1996, which was credited to
this account. The remaining components of other expenses increased 13.06% in
the aggregate, reflecting the increased size of the Company.
-13-
<PAGE>
Income tax expense decreased $19,218 or 2.84% to $657,621 for the second
three months of 1997 from $676,839 for the same period in 1996. The decrease in
income tax expense was due to lower pre-tax earnings.
-14-
<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 1997 resulted in slightly increased earnings for
the Company, when compared to the same period in 1996. Net income increased
$23,180, or .92%, to $2,537,585 for the first six months of 1997 from $2,514,405
for the same period in 1996. Net income per share remained the same at $.75.
Increases of $433,436 in net interest income and $171,161 in other income were
substantially offset by an increase of $584,119 in other expenses.
The Company's annualized return on average assets and average stockholders'
equity for the first six months of 1997 were 1.31% and 13.41%, respectively,
compared to 1.42% and 15.29%, respectively, for the same period in 1996.
RESULTS OF OPERATIONS
Total interest income increased $852,841, or 6.80% to $13,399,783 for the
six months ended June 30, 1997, when compared to $12,546,942 for the same period
in 1996. The overall increase in this category was a result of increases of
$957,647 or 11.23% in interest earned on the loan portfolio and $63,270 or
19.50% in interest earned on federal funds sold, which offset a decrease of
$168,076 or 4.55% in interest earned on the securities portfolio.
The increase in interest income on loans was attributable to an increase in
average balances of $31.0 million, which more than offset a 36 basis point
decrease in yield. The increase in interest income on federal funds sold was
attributable to an increase in average balances of $2.1 million along with a 13
basis point increase in yield. The decrease in interest income on securities
was attributable to a $3.3 million decrease in average balances along with a
decline of 12 basis points in yield.
Interest expense on deposits increased $409,505 or 8.47% to $5,243,830 for
the first six months of 1997 compared to $4,834,325 for the same period in 1996.
This increase is attributable to an increase of $25.8 million in average
balances. Total interest expense increased $419,405 or 8.68%, reflecting the
aforementioned deposit factors along with $9,900 in interest expense incurred in
the first six months of 1997 on borrowed money.
Net interest income increased $433,436 or 5.62% to $8,146,053 for the first
six months of 1997 from $7,712,617 for the same period in 1996, primarily as the
result of increased balances of average net earning assets, which more than
offset a 12 basis point decrease in net interest margin. The annualized net
interest margin decreased from 3.84% to 3.72%. While the average yield on
earning assets decreased 16 basis points from 7.59% to 7.43%, the average rate
paid on interest-bearing liabilities decreased 4 basis points from 3.75% to
3.71%.
-15-
<PAGE>
Other income increased $171,161 or 16.43% to $1,212,919 for the first six
months of 1997 from $1,041,758 for the same period in 1996. This was primarily
the result of an increase of $136,001 or 15.79% in service charges on deposits.
$106,916 of this increase represents fee income generated from an ATM surcharge
in 1997, which was not initiated until later in 1996.
Other expenses increased by $584,119 or 12.14% to $5,396,036 for the first
six months of 1997 from $4,811,917 for the same period in 1996. Salaries and
benefits increased by $334,608 or 12.22%, due to increased staffing levels and
normal salary increases. Occupancy expense increased $46,015 or 7.80%. This
was primarily the result of the increased cost of maintaining the fourteen
locations from which the Company operates. The decrease of $10,364 or 2.42% 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 $213,860 or 20.26%. Significant sources of changes in this
category are advertising expense, which increased $28,493 or 35.85%; and,
postage expense, which increased $40,432 or 28.64%. FDIC Insurance expense
increased $19,405 from the statutory $1,000 minimum in 1996. Additionally,
$52,548 was credited to Miscellaneous Losses in 1996, which represents
recoveries received in 1996 from an insurance company on thefts that occurred in
1995. The remaining component of other expenses increased 8.23% in the
aggregate, reflecting the increased size of the Company.
Income tax expense increased $3,082 or .24% to $1,312,140 for the first six
months of 1997 from $1,309,058 for the same period in 1996. The increase in
income tax expense was due to higher pre-tax earnings.
-16-
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased $25.2 million or 6.67% from $377.5
million at December 31, 1996, to $402.7 million at June 30, 1997. Increases of
$10.9 million in cash and cash equivalents and $11.6 million in the securities
portfolio resulted primarily from a $22.9 million increase in deposits.
At June 30, 1997, the Company's securities portfolio of $128.6 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 $2,420,528 and $67,899, 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, 1997, is to increase stockholders' equity by $1,407,167. Securities
held to maturity continue to be carried at historical cost and, at June 30,
1997, contain unrealized gains and losses of $240,464 and $95,293, respectively.
For the entire securities portfolio, net unrealized gains stand at $2,497,800 at
June 30, 1997, as compared with a $2,339,067 net unrealized gain at December 31,
1996. See notes 3 and 4 of the Notes to Consolidated Financial Statements.
Total deposits increased $22.9 million or 6.73% from December 31, 1996, to
June 30, 1997. Non-interest-bearing demand, savings and interest-bearing demand
and time accounts increased $5.7 million, $10.5 million, and $6.7 million,
respectively, in the first six months of 1997. Time deposits at June 30, 1997,
represented 31.90% of total deposits as compared to 32.07% at December 31, 1996.
Stockholders' equity increased $2.1 million or 5.70% as net income of $2.5
million, $378,000 in proceeds of common stock sold via dividend reinvestments
and a $164,000 increase in the equity component related to available for sale
securities were partially offset by dividends paid to stockholders of $980,000.
-17-
<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 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 are
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,
1997.
<TABLE>
<CAPTION>
AMOUNT RATIO
(In Thousands)
<S> <C> <C>
RISK-BASED CAPITAL RATIOS:
Actual Tier I Capital $37,512 17.23%
Tier I Capital minimum amount 8,710 4.00%
------- ------
Excess $28,802 13.23%
======= ======
Actual Combined Tier I and Tier II Capital $39,873 18.31%
Combined Tier I and Tier II Capital minimum
requirement 17,420 8.00%
------- ------
Excess $22,453 10.31%
======= ======
AMOUNT
RATIO
LEVERAGE RATIO:
Actual Tier I Capital to average second quarter
assets $37,512 9.36%
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, 1997.
-18-
<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 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 14,
1997. At that meeting, the two Board nominees were elected to the
Board of Directors. The following table shows, for each nominee,
the number of shares voted for such nominee, the shares for which
authority was withheld, abstentions, and broker non-votes:
AUTHORITY BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--- --------- ----------- ---------
BRUCE BOHUNY 2,785,265 3,341 1,559 68,669
MARY ANN DEACON 2,785,265 3,341 1,559 68,669
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,
1997: None
-19-
<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 6, 1997
- --------------
Date
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,261
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,135
<INVESTMENTS-CARRYING> 49,457
<INVESTMENTS-MARKET> 49,602
<LOANS> 227,124
<ALLOWANCE> 2,925
<TOTAL-ASSETS> 402,733
<DEPOSITS> 362,962
<SHORT-TERM> 0
<LIABILITIES-OTHER> 852
<LONG-TERM> 0
0
0
<COMMON> 8,476
<OTHER-SE> 30,443
<TOTAL-LIABILITIES-AND-EQUITY> 402,733
<INTEREST-LOAN> 9,483
<INTEREST-INVEST> 3,529
<INTEREST-OTHER> 388
<INTEREST-TOTAL> 13,400
<INTEREST-DEPOSIT> 5,244
<INTEREST-EXPENSE> 5,254
<INTEREST-INCOME-NET> 8,146
<LOAN-LOSSES> 113
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 5,396
<INCOME-PRETAX> 3,850
<INCOME-PRE-EXTRAORDINARY> 2,538
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,538
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 7.43
<LOANS-NON> 1,750
<LOANS-PAST> 747
<LOANS-TROUBLED> 1,390
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,000
<CHARGE-OFFS> 205
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 2,925
<ALLOWANCE-DOMESTIC> 2,925
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
