<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 March 31, 1997, 3,382,540 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 March 31, 1997 (Unaudited) 2
Consolidated Statements of Income for the Three
Months Ended March 31, 1996 and 1997 (Unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 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 - 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<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 month period ended March 31, 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, March 31,
------------------------------
1996 1997
------------- ------------
ASSETS
- ------
<S> <C> <C>
Cash and due from banks $ 20,395,240 $ 19,794,954
Federal funds sold 2,750,000 15,875,000
------------- ------------
Cash and cash equivalents 23,145,240 35,669,954
Securities available for sale, at estimated fair value 68,550,491 69,040,449
Securities held to maturity; estimated fair value of
$48,668,000 in 1996 and $48,695,000 in 1997 48,408,044 48,686,612
Loans 222,949,524 221,821,432
Premises and equipment 9,798,976 10,821,850
Accrued interest receivable 3,485,531 3,515,144
Other assets 1,206,974 829,453
------------- ------------
Total assets $377,544,780 $390,384,894
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
- -----------
Deposits:
Non-interest-bearing demand $ 67,346,528 $ 64,814,358
Savings and interest-bearing demand 161,746,887 167,689,889
Club accounts 1,917,278 2,521,189
Time 95,137,066 105,915,313
Time of $100,000 and over 13,935,937 9,942,612
------------- ------------
Total deposits 340,083,696 350,883,361
Borrowed money - 322,000
Other liabilities 641,729 1,270,028
------------- ------------
Total liabilities 340,725,425 352,475,389
------------- ------------
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 3,382,540 in 1997 8,438,975 8,456,350
Surplus 19,190,852 19,348,964
Undivided profits 7,946,013 8,699,796
Unrealized gain on securities available for sale, net 1,243,515 1,404,395
------------- ------------
Total stockholders' equity 36,819,355 37,909,505
------------- ------------
Total liabilities and stockholders' equity $377,544,780 $390,384,894
============= ============
</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 March 31,
---------------------------------------------------
1996 1997
---------------------- -----------------------
<S> <C> <C>
INTEREST INCOME:
Loans and fees $4,177,686 $4,805,190
Federal funds sold 167,116 179,041
Securities:
U.S. Treasury 980,501 910,049
U.S. Government agencies 534,844 499,649
States and political subdivisions 204,058 190,552
Other 137,710 100,646
--------------------- -------------------
Total interest income 6,201,915 6,685,127
--------------------- -------------------
INTEREST EXPENSE:
Deposits 2,429,198 2,651,532
Borrowed money - 7,044
--------------------- -------------------
Total interest expense 2,429,198 2,658,576
--------------------- -------------------
Net interest income 3,772,717 4,026,551
PROVISION FOR LOAN LOSSES 35,087 80,559
--------------------- -------------------
Net interest income
after provision for loan losses 3,737,630 3,945,992
--------------------- -------------------
OTHER INCOME:
Service charges on deposit accounts 381,282 505,666
Gain (loss) on calls of securities 227 (804)
Other income 121,487 108,217
--------------------- -------------------
Total other income 502,996 613,079
--------------------- -------------------
OTHER EXPENSES:
Salaries and benefits 1,325,623 1,521,229
Occupancy expense, net 312,237 315,546
Furniture and equipment 232,955 201,798
Other 521,418 622,731
--------------------- -------------------
Total other expenses 2,392,233 2,661,304
--------------------- -------------------
INCOME BEFORE INCOME TAXES 1,848,393 1,897,767
INCOME TAXES 632,219 654,519
--------------------- -------------------
NET INCOME $1,216,174 $1,243,248
===================== ===================
Net income per common share $.36 $.37
===== ====
Weighted average number of shares outstanding 3,324,222 3,379,065
===================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1996 1997
-------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,216,174 $ 1,243,248
Adjustments to reconcile net
income to net cash provided by operating
activities:
Net amortization of premiums and
discounts on securities 362,840 277,295
Amortization of unearned interest
and deferred loan costs and fees 19,728 49,820
Depreciation and amortization of
premises and equipment 227,253 199,059
Provision for loan losses 35,087 80,559
Loss on calls of securities
available for sale 98 804
Gain from calls of securities
held to maturity (325) -
(Increase) in accrued interest
receivable (100,710) (29,613)
Decrease in other assets 50,471 269,428
Increase in other liabilities 522,582 628,299
------------ --------
Net cash provided by operating
activities 2,333,198 2,718,899
------------ ---------
Cash flows from investing activities:
Proceeds from maturities of and
repayments on securities
available for sale 4,855,299 6,935,001
Proceeds from calls of securities
available for sale 1,999,903 1,499,196
Purchases of securities available
for sale (3,872,356) (8,807,520)
Proceeds from maturities of and
repayments on securities
held to maturity 2,901,740 3,404,262
Proceeds from calls of securities
held to maturity 500,000 -
Purchases of securities held to
maturity (3,343,518) (3,808,591)
Net increase in loans receivable (2,127,022) 912,601
Loan recoveries 12,769 12,174
Proceeds from sale of student
loans - 72,938
Additions to premises and
equipment (512,089) (899,933)
Proceeds from sales of real
estate owned 255,389 -
------------ ---------
Net cash provided by (used in)
investing activities 670,115 (679,872)
------------ ---------
Cash flows from financing activities:
Net (decrease) increase in deposits (6,382,801) 10,799,665
Proceeds from sale of common stock 337,950 175,487
Cash dividends paid on common stock (423,073) (489,465)
------------ ----------
Net cash (used in) provided by
financing activities (6,467,924) 10,485,687
------------ ----------
Net (decrease) increase in cash and cash equivalents (3,464,611) 12,524,714
Cash and cash equivalents - beginning 33,773,253 23,145,240
------------ ----------
Cash and cash equivalents - ending $30,308,642 $35,669,954
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the three month period for:
Income taxes $ 8,579 $ 41,502
Interest 2,446,349 2,524,234
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on securities available for sale,
net of deferred income taxes $ (396,909) $ 160,880
Charge off of loans receivable to allowance for loan losses 12,856 67,733
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 months ended March 31,
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
============== ================ ======== ===========
<CAPTION>
March 31, 1997
---------------------------------------------------------
Amortized Gross Unrealized Carrying
-----------------------------
Cost Gains Losses Value
-------------- --------------- ---------- ------------
U.S. Treasury $25,724,687 $ 91,030 $ 45,529 $25,770,188
U.S. Government agencies 19,759,741 74,555 43,515 19,790,781
States and political subdivisions 16,900,141 61,154 35,012 16,926,283
Other debt securities 3,103,002 11,647 3,972 3,110,677
Equity security 1,204,882 2,237,638 - 3,442,520
-------------- --------------- ---------- ------------
$66,692,453 $2,476,024 $128,028 $69,040,449
============== ================ ======== ===========
</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 March 31, 1997
-------------------------------- ----------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
-------------- ----------- ------------ -----------
Due in one year or less $25,339,254 $25,433,405 $25,818,599 $25,918,804
Due after one year
through five years 39,892,332 40,155,944 39,633,972 39,644,125
Due after five years
through ten years 25,000 25,000 25,000 25,000
Due after ten years 10,000 10,000 10,000 10,000
Equity security 1,204,882 2,926,142 1,204,882 3,442,520
------------ ---------- ----------- -----------
$66,471,468 $68,550,491 $66,692,453 $69,040,449
============ =========== ============ ===========
<CAPTION>
4. SECURITIES HELD TO MATURITY
- --------------------------------
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
============ ======== ======== ===========
March 31, 1997
-----------------------------------------------------------------
Carrying Gross Unrealized Estimated
-------------------------------------
Value Gains Losses Fair Value
-------------- --------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $32,149,995 $ 86,039 $148,503 $32,087,531
U.S. Government agencies 12,198,500 90,048 23,235 12,265,313
States and political subdivisions 1,522,100 5,630 2,506 1,525,224
Other debt securities 2,816,017 4,868 3,826 2,817,059
-------------- -------- -------- -----------
$48,686,612 $186,585 $178,070 $48,695,127
============== ======== ======== ===========
</TABLE>
7.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
4. SECURITIES HELD TO MATURITY (Cont'd)
- --------------------------------
A summary of the securities held to maturity by maturity
follows:
December 31, 1996 March 31, 1997
---------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- ---------------- --------------
Due in one year or less $14,636,079 $14,628,059 $15,898,090 $ 15,960,278
Due after one year
through five years 33,571,965 33,837,966 32,588,522 32,535,224
Due after ten years 200,000 202,063 200,000 199,625
--------------- ---------------- --------------- -----------
$48,408,044 $48,668,088 $48,686,612 $ 48,695,127
=============== ================ =============== ===============
<CAPTION>
5. LOANS
- ----------
December 31, March 31,
1996 1997
----------------------------------
<S> <C> <C>
Loans $ 226,019,901 $224,927,293
Less: Unearned income (70,377) (80,861)
Allowance for loan losses (3,000,000) (3,025,000)
-------------------- -------------
$ 222,949,524 $221,821,432
=================== ============
A summary of the activity in the allowance for loan losses is as follows:
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Balance - beginning $2,910,000 $3,000,000
Provisions charged to operations 35,087 80,559
Loans charged off (12,856) (67,733)
Recoveries of loans previously charged off 12,769 12,174
---------- ----------
Balance - ending $2,945,000 $3,025,000
========== ==========
</TABLE>
8.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
5. LOANS (Cont'd)
- ----------
Impaired loans and related amounts recorded in the allowance for loan losses are summarized
as follows:
December 31, March 31,
1996 1997
----------------- ----------
<S> <C> <C>
Recorded investment in impaired loans:
With recorded allowances $2,513,216 $1,977,062
Without recorded allowances 457,320 1,044,462
----------------- ----------
Total impaired loans 2,970,536 3,021,524
Related allowance for loan losses 684,655 657,848
----------------- ----------
Net impaired loans $2,285,881 $2,363,676
================= ==========
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
Three Months Ended March 31,
-------------------------------------------
1996 1997
-------------------------------------------
<S> <C> <C>
Average recorded investment $2,560,484 $2,996,029
Interest income recognized 9,769 19,359
</TABLE>
9.
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH SUMMARY
The first three months of 1997 resulted in increased earnings for Lakeland
Bancorp, Inc. (the "Company"), when compared to the same period in 1996. Net
income increased $27,074, or 2.23%, to $1,243,248 for the first three months of
1997 from $1,216,174 for the same period in 1996. Net income per share
increased $.01 or 2.78% to $.37. Increases of $253,834 in net interest income
and $110,083 in other income more than offset increases of $269,071 in other
expenses, $45,472 in the provision for loan losses, and $22,300 in income tax
expense.
The Company's annualized return on average assets and average stockholders'
equity for the first three months of 1997 were 1.31% and 13.33%, respectively,
compared to 1.39% and 14.95%, respectively, for the same period in 1996.
RESULTS OF OPERATIONS
Total interest income increased $483,212, or 7.79% to $6,685,127 for the
three months ended March 31, 1997, when compared to $6,201,915 for the same
period in 1996. The overall increase in this category was a result of increases
of $627,504 or 15.02% in interest earned on the loan portfolio and $11,925 or
7.14% in interest earned on federal funds sold, which were partially offset by a
decrease of $156,217 or 8.41% in interest earned on the securities portfolios.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $34.8 million, which was partially offset by a
24 basis point decrease in yield. The increase in interest income on federal
funds sold was attributable to an increase in average balances of $878,000. The
decrease in interest income on securities was attributable to a $9.1 million
decrease in average balances, along with a 7 basis point decrease in yield.
The decrease in the average balances of securities, together with an increase
in the volume of deposits, helped to fund the increased volume of loans.
Interest expense on deposits increased $222,334 or 9.15% to $2,651,532 for
the first quarter of 1997 compared to $2,429,198 for the same period in 1996.
This increase is primarily attributable to an increase of $26.1 million in
average balances of interest bearing deposits, as average cost declined
marginally. Total interest expense increased $229,378 or 9.44%, reflecting the
aforementioned deposit factors along with $7,044 in interest expense incurred in
the first quarter of 1997 on borrowed money.
-10-
<PAGE>
Net interest income increased $253,834 or 6.73% to $4,026,551 for the first
three months of 1997 from $3,772,717 for the same period in 1996, primarily as
the result of increased balances of net earning assets. The annualized net
interest margin (the average yield on interest earning assets, less the average
cost of interest-bearing liabilities) decreased from 3.76% to 3.75%. While the
average yield on earning assets decreased 2 basis points from 7.58% to 7.56%,
the average rate paid on interest-bearing liabilities decreased 1 basis point
from 3.82% to 3.81%.
The provision for loan losses increased $45,472 or 129.60% to $80,559 for
the three months ended March 31, 1997, as compared with $35,087 for the same
prior year period. During the first quarter of 1997, the Company charged off
loans of $67,733 and recovered $12,174 in previously charged off loans compared
to $12,856 and $12,769, respectively, during the same period in 1996. The
allowance for loan losses at March 31, 1997, was 1.34% of total loans, compared
to 1.33% at December 31, 1996, and 1.53% at March 31, 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 three months ending March 31, 1997
and 1996, and for each of the years in the five years ended December 31, 1996,
the historical relationships among the amount of loans outstanding, the
allowance for loan losses, the provision for loan losses, the amount of loans
charged-off and the amount of loan recoveries:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
March 31, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------
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.......................... 52 3 321 114 234 57 256
Installment......................... 16 10 85 33 85 107 87
Mortgage............................ -- -- 70 217 23 35 45
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 68 13 476 364 342 199 388
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 6 6 10 108 69 13 1
Installment......................... 6 7 22 37 48 41 13
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 12 13 32 145 117 54 14
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 56 -- 444 219 225 145 374
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 81 35 534 129 225 695 789
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $3,025 $2,945 $3,000 $2,910 $3,000 $3,000 $2,450
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding................... .02% --% .22% .12% .14% .11% .34%
Balance of allowance at end of period
as a percent of loans............... 1.34% 1.53% 1.33% 1.53% 1.71% 2.01% 2.02%
</TABLE>
-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 allowance 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 March 31, 1997, based on the above criteria, the Company classified
three commercial loans, totalling $2,131,399, and five mortgage loans, totalling
$890,125, as impaired. The impairment of these loans is measured using the
present value of future cash flows for the five renegotiated loans and is based
on the fair value of the underlying collateral for the remaining three loans.
Based upon such evaluation of these impaired loans, $657,848 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 March 31, 1997, and as of December 31 of
each of the last five years:
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
--------- ----------------------------------
1997 1996 1995 1994 1993 1992
--------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $1,139 $1,308 $1,545 $1,501 $ 483 $ 213
Past due loans.................. 1,839 1,456 59 554 2,934 3,714
Renegotiated loans.............. 1,330 2,567 2,325 1,740 2,366 --
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 4,308 5,331 3,929 3,795 5,783 3,927
Other real estate owned......... -- -- 255 629 458 --
------ ------ ------ ------ ------ ------
Total........................ $4,308 $5,331 $4,184 $4,424 $6,241 $3,927
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at March 31, 1997, are one non-accrual
commercial loan and one non-accrual mortgage loan, totalling $508,981, one
commercial loan past due over 90 days, totalling $1,468,081, and five
renegotiated loans, totalling $1,044,462, which represents all loans categorized
as impaired.
At March 31, 1997, non-accrual loans totaled $1,139,000, a decrease of
$169,000 compared to December 31, 1996. This net change is primarily the result
of the removal of three commercial loans from this category. Of the total non-
accrual loans at March 31, 1997, all are either in foreclosure, in various
stages of litigation, or on a repayment schedule. At March 31, 1997, loans past
due 90 days or more and still accruing totalled $1,839,000, an increase of
$383,000 compared to December 31, 1996. This net change is primarily the result
of the addition of one renegotiated commercial loan, totalling $1,468,000, which
was partially offset by the removal of eleven mortgage and commercial loans,
which have been either resolved or have reduced their delinquency through
payments made. At March 31, 1997, renegotiated loans totalled $1,330,000, a
decrease of $1,237,000 compared to December 31, 1996. This net change is
primarily the result of the previously noted renegotiated commercial loan
becoming past due over 90 days.
Other income increased $110,083 or 21.89% to $613,079 for the first three
months of 1997 from $502,996 for the same period in 1996. $52,019 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 $269,071 or 11.25% to $2,661,304 for the first
three months of 1997 from $2,392,233 for the same period in 1996. Salaries and
benefits increased by $195,606 or 14.76%. While salaries increased by $131,175
or 12.14% due to increased staff levels, partially due to an additional branch
office being opened and normal salary increases, benefit expense increased more
significantly by $64,431 or 26.32% as, in addition to the increased staffing
level, the Company experienced an
-13-
<PAGE>
increase in health benefit expense. Occupancy expense increased $3,309 or
1.06%. The decrease of $31,157 or 13.37% 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 $101,313 or
19.43%. Advertising expense increased $20,954 or 38.59% due to an increase in
the annual marketing budget. Postage expense increased $23,115 or 34.54% due to
a change in postal rates and increased volume. Also, the Company received a
$25,000 insurance recovery in 1996, which was credited to this account.
Income tax expense increased $22,300 or 3.53% to $654,519 for the first
three months of 1997 from $632,219 for the same period in 1996. The increase in
income tax expense was due to higher pre-tax earnings.
-14-
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased $12.8 million or 3.40% from $377.5
million at December 31, 1996, to $390.4 million at March 31, 1997. A $12.5
million increase in cash and cash equivalents resulted primarily from a $10.8
million increase in deposits.
At March 31, 1997, the Company's securities portfolio of $117.7 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 $2,476,000 and $128,000, respectively, contained
in the available for sale portfolio, have been recorded, net of deferred taxes,
as a separate component of stockholders' equity. The effect of such adjustment
at March 31, 1997, is to increase stockholders' equity by $1,404,000.
Securities held to maturity continue to be carried at historical cost and, at
March 31, 1997, contain unrealized gains and losses of $187,000 and $178,000,
respectively. For the entire securities portfolio, net unrealized gains stand
at $2,357,000 at March 31, 1997, as compared with a $2,339,000 net unrealized
gain at December 31, 1996.
See notes 3 and 4 of the Notes to Consolidated Financial Statements.
Total deposits increased $10.8 million or 3.18% from December 31, 1996, to
March 31, 1997. A $6.8 million increase in time deposits and a $6.5 million
increase in savings and interest-bearing demand deposits more than offset a $2.5
million decrease in non-interest-bearing demand deposits. Time deposits at March
31, 1997, represented 33.02% of total deposits as compared to 32.07% at December
31, 1996.
Stockholders' equity increased $1.1 million or 2.96% as net income of $1.2
million, $175,000 in proceeds of common stock sold via dividend reinvestments
and a $161,000 increase in the equity component related to available for sale
securities were partially offset by dividends paid to stockholders of $489,000.
-15-
<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 will be
required to maintain a leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points.
The following table reflects the Company's capital ratios as of March 31,
1997.
<TABLE>
<CAPTION>
AMOUNT RATIO
(In Thousands)
<S> <C> <C>
RISK-BASED CAPITAL RATIOS:
Actual Tier I Capital $36,505 17.19%
Tier I Capital minimum amount 8,493 4.00%
------- -----
Excess $28,012 13.19%
======= =====
Actual Combined Tier I and Tier II Capital $38,872 18.31%
Combined Tier I and Tier II Capital minimum
requirement 16,986 8.00%
------- -----
Excess $21,886 10.31%
======= =====
AMOUNT RATIO
LEVERAGE RATIO:
Actual Tier I Capital to average first quarter
assets $36,505 9.59%
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 March
31, 1997.
-16-
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Change in Securities Not Applicable
Item 3 Defaults Upon Senior Securities Not Applicable
Item 5 Other Information Not Applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K Filed During The Quarter Ended March 31,
1997: None
-17-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lakeland Bancorp, Inc.
----------------------------------
(Registrant)
/s/ Arthur L. Zande
----------------------------------
Arthur L. Zande
Executive Vice President
(Chief Executive Officer)
/s/ William J. Eckhardt
----------------------------------
William J. Eckhardt
Vice President and Treasurer
(Chief Financial Officer)
May 8, 1997
- -------------
Date
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,795
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,040
<INVESTMENTS-CARRYING> 48,686
<INVESTMENTS-MARKET> 48,695
<LOANS> 224,846
<ALLOWANCE> 3,025
<TOTAL-ASSETS> 390,385
<DEPOSITS> 350,883
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,270
<LONG-TERM> 322
0
0
<COMMON> 8,456
<OTHER-SE> 29,453
<TOTAL-LIABILITIES-AND-EQUITY> 390,385
<INTEREST-LOAN> 4,805
<INTEREST-INVEST> 1,701
<INTEREST-OTHER> 179
<INTEREST-TOTAL> 6,685
<INTEREST-DEPOSIT> 2,652
<INTEREST-EXPENSE> 2,659
<INTEREST-INCOME-NET> 4,026
<LOAN-LOSSES> 81
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 2,661
<INCOME-PRETAX> 1,898
<INCOME-PRE-EXTRAORDINARY> 1,243
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,243
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 7.56
<LOANS-NON> 1,139
<LOANS-PAST> 1,839
<LOANS-TROUBLED> 1,330
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,000
<CHARGE-OFFS> 68
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 3,025
<ALLOWANCE-DOMESTIC> 3,025
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
