<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 1998.
[_] 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)
(973) 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, 1998, 4,247,919 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, 1997 and March 31, 1998 (Unaudited) 2
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1998 3
(Unaudited)
Consolidated Statements of Comprehensive
Income for the Three Months Ended
March 31, 1997 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1998 5 - 6
(Unaudited)
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's` Discussion and Analysis of
Financial Condition and Results of Operations 11 - 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
----------------------
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, 1997.
The results of operations for the three month period ended March 31,
1998, 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,
ASSETS 1997 1998
- ------- -------------- -------------
<S> <C> <C>
Cash and due from banks $ 28,443,103 $ 25,844,355
Federal funds sold 12,725,000 23,475,000
-------------- -------------
Cash and cash equivalents 41,168,103 49,319,355
Certificates of deposit 101,768 102,676
Securities available for sale, at estimated fair value 102,333,878 94,222,838
Securities held to maturity; estimated
fair value of $57,372,000 in 1997 and $56,704,000 in 1998 57,009,136 56,423,874
Loans 287,003,467 287,159,672
Premises and equipment 13,812,631 13,919,388
Accrued interest receivable 4,210,406 3,804,607
Other assets 2,085,816 1,631,035
-------------- -------------
Total assets $ 507,725,205 $ 506,583,445
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
- -----------
Deposits:
Non-interest-bearing demand $ 97,491,314 $ 97,222,097
Savings and interest-bearing demand 208,419,317 211,893,007
Club accounts 1,698,523 2,340,028
Time 122,252,678 117,063,982
Time of $100,000 and over 23,608,695 23,239,383
-------------- -------------
Total deposits 453,470,527 451,758,497
Borrowed money 3,535,792 2,661,165
Other liabilities 2,056,637 2,248,523
-------------- -------------
Total liabilities 459,062,956 456,668,185
-------------- -------------
Commitments -- --
Stockholders' Equity
- --------------------
Common stock (par value $2.50 per share)
Authorized shares 7,403,359; issued and outstanding
shares 4,239,861 in 1997 and 4,247,919 in 1998 10,599,653 10,619,798
Surplus 29,147,426 29,356,934
Undivided profits 6,849,079 7,679,024
Unrealized gain on securities available for sale, net 2,066,091 2,259,504
-------------- -------------
Total stockholders' equity 48,662,249 49,915,260
-------------- -------------
Total liabilities and stockholders' equity $ 507,725,205 $ 506,583,445
============== =============
</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,
------------------------------------
1997 1998
------------- ------------
<S> <C> <C>
INTEREST INCOME:
Loans and fees $ 5,751,566 $ 6,214,297
Federal funds sold 231,214 187,709
Securities:
U.S. Treasury 984,925 993,358
U.S. Government agencies 715,652 767,600
States and political subdivisions 271,042 364,195
Other 106,366 80,625
----------- -----------
Total interest income 8,060,765 8,607,784
----------- -----------
INTEREST EXPENSE:
Deposits 3,156,900 3,190,229
Borrowed money 41,111 36,967
----------- -----------
Total interest expense 3,198,011 3,227,196
----------- -----------
Net interest income 4,862,754 5,380,588
PROVISION FOR LOAN LOSSES 115,559 48,882
----------- -----------
Net interest income after provision for loan losses 4,747,195 5,331,706
----------- -----------
OTHER INCOME:
Service charges on deposit accounts 601,695 587,864
Gain on disposition of securities 8,248 53,542
Other income 131,493 133,477
----------- -----------
Total other income 741,436 774,883
----------- -----------
OTHER EXPENSES:
Salaries and benefits 1,924,956 2,107,150
Occupancy expense, net 363,183 392,129
Furniture and equipment 294,937 378,577
Other 800,751 1,178,577
----------- -----------
Total other expenses 3,383,827 4,056,433
----------- -----------
INCOME BEFORE INCOME TAXES 2,104,804 2,050,156
INCOME TAXES 702,278 684,711
----------- -----------
NET INCOME $ 1,402,526 $ 1,365,445
=========== ===========
Net income per common share:
Basic $0.33 $ 0.32
Diluted 0.33 0.32
=========== ===========
Weighted average number of shares outstanding:
Basic 4,187,001 4,244,069
Diluted 4,207,219 4,244,069
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPRHENSIVE INCOME
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1997 1998
-------------- --------------
Net income $ 1,402,526 $ 1,365,445
----------- -----------
<S> <C> <C>
Other comprehensive income, net of income taxes:
Unrecognized holding gains on securities
available for sale, net of income taxes
of $64,560 and $161,990, respectively 76,374 228,751
Less: Gains on dispositions of securities
available for sale, net of income taxes
of $2,804 and $18,204, respectively (5,444) (35,338)
----------- -----------
Total other comprehensive income 70,930 193,413
----------- -----------
Comprehensive income $ 1,473,456 $ 1,558,858
=========== ===========
</TABLE>
4.
<PAGE>
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1997 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,402,526 $ 1,365,445
Adjustments to reconcile net income to
net cash provided by operating activities:
Net amortization and accretion 333,115 152,935
Depreciation and amortization of premises and equipment 223,059 266,195
Provision for loan losses 115,559 48,882
Gain on sales and calls of securities available for sale (8,248) (53,542)
(Increase) decrease in accrued interest receivable (65,613) 405,799
Decrease in other assets 180,150 310,995
Increase in other liabilities 704,299 191,886
---------- ----------
Net cash provided by operating activities 2,884,847 2,688,595
---------- ----------
Cash flows from investing activities:
Net change in certificates of deposit -- (908)
Proceeds from maturities of and
repayments on securities available for sale 7,292,001 10,826,000
Proceeds from sales of securities available for sale 2,648,052 6,816,000
Proceeds from calls of securities available for sale 1,499,196 1,500,000
Purchases of securities available for sale (13,776,520) (10,710,254)
Proceeds from maturities of and
repayments on securities held to maturity 3,654,262 6,448,000
Purchases of securities held to maturity (3,808,591) (5,931,687)
Net increase in loans receivable (1,247,098) (448,325)
Loan recoveries 24,873 229,287
Proceeds from sale of student loans 72,938 --
Additions to premises and equipment (932,933) (372,952)
Net decrease in real estate owned 9,000 --
---------- ----------
Net cash (used in) provided by investing activities (4,564,820) 8,355,161
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits 11,464,665 (1,712,030)
Net decrease in short-term borrowings (824,000) (874,627)
Proceeds from sale of common stock 175,487 229,653
Cash dividends paid on common stock (489,465) (535,500)
---------- ----------
Net cash provided by (used in) financing activities 10,326,687 (2,892,504)
---------- ----------
Net increase in cash and cash equivalents 8,646,714 8,151,252
Cash and cash equivalents - beginning 33,450,240 41,168,103
---------- ----------
Cash and cash equivalents - ending $42,096,954 $49,319,355
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5.
<PAGE>
6.
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the three month period for:
Income taxes $ 41,502 $ 37,450
Interest 3,073,669 3,279,342
Supplemental schedule of noncash investing and financing activities:
Unrealized gain on securities available
for sale, net of deferred income taxes $ 70,930 $ 193,413
Charge off of loans receivable to allowance for loan losses 67,733 446,792
Mortgage payable incurred in
connection with purchase of premises 322,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
<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, 1997, 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,
1998, are not necessarily indicative of the results which may be expected for
the entire fiscal year.
Amounts previously reported by the Corporation in its consolidated statement of
condition as of December 31, 1997 and in its Consolidated Statement of Income
for the three months ended March 31, 1997 have been retroactively restated to
include the accounts of Metropolitan State Bank ("Metropolitan") which, on
February 20, 1998, merged into the Corporation. Each share of Metropolitan
common stock outstanding was converted to 0.941 shares of Corporation common
stock, resulting in the issuance of 669,867 shares.
The merger was accounted for as a pooling of interests.
Effective January 1, 1998, the Corporation adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards ("Statement") No.
130, "Reporting Comprehensive Income". Statement No. 130 requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. As required, the provisions of
Statement No. 130 have been retroactively applied to previously reported
periods. The application of Statement No. 130 had no effect on the Corporation's
consolidated financial condition or operations.
2. NET INCOME PER COMMON SHARE
- --------------------------------
Basic net income pre common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted net
income per share is calculated by adjusting the weighted average number of
shares of common stock outstanding to include the effect of stock options, if
dilutive, using the treasury stock method.
On August 27, 1997, the Corporation's Board of Directors authorized a 5% stock
dividend, which was distributed on October 15, 1997. Per share amounts have been
retroactively restated to give effect to this stock dividend.
7.
<PAGE>
8.
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. SECURITIES AVAILABLE FOR SALE
--------------------------------
<TABLE>
<CAPTION>
December31, 1997
--------------------------------------------------------------------
Amortized Gross Unrealized Carrying
------------------------------
Cost Gains Losses Value
---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 30,425,405 $ 339,875 $ 352 $ 30,764,928
U.S. Government agencies 29,073,553 121,581 42,118 29,153,016
Mortgage-backed securities 5,524,062 34,772 17,623 5,541,211
States and political subdivisions 30,061,743 216,562 10,887 30,267,418
Other debt securities 2,299,448 7,628 - 2,307,076
Equity securities 1,503,182 2,797,047 - 4,300,229
------------ ------------ --------- --------------
$ 98,887,393 $ 3,517,465 $ 70,980 $ l02,333,878
============ ============ ========= ==============
<CAPTION>
March 31, 1998
--------------------------------------------------------------------
Amortized Gross Unrealized Carrying
----------------------------
Cost Gains Losses Value
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury $28,909,539 $ 325,847 $ 2,587 $ 29,232,799
U.S. Government agencies 23,949,040 108,682 42,396 24,015,326
Mortgage-backed securities 4,243,327 24,327 12,923 4,254,731
States and political subdivisions 28,997,528 193,115 98,993 29,091,650
Other debt securities 2,836,539 6,382 31,196 2,811,725
Equity securities 1,503,182 3,313,425 -- 4,816,607
------------ ----------- --------- ------------
$ 90,439,155 $ 3,971,778 $ 188,095 $ 94,222,838
============ =========== ========= ============
The following is a summary of securities available for sale by maturity:
<CAPTION>
December 31, 1997 March 31, 1998
------------------------------------ ----------------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Due in one year or less $26,707,693 $ 26,667,222 $19,173,850 $19,226,532
Due after one year
through five years 54,628,030 55,144,815 52,412,196 52,889,667
Due after five years
through ten years 8,748,426 8,915,401 6,276,408 6,272,197
Due after ten years 1,776,000 1,765,000 6,830,192 6,763,104
Mortgage-backed securities 5,524,062 5,541,211 4,243,327 4,254,731
Equity securities 1,503,182 4,300,229 1,503,182 4,816,607
------------ ------------- ------------ ------------
$ 98,887,393 $ 102,333,878 $ 90,439,155 $ 94,222,838
============ ============= ============ ============
</TABLE>
<PAGE>
9.
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. SECURITES HELD TO MATURITY
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------
Amortized Gross Unrealized Estimated
--------------------------
Cost Gains Losses Fair Value
------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $34,488,508 $319,110 $ 8,865 $34,798,753
U.S. Government agencies 14,929,152 46,886 35,620 14,940,418
Mortgage-backed securities 2,399,608 32,602 34,669 2,397,541
States and political subdivisions 4,491,769 41,453 622 4,532,600
Other debt securities 700,099 2,625 100 702,624
----------- -------- -------- -----------
$57,009,136 $442,676 $ 79,876 $57,371,936
=========== ======== ======== ===========
<CAPTION>
March 31,1998
-------------------------------------------------------------
Amortized Gross Unrealized Estimated
--------------------------
Cost Gains Losses Fair Value
------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $35,320,870 $300,461 $ 25,803 $35,595,528
U.S. Government agencies 12,857,795 39,087 48,277 12,848,605
Mortgage-backed securities 2,229,847 22,891 44,205 2,208,533
States and political subdivisions 4,485,588 39,747 525 4,524,810
Other debt securities 1,529,774 6,099 9,657 1,526,216
------------ --------- --------- ------------
$ 56,423,874 $ 408,285 $ 128,467 $ 56,703,692
============ ========= ========= ============
The following is a summary of securities held to maturity by maturity:
<CAPTION>
December 31, 1997 March 31, 1998
------------------------------------ ------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Due in one year or less $ 13,560,951 $ 13,619,205 $ 10,423,327 $ 10,455,268
Due after one year
through five years 38,530,951 38,838,403 41,568,855 41,836,549
Due after five years
through ten years 2,317,626 2,314,162 1,901,844 1,895,466
Due after ten years 200,000 202,625 300,001 307,876
Mortgage-backed securities 2,399,608 2,397,541 2,229,847 2,208,533
------------ ------------ ------------ ------------
$ 57,009,136 $ 57,371,936 $ 56,423,874 $ 56,703,692
============ ============ ============ ============
</TABLE>
<PAGE>
10.
LAKELAND BANCORP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. LOANS
- --------
December 31, March 31,
1997 1998
--------------- ---------------
Loans $ 291,359,074 $ 291,371,730
Less: Unearned income (213,267) (238,341)
Allowance for loan losses (4,142,340) (3,973,717)
------------- -------------
$ 287,003,467 $ 287,159,672
============= =============
A summary of the activity in the allowance for loan losses is as follows:
Three Months Ended
March 31,
----------------------------
1997 1998
------------- ------------
Balance - beginning $ 3,585,238 $ 4,142,340
Provisions charged to operations 115,559 48,882
Loans charged off (67,733) (446,792)
Recoveries of loans previously charged off 24,873 229,287
----------- -----------
Balance - ending $ 3,657,937 $ 3,973,717
----------- -----------
Impaired loans and related amounts recorded in the allowance for
loan losses are summarized as follows:
December 31, March 31,
1997 1998
------------ -----------
Recorded investment in impaired loans:
With recorded allowances $1,737,688 $1,680,508
Without recorded allowances 704,287 772,749
---------- ----------
Total impaired loans 2,441,975 2,453,257
Related allowance for loan losses 864,800 654,860
---------- ----------
Net impaired loans $1,577,175 $1,798,397
========== ==========
The average recorded investment in impaired loans and the interest income
recognized on such loans were as follows:
Three Months Ended
March 31,
----------------------------
1997 1998
------------- ------------
Average recorded investment $ 3,388,188 $ 2,447,616
Interest income recognized 25,719 22,337
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
--------
During the first quarter of 1998, Lakeland Bancorp, Inc. (the "Company")
consummated its acquisition of Metropolitan State Bank ("MSB"). The transaction
was accounted for as a pooling of interests. As a result, the Company's
financial statements have been retroactively adjusted to combine the Company's
accounts and MSB's accounts for all prior periods. See Notes to Consolidated
Financial Statements.
THREE MONTH SUMMARY
The first three months of 1998 resulted in slightly decreased earnings for
Lakeland Bancorp, Inc. (the "Company"), when compared to the same period in
1997. Net income decreased $37,081, or 2.64%, to $1,365,445 for the first three
months of 1998 from $1,402,526 for the same period in 1997. Net income per
share decreased $.01 or 3.3% to $.32. Increases of $517,834 in net interest
income and $33,447 in other income, and decreases of $66,677 in the provision
for loan losses and $17,567 in income tax expense, were more than offset by an
increase of $672,606 in other expenses.
The Company's annualized return on average assets and average stockholders'
equity for the first three months of 1998 were 1.09% and 11.07%, respectively,
compared to 1.21% and 12.72%, respectively, for the same period in 1997.
RESULTS OF OPERATIONS
Total interest income increased $547,019, or 6.79% to $8,607,784 for the
three months ended March 31, 1998, when compared to $8,060,765 for the same
period in 1997. The overall increase in this category was a result of increases
of $462,731 or 8.05% in interest earned on the loan portfolio and $127,793 or
6.15% in interest earned on the securities portfolio, which were partially
offset by a decrease of $43,505 or 18.82% in interest earned on federal funds
sold.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $23.6 million, which was partially offset by a 6
basis point decrease in yield. Loan volume increases were reflected in
commercial loans, which
-11-
<PAGE>
increased on average by 9.4%; mortgage loans, which increased on average by
9.6%; and consumer loans, which increased on average by 7.0%. The increase in
interest income on investment securities was attributable to an increase in
average balances of $12.5 million, (reflecting a $3.8 million increase in the
average volume of taxable securities and an $8.7 million increase in the average
volume of non-taxable securities). which were partially offset by a 15 basis
point decrease in yield. The decrease in interest income on federal funds sold
was attributable to a $3.5 million decrease in average balances, which was
partially offset by a 7 basis point increase in yield.
Interest expense on deposits increased $33,329 or 1.06% to $3,190,229 for
the first quarter of 1998 compared to $3,156,900 for the same period in 1997.
This increase is primarily attributable to an increase of $17.2 million in
average balances of interest bearing deposits (which partially funded the
increases in loans and investment securities), which was partially offset by a
14 basis point decline in yield. Total interest expense increased $29,185 or
.91%, reflecting the aforementioned deposit factors along with a $4,144 decrease
on interest expense on borrowed money.
Net interest income increased $517,834 or 10.65% to $5,380,588 for the
first three months of 1998 from $4,862,754 for the same period in 1997,
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) increased from 3.81% to
3.89%. While the average yield on earning assets decreased 6 basis points from
7.57% to 7.51%, the average rate paid on interest-bearing liabilities decreased
14 basis points from 3.76% to 3.62%.
The provision for loan losses decreased $66,677 or 57.70% to $48,882 for
the three months ended March 31, 1998, as compared with $115,559 for the same
prior year period. During the first quarter of 1998, the Company charged off
loans of $447,000 and recovered $229,000 in previously charged off loans
compared to $68,000 and $25,000, respectively, during the same period in 1997.
The $447,000 in charged-off loans in 1998 is primarily the result of the
charging off of five commercial loans, totalling $370,000, along with the
charging off of twenty-six smaller balance loans, totalling $77,000. The
allowance for loan losses at March 31, 1998, was 1.36% of total loans, compared
to 1.42% at December 31, 1997, and 1.36% at March 31, 1997. 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.
-12-
<PAGE>
The following table sets forth for the three months ending March 31, 1998
and 1997, and for each of the years in the five years ended December 31, 1997,
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>
THREE MONTHS ENDED
--------------------------------------------------------------------
March 31, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period........................... $4,142 $3,585 $3,585 $3,470 $3,547 $3,455 $2,803
------ ------ ------ ------ ------ ------ ------
Charge-offs:
Commercial.......................... 232 52 466 554 119 339 67
Installment......................... 49 16 107 215 114 135 165
Mortgage............................ 166 0 26 80 394 138 65
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 447 68 599 849 627 612 297
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 211 10 20 25 128 69 13
Installment......................... 19 15 77 31 65 66 66
Mortgage............................ -- -- 33 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 230 25 130 56 193 135 79
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 217 43 469 793 434 477 218
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 49 116 1,026 908 357 569 872
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $3,974 $3,658 $4,142 $3,585 $3,470 $3,547 $3,455
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding................... .07% .02% .17% .32% .19% .23% .13%
Balance of allowance at end of period
as a percent of total loans......... 1.36% 1.36% 1.42% 1.33% 1.49% 1.68% 1.85%
</TABLE>
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.
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, 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.
-13-
<PAGE>
As of March 31, 1998, based on the above criteria, the Company classified
seven commercial loans, totalling $1,575,286, and five mortgage loans, totalling
$877,971, as impaired. The impairment of these loans is measured using the
present value of future cash flows for the six renegotiated loans and is based
on the fair value of the underlying collateral for the remaining six loans.
Based upon such evaluation of these impaired loans, $654,860 has been allocated
to the allowance for loan losses. Additionally, the Company has twenty-four
smaller balance commercial loans, totalling $1,427,331, on a non-accrual status.
These loans are considered to be within a homogeneous group of smaller-balance
commercial loans and, as such, are not specifically evaluated for impairment.
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, 1997) as of March 31, 1998, and as of December 31 of
each of the last five years:
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
--------- -------------------------------------------
1998 1997 1996 1995 1994 1993
--------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans............... $2,950 $2,007 $1,845 $2,366 $2,658 $ 793
Past due loans.................. 1,965 1,400 2,200 679 1,039 3,075
Renegotiated loans.............. 913 1,529 2,567 2,325 1,740 2,366
------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 5,828 4,936 6,612 5,370 5,437 6,234
Other real estate owned......... 648 648 177 951 1,302 1,196
------ ------ ------ ------ ------ ------
Total........................ $6,476 $5,584 $6,789 $6,321 $6,739 $7,430
====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at March 31, 1998, are three non-accrual
commercial loans, totalling $656,366, two non-accrual mortgage loans, totalling
$482,054, two commercial loans past due over 90 days, totalling $814,753, and
five renegotiated loans, totalling $500,084, which represents all loans
categorized as impaired.
At March 31, 1998, non-accrual loans totaled $2,950,000, an increase of
$943,000 compared to December 31, 1997. This net change is primarily the result
of the addition of ten commercial loans to this category. Of the total non-
accrual loans at March 31, 1998, all are either in foreclosure, in various
stages of litigation, or on a repayment schedule. At March 31, 1998, loans past
due 90 days or more and still accruing totalled $1,965,000, an increase of
$565,000 compared to December 31, 1997. This net change is primarily the result
of the addition of one renegotiated commercial loan, totalling $585,000 to this
category. At March 31, 1998, renegotiated loans totalled $913,000, a decrease
of $616,000 compared to December 31, 1997. This net change is primarily the
result of the previously noted renegotiated commercial loan becoming past due
over 90 days.
Other income increased $33,447 or 4.51% to $774,883 for the first three
months of 1998 from $741,436 for the same period in 1997.
-14-
<PAGE>
Other expenses increased by $672,606 or 19.88% to $4,056,433 for the first
three months of 1998 from $3,383,827 for the same period in 1997. Salaries and
benefits increased by $182,194 or 9.46%. This was due to increased staffing
levels, partially due to an additional branch office being opened, along with
normal salary increases. Furniture and fixtures increased $83,640 or 28.36%.
Occupancy expense increased $28,946 or 7.97%. Increases in both of these expense
categories resulted from expansions in the Company's branch network and the
addition of optical imaging equipment during 1997. Other expenses increased in
the aggregate $377,826 or 47.18%. $316,000 of this increase represents
acquisition expenses incurred by the Company with regard to the acquisition of
MSB. Exclusive of this acquisition expense, other expenses increased
approximately $62,000 or 7.74%. This increase is due to higher expenses
incurred due to the increased size of the branch network and the Company's
banking business. Income tax expense decreased $17,567 or 2.50% to $684,711
for the first three months of 1998 from $702,278 for the same period in 1997.
The decrease in income tax expense was due primarily to lower pre-tax earnings.
-15-
<PAGE>
FINANCIAL CONDITION
The Company's total assets decreased $1.1 million or .22% from $507.7
million at December 31, 1997, to $506.6 million at March 31, 1998. An $8.2
million increase in cash and cash equivalents was offset by a $8.7 million
decrease in the Company's securities portfolio.
At March 31, 1998, the Company's securities portfolio of $150.6 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 $3,971,778 and $188,095, 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, 1998, is to increase stockholders' equity by $2,260,000. Securities
held to maturity continue to be carried at historical cost and, at March 31,
1998, contain unrealized gains and losses of $408,285 and $128,467,
respectively. For the entire securities portfolio, net unrealized gains were at
$4,063,501 at March 31, 1998, as compared with a $3,809,285 net unrealized gain
at December 31, 1997.
See notes 3 and 4 of the Notes to Consolidated Financial Statements.
Total deposits decreased $1.7 million or .38% from December 31, 1997, to
March 31, 1998. A $3.5 million increase in savings and interest-bearing demand
deposits was more than offset by a $5.6 million decrease in time deposits. Time
deposits at March 31, 1998, represented 31.06% of total deposits as compared to
32.17% at December 31, 1997.
Stockholders' equity increased $1.3 million or 2.57% as net income of $1.4
million, $230,000 in proceeds of common stock sold via dividend reinvestments
and a $193,000 increase in the equity component related to available for sale
securities were partially offset by dividends paid to stockholders of $535,000.
Cash and cash equivalents increased by $8.2 million during the three months
ended March 31, 1998. Operating activities, principally the result of the
Company net income and the decrease of other assets, provided $2.7 million in
net cash. Investing activities provided $8.4 million in net cash, primarily
reflecting the decrease in the Company's investment portfolio. Financing
activities, on the other hand, utilized $2.9 million in net cash, reflecting a
decrease in deposits and short-term borrowings and a payment of cash dividends,
partially offset by proceeds from the sale of common stock.
-16-
<PAGE>
CAPITAL RESOURCES
In March 1989, the FDIC adopted a risk-based capital policy statement which
imposed a minimum capital standard on insured banks. The minimum ratio of risk-
based capital to risk-weighted assets (including certain off-balance sheet
items, such as standby letters of credit) is 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, 1998.
<TABLE>
<CAPTION>
AMOUNT RATIO
(In Thousands)
<S> <C> <C>
RISK-BASED CAPITAL RATIOS:
Actual Tier I Capital $47,656 16.68%
Tier I Capital minimum amount 11,431 4.00%
------- -----
Excess $36,225 12.68%
======= =====
Actual Combined Tier I and Tier II Capital $49,177 17.21%
Combined Tier I and Tier II Capital minimum
requirement 22,862 8.00%
------- -----
Excess $26,315 9.21%
======= =====
LEVERAGE RATIO:
Actual Tier I Capital to average first quarter
assets $47,656 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 March
31, 1998.
-17-
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Change in Securities Not Applicable
Item 3 Defaults Upon Senior Securities Not Applicable
Item 5 Other Information Not Applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K Filed During The Quarter Ended March 31,
1998: On February 26, 1998, the Company filed a Current Report on Form
8-K in connection with its acquisition of Metropolitan State Bank.
-18-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lakeland Bancorp, Inc.
----------------------------------
(Registrant)
/s/ Arthur L. Zande
----------------------------------
Arthur L. Zande
Executive Vice President
(Chief Executive Officer)
/s/ William J. Eckhardt
----------------------------------
William J. Eckhardt
Vice President and Treasurer
(Chief Financial Officer)
May 11, 1998
- -------------
Date
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,844
<INT-BEARING-DEPOSITS> 103
<FED-FUNDS-SOLD> 23,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,223
<INVESTMENTS-CARRYING> 56,424
<INVESTMENTS-MARKET> 56,704
<LOANS> 287,160
<ALLOWANCE> 3,974
<TOTAL-ASSETS> 506,583
<DEPOSITS> 451,758
<SHORT-TERM> 2,661
<LIABILITIES-OTHER> 2,249
<LONG-TERM> 0
0
0
<COMMON> 10,620
<OTHER-SE> 39,295
<TOTAL-LIABILITIES-AND-EQUITY> 506,583
<INTEREST-LOAN> 6,214
<INTEREST-INVEST> 2,206
<INTEREST-OTHER> 188
<INTEREST-TOTAL> 8,608
<INTEREST-DEPOSIT> 3,190
<INTEREST-EXPENSE> 3,227
<INTEREST-INCOME-NET> 5,381
<LOAN-LOSSES> 49
<SECURITIES-GAINS> 54
<EXPENSE-OTHER> 4,056
<INCOME-PRETAX> 2,050
<INCOME-PRE-EXTRAORDINARY> 1,365
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,365
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 7.51
<LOANS-NON> 2,950
<LOANS-PAST> 1,965
<LOANS-TROUBLED> 913
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,142
<CHARGE-OFFS> 447
<RECOVERIES> 229
<ALLOWANCE-CLOSE> 3,974
<ALLOWANCE-DOMESTIC> 3,974
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
