<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, 1999.
[_] 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, 1999, 8,500,788 common shares, $2.50 par value, were
outstanding.
<PAGE>
LAKELAND BANCORP, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 1
CONSOLIDATED STATEMENTS OF CONDITION AS OF
DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED) 2
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3 QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK 17
PART II. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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, 1998.
The results of operations for the three month period ended March 31, 1999, 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,
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,193,899 $ 20,888,158
Federal funds sold 10,875,000 10,725,000
------------ ------------
Cash and cash equivalents 35,068,899 31,613,158
Certificates of deposit 204,033 214,033
Securities available for sale, at estimated fair value 116,847,825 108,971,956
Securities held to maturity; estimated fair value of $68,271,000
in 1998 and $83,573,295 in 1999 67,302,146 83,051,009
Loans 307,596,324 312,173,467
Premises and equipment 14,260,225 14,087,694
Accrued interest receivable 4,414,733 4,304,270
Other assets 2,863,222 1,923,447
------------ ------------
Total assets $548,557,407 $556,339,034
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing demand $107,097,017 $103,873,407
Savings and interest-bearing demand 225,894,802 233,755,617
Club accounts 1,661,786 2,397,405
Time 125,144,292 127,977,167
Time of $100,000 and over 29,082,870 28,810,516
------------ ------------
Total deposits 488,880,767 496,814,112
------------ ------------
Borrowed money 3,795,114 3,004,038
Other liabilities 2,567,989 2,617,489
------------ ------------
Total liabilities 495,243,870 502,435,639
Commitments
Stockholders' equity
Common stock, par value $2.50 per share; authorized shares 14,806,718;
issued shares 8,511,588 in 1998 and 8,511,588 in 1999;
outstanding shares 8,502,988 in 1998 and 8,500,788 in 1999; 21,278,970 21,278,970
Surplus 29,557,747 18,937,950
Undivided profits (accumulated deficit) (491,609) 10,915,404
Accumulated other comprehensive income, net 3,097,429 2,940,221
Treasury stock, at cost (8,600 and 10,800 shares in 1998 and 1999,
respectively) (129,000) (169,150)
------------ ------------
Total stockholders' equity 53,313,537 53,903,395
------------ ------------
Total liabilities and stockholders' equity $548,557,407 $556,339,034
============ ============
</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,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
INTEREST INCOME
Loans and fees $6,214,297 $6,261,481
Federal funds sold 187,709 187,305
Securities
U.S. Treasury 993,358 924,655
U.S. Government agencies 767,600 795,620
States and political subdivisions 364,195 463,369
Other 80,625 295,873
---------- ----------
Total interest income 8,607,784 8,928,303
---------- ----------
INTEREST EXPENSE
Deposits 3,190,229 3,343,505
Borrowed money 36,967 44,762
---------- ----------
Total interest expense 3,227,196 3,388,267
---------- ----------
Net interest income 5,380,588 5,540,036
---------- ----------
PROVISION FOR LOAN LOSSES 48,882 105,000
Net interest income after provision for loan losses 5,331,706 5,435,036
---------- ----------
OTHER INCOME
Service charges on deposit accounts 587,864 600,062
Gain on sale of investment securities 53,542 13,591
Other income 133,477 118,421
---------- ----------
Total other income 774,883 732,074
---------- ----------
OTHER EXPENSES
Salaries and benefits 2,107,150 2,253,836
Occupancy expense, net 392,129 412,783
Furniture and equipment 378,577 425,855
Other 1,178,577 1,038,013
---------- ----------
Total other expenses 4,056,433 4,130,487
---------- ----------
INCOME BEFORE INCOME TAXES 2,050,156 2,036,623
INCOME TAXES 684,711 611,684
---------- ----------
NET INCOME $1,365,445 $1,424,939
========== ==========
Net income per common share
Basic 0.16 0.17
Diluted 0.16 0.17
Weighted average number of shares outstanding
Basic 8,488,138 8,501,619
Diluted 8,488,138 8,501,619
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Net income $1,365,445 $1,424,939
---------- ----------
Other comprehensive income, net of income taxes
Unrecognized holding gains (losses) on securities available for sale,
net of income taxes (benefit) of $161,990 and $(76,365), respectively 228,751 (148,238)
Less gains on dispositions of securities available for sale,
net of income taxes of $18,204 and $4,621, respectively (35,338) (8,970)
---------- ----------
Total other comprehensive income (loss) 193,413 (157,208)
---------- ----------
Comprehensive income $1,558,858 $1,267,731
========== ==========
</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,
------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,365,445 $ 1,424,939
Adjustments to reconcile net income to net cash provided by operating activities
Net amortization and accretion 152,935 76,375
Depreciation and amortization of premises and equipment 266,195 319,630
Provision for loan losses 48,882 105,000
Gain on sales of investment securities (53,542) (13,591)
Decrease in accrued interest receivable 405,799 110,463
Decrease in other assets 310,995 939,776
Increase in other liabilities 191,886 174,842
------------ ------------
Net cash provided by operating activities 2,688,595 3,137,434
Cash flows from investing activities
Net change in certificates of deposit (908) (10,000)
Proceeds from maturities of and repayments on securities available for sale 10,826,000 5,576,303
Proceeds from sales of securities available for sale 6,816,000 2,384,586
Proceeds from calls of securities available for sale 1,500,000 -
Purchases of securities available for sale (10,710,254) (15,744,340)
Proceeds from maturities of and repayments on securities held to maturity 6,448,000 3,689,825
Purchases of securities held to maturity (5,931,687) (4,124,521)
Net increase in loans receivable (219,038) (4,682,143)
Additions to premises and equipment (372,952) (147,101)
------------ ------------
Net cash (used in) provided by investing activities 8,355,161 (13,057,391)
Cash flows from financing activities
Net increase (decrease) in deposits (1,712,030) 7,933,345
Net decrease in short-term borrowings (874,627) (791,076)
Proceeds from sale of common stock 229,653 -
Cash dividends paid on common stock (535,500) (637,903)
Purchase of treasury stock - (40,150)
------------ ------------
Net cash provided by (used in) financing activities (2,892,504) 6,464,216
Net (decrease) increase in cash and cash equivalents 8,151,252 (3,455,741)
Cash and cash equivalents - beginning 41,168,103 35,068,899
------------ ------------
Cash and cash equivalents - ending $ 49,319,355 $ 31,613,158
============ ============
Supplemental disclosures of cash flow information
Cash paid during the three month period for
Income taxes $ 37,450 $ 225,000
Interest $ 3,279,342 $ 3,422,419
Supplemental schedule of noncash investing and financing activities
Transfer of investment securities transferred from available
for sale to held for sale $ - $ 15,314,167
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial statements
under generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations. These
financial statements should be read in conjunction with the annual financial
statements and notes thereto included in Form 10-K for the fiscal year ended
December 31,1998. 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, 1999, 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
income for the three months ended March 31, 1998, have been retroactively
restated to include the accounts of Metropolitan State Bank (Metropolitan),
which on February 20, 1998, was merged with a newly formed subsidiary of the
Corporation with Metropolitan as the surviving bank. Each share of
Metropolitan common stock outstanding was converted to 0.941 shares of the
Corporation's common stock, resulting in the issuance of 669,867 shares. The
merger was accounted for under the pooling of interests method of accounting.
On December 7, 1998, the Corporation entered into an Agreement and Plan of
Merger (the Merger Agreement) and a Stock Option Agreement (the Option
Agreement) with High Point Financial Corp. (High Point) pursuant to which
outstanding shares of High Point common stock will be converted into shares of
the Corporation's common stock and High Point's subsidiary, National Bank of
Sussex County, will become a wholly owned subsidiary of the Corporation.
Pursuant to the Merger Agreement, each outstanding share of High Point Common
Stock (3,811,480 shares of High Point common stock were outstanding as of
December 31, 1998) will be converted into 1.2 shares of the Corporation's
common stock. At December 31, 1998, the Corporation owned 344,252 shares of
High Point Common Stock which will be cancelled upon the consummation of the
merger. The merger is subject to regulatory approval, the approval of the
Corporation's and High Point's shareholders and other standard conditions. The
merger is anticipated to be accounted for under the pooling of interests method
of accounting.
NOTE 2 - NET INCOME PER COMMON SHARE
Basic net income per 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 26, 1998, the Corporation's Board of Directors authorized a 2 for 1
stock split in the form of a 100% stock dividend, which was distributed on
October 1, 1998. Per share amounts have been retroactively restated to give
effect to this stock dividend.
6
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - STOCKHOLDERS' EQUITY
The $491,609 deficit in undivided profits contained in the December 31, 1998
consolidated financial statements is the result of a bookkeeping entry charging
undivided profits $10,617,797 in connection with Corporation's accounting for
its 2 for 1 stock split effected in the form of a 100% stock dividend
distributed October 1, 1998. In accordance with New Jersey corporate law, the
Corporation's Board of Directors on March 10, 1999, approved the reversing of
this accounting treatment of the stock dividend, thereby moving the $10,617,797
from the capital stock account to the undivided profits account to more
accurately reflect the Corporation's financial condition. This
reclassifications was made in the Corporation's unaudited consolidated
statement of financial condition as of March 31, 1999.
NOTE 4 - SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------
Amortized Gross unrealized Fair market
-----------------
cost Gains Losses value
--------- -------- ------- -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 24,465 $ 334 $ (23) $ 24,776
U.S. Government agencies 26,284 35 (259) 26,062
Mortgage-backed securities 2,671 23 (11) 2,683
States and political subdivisions 40,010 309 (119) 40,200
Other debt securities 9,041 3 (123) 8,919
Equity securities 1,512 4,820 - 6,332
-------- ------ ----- --------
$103,983 $5,524 $(535) $108,972
======== ====== ===== ========
<CAPTION>
December 31, 1998
-----------------------------------------
Amortized Gross unrealized Fair market
------------------
cost Gains Losses value
--------- -------- ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 28,552 $ 587 $ (19) $ 29,120
U.S. Government agencies 25,719 62 (110) 25,671
Mortgage-backed securities 3,279 32 (14) 3,297
States and political subdivisions 38,456 384 (60) 38,780
Other debt securities 14,163 25 (100) 14,088
Equity securities 1,503 4,389 - 5,892
-------- ------ ----- --------
$111,672 $5,479 $(303) $116,848
======== ====== ===== ========
</TABLE>
7
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - SECURITIES AVAILABLE FOR SALE (CONTINUED)
The following is a summary of securities available for sale by maturity:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Amortized Fair market Amortized Fair market
cost value cost value
--------- ----------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 16,535 $ 16,576 $ 21,669 $ 21,755
Due after one year through five years 68,815 69,092 60,842 61,384
Due after five years through ten years 11,908 11,771 15,293 15,441
Due after ten years 2,542 2,518 9,086 9,079
Mortgage-backed securities 2,671 2,683 3,279 3,297
Equity securities 1,512 6,332 1,503 5,892
-------- -------- -------- --------
$103,983 $108,972 $111,672 $116,848
======== ======== ======== ========
</TABLE>
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------
Amortized Gross unrealized Fair market
-----------------
cost Gains Losses value
--------- -------- ------- -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $38,427 $ 486 $ (54) $38,859
U.S. Government agencies 26,853 201 (37) 27,017
Mortgage-backed securities 2,150 21 (36) 2,135
States and political subdivisions 4,372 67 - 4,439
Other debt securities 11,249 2 (128) 11,123
------- ------ ----- -------
$83,051 $ 777 $(255) $83,573
======= ====== ===== =======
<CAPTION>
December 31, 1998
-----------------------------------------
Amortized Gross unrealized Fair market
----------------
cost Gains Losses value
--------- -------- ------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $32,576 $ 630 $ - $33,206
U.S. Government agencies 21,910 317 (27) 22,200
Mortgage-backed securities 2,165 23 (5) 2,183
States and political subdivisions 4,513 78 - 4,591
Other debt securities 6,138 6 (53) 6,091
------- ------ ----- -------
$67,302 $1,054 $ (85) $68,271
======= ====== ===== =======
</TABLE>
8
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)
The following is a summary of securities held to maturity by maturity:
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------------
Amortized Fair market Amortized Fair market
cost value cost value
--------- ----------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $13,697 $13,754 $ 14,916 $ 15,007
Due after one year through five years 66,501 66,964 48,257 49,095
Due after five years through ten years 503 411 1,664 1,677
Due after ten years 200 309 300 309
Mortgage-backed securities 2,150 2,135 2,165 2,183
------- ------- ------------ -----------
$83,051 $83,573 $ 67,302 $ 68,271
======= ======= ============ ===========
</TABLE>
NOTE 6 - LOANS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
(in thousands)
<S> <C> <C>
Loans $ 311,671 $ 316,232
Less
Unearned income (178) (116)
Allowance for loan losses (3,897) (3,943)
------------ -----------
$ 307,596 $ 312,173
============ ===========
</TABLE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1999
------------ -----------
<S> <C> <C>
Balance - beginning $4,142,340 $3,897,024
Provisions charged to operations 48,882 105,000
Loans charged off (446,792) (89,064)
Recoveries of loans previously charged off 229,287 30,158
------------ -----------
Balance of allowance at end of period $3,973,717 $3,943,118
============ ===========
</TABLE>
Impaired loans and related amounts recorded in the allowance for loan losses
are summarized as follows:
9
<PAGE>
LAKELAND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - LOANS (CONTINUED)
December 31, March 31,
1998 1999
------------ ------------
Recorded investment in impaired loans:
With recorded allowances $ 1,133 $ 802
Without recorded allowances 1,119 1,116
---------- --------
Total impaired loans 2,252 1,918
---------- --------
Related allowance for loan losses 381 423
---------- --------
Net impaired loans $ 1,871 $ 1,495
========== ========
Three months ended March 31,
-----------------------------
1998 1999
------------ ----------
Average recorded investment $3,388,188 $597,384
Interest income recognized 22,337 16,374
10
<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 1999 resulted in slightly increased earnings for
Lakeland Bancorp, Inc. (the "Company"), when compared to the same period in
1998. Net income increased $59,494, or 4.36%, to $1,424,939 for the first three
months of 1999 from $1,365,445 for the same period in 1998. Net income per share
basic and diluted increased $.01 to $.17. Increases of $159,448 in net interest
income and a decrease of $73,027 in income tax expense more than offset
increases of $56,118 in the provision for loan losses and $74,054 in total other
expenses, and a decrease of $42,808 in total other income.
The Company's annualized return on average assets and average stockholders'
equity for the first three months of 1999 were 1.03% and 10.61%, respectively,
compared to 1.08% and 11.07%, respectively, for the same period in 1998.
Results of Operations
Total interest income increased $320,519, or 3.72% to $8,928,303 for the
three months ended March 31, 1999, when compared to $8,607,784 for the same
period in 1998. The overall increase in this category was a result of increases
of $47,184 or .76% in interest earned on the loan portfolio and $273,739 or
12.41% in interest earned on the securities portfolio.
The increase in interest income on loans was primarily attributable to an
increase in average balances of $19.0 million, which was partially offset by a
46 basis point decrease in yield. Loan volume increases were reflected in
commercial loans, which increased on average by 5.2% and mortgage loans, which
increased on average by 13.8%, which were partially offset by a decrease in
consumer loans, which decreased on average by 2.8%. The increase in interest
income on investment securities was attributable to an increase in average
balances of $35.7 million, (reflecting a $28.0 million increase in the average
volume of taxable securities and a
11
<PAGE>
$7.7 million increase in the average volume of non-taxable securities). which
was partially offset by a 35 basis point decrease in yield. Interest income on
federal funds sold was unchanged as a $2.2 million increase in average balances
was offset by a 78 basis point decrease in yield.
Total interest expense increased $161,071 or 4.99%. Of this increase,
interest expense on deposits increased $153,276 or 4.80% to $3,343,505 for the
first quarter of 1999 compared to $3,190,229 for the same period in 1998. This
increase is primarily attributable to an increase of $36.4 million in average
balances of interest bearing deposits (which partially funded the increases in
loans and investment securities), which was partially offset by an 18 basis
point decline in yield.
Net interest income increased $159,448 or 2.96% to $5,540,036 for the first
three months of 1999 from $5,380,588 for the same period in 1998, 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 3.89% to 3.56%. While the
average yield on earning assets decreased 50 basis points from 7.51% to 7.01%,
the average rate paid on interest-bearing liabilities decreased 17 basis points
from 3.62% to 3.45%.
The provision for loan losses increased $56,118 or 114.80% to $105,000 for
the three months ended March 31, 1999, as compared with $48,882 for the same
prior year period. During the first quarter of 1999, the Company charged off
loans of $89,000 and recovered $30,000 in previously charged off loans compared
to $447,000 and $230,000, respectively, during the same period in 1998. The
$89,000 in charged-off loans in 1999 is the result of the charging off of nine
consumer installment loans. The allowance for loan losses at March 31, 1999,
and December 31, 1998, was 1.25% of total loans, compared to 1.36% at March 31,
1998. 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 ended
March 31, 1999 and 1998, and for each of the years in the five years ended
December 31, 1998, the activity of the allowance for loan losses account.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
March 31, YEAR ENDED DECEMBER 31,
----------- ------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period........................... $3,897 $4,142 $4,142 $3,585 $3,470 $3,547 $3,455
------ ------ ------ ------ ------ ------ ------
Charge-offs:
Commercial.......................... 35 232 834 466 451 119 339
Installment......................... 54 49 426 133 328 291 250
Mortgage............................ -- 166 -- -- 70 217 23
------ ------ ------ ------ ------ ------ ------
Total charge-offs................ 89 447 1,260 599 849 627 612
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial.......................... 21 211 256 20 25 128 69
Installment......................... 9 19 61 77 31 65 66
Mortgage............................ -- -- -- 33 -- -- --
------ ------ ------ ------ ------ ------ ------
Total recoveries................. 30 230 317 130 56 193 135
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 59 217 943 469 793 434 477
------ ------ ------ ------ ------ ------ ------
Provision for loan losses.............. 105 49 698 1,026 908 357 569
------ ------ ------ ------ ------ ------ ------
Balance of allowance at end of period.. $3,943 $3,974 $3,897 $4,142 $3,585 $3,470 $3,547
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding................... .02% .07% .32% .17% .32% .19% .23%
Balance of allowance at end of period
as a percent of total loans......... 1.25% 1.36% 1.25% 1.42% 1.33% 1.49% 1.62%
</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.
13
<PAGE>
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
applies any payments to principal as long as there is doubt as to the
collectibility of the loan balance.
As of March 31, 1999, based on the above criteria, the Company classified
three commercial loans, totaling $1,791,773; and, one mortgage loan, totaling
$126,160, as impaired. The impairment of these loans is based on the fair value
of the underlying collateral for these loans. Based upon such evaluation of
these impaired loans, $422,638 has been allocated to the allowance for loan
losses.
The following schedule sets forth certain information regarding the
Company's non-accrual, past due and renegotiated loans and other real estate
owned as of March 31, 1999 and 1998, and as of December 31 of each of the last
five years:
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
------------------ -------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- ------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans...................... $ 1,520 $2,950 $1,257 $2,007 $1,845 $2,366 $2,658
Past due loans......................... 2,583 1,965 4,248 1,400 2,200 679 1,039
Renegotiated loans..................... 1,888 913 1,468 1,529 2,567 2,325 $1,740
------ ------ ------ ------ ------ ------ ------
Total non-accrual, past due
and renegotiated loans 5,991 5,828 6,973 4,936 6,612 5,370 5,437
Other real estate owned 394 648 788 648 177 951 1,302
------ ------ ------ ------ ------ ------ ------
Total............................... $ 6,385 $6,476 $7,761 $5,584 $6,789 $6,321 $6,739
====== ====== ====== ====== ====== ====== ======
</TABLE>
Included in the above schedule at March 31, 1999, is one non-accrual
commercial loan, totaling $223,586; two commercial loans past due over 90 days,
totaling $1,568,187; and, one mortgage loan past due over 90 days, totaling
$126,160, which represents all loans categorized as impaired.
At March 31, 1999, non-accrual loans totaled $1,520,000, an increase of
$263,000 compared to December 31, 1998. This net change is primarily the result
of the addition of two commercial loans totaling $31,000 and one consumer loan
totaling $228,000, which have been added to this category. Of the total non-
accrual loans at March 31, 1999, all are either in foreclosure, in various
stages of litigation, or on a repayment schedule. At March 31, 1999, loans past
due 90 days or more and still accruing totaled $2,583,000, a decrease of
$1,665,000 compared to December 31, 1998. This net change is primarily the
result of the reduction of one commercial loan, totaling $1,332,000, which has
become current and the reduction of two commercial loans, totaling $274,000, and
one mortgage loan, totaling $161,000, which have been renegotiated. At March
31, 1999, renegotiated loans totaled $1,888,000, an increase of $420,000
compared to December 31, 1998. All renegotiated loans are current with respect
to the revised terms with the exception of two loans past due over 90 days,
which are categorized as impaired. This net change is primarily the result of
the previously two noted renegotiated commercial loans and one renegotiated
mortgage loan, which have been added to this category. At March 31, 1999, other
real estate owned totaled $394,000, a decrease of $394,000 compared to December
31, 1998. This net change is primarily the result of the sale of properties held
in this category during the first quarter of 1999.
14
<PAGE>
Total other income decreased $42,808 or 5.52% to $732,074 for the first
three months of 1999 from $774,883 for the same period in 1998. This decrease
is primarily the result of a $40,000 decrease in gain on disposition of
securities.
Other expenses increased by $74,054 or 1.83% to $4,130,487 for the first
three months of 1999 from $4,056,433 for the same period in 1998. Salaries and
benefits increased by $146,686 or 6.96%. This was due to increased staffing
levels, partially due to three additional branch offices being opened, along
with normal salary increases. Occupancy expense increased $20,654 or 5.27%.
Furniture and fixtures expense increased $47,278 or 12.49%. These increases are
a result of the aforementioned branch expansion. Other expenses decreased in
the aggregate $140,564 or 11.93%. The Company incurred $316,000 in acquisition
expense during the first quarter of 1998 with regard to the acquisition of
Metropolitan State Bank. Exclusive of this acquisition expense, other expenses
increased approximately $175,436 or 20.34%. Approximately $134,000 of this
increase is due to higher expenses incurred due to the increased number of
branches and the Company's banking business. The remaining $41,000 represents
supplemental pension expense incurred in 1999, relating to the funding of an
annuity for the Chief Executive Officer of Metropolitan State Bank. The
effective tax decreased from 33.39% at March 31, 1998, to 30.03% at
March 31, 1999. The decrease in income tax expense was due primarily to an
increase in tax-exempt income, as well as a decrease in pre-tax earnings.
15
<PAGE>
Financial Condition
The Company's total assets increased $7.8 million or 1.42% from $548.5
million at December 31, 1998, to $556.3 million at March 31, 1999. A $3.5
million decrease in cash and cash equivalents and a $1.2 million decrease in
other assets was offset by increases of $7.9 million in the Company's securities
portfolio, and $4.6 million in the loan portfolio.
At March 31, 1999, the Company's securities portfolio of
$192.0 million is segregated into classifications of "available for sale" and
"held to maturity". Unrealized gains and losses of $5,503,000 and $515,000,
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, 1999, is to increase stockholders' equity
by $2,940,000. Securities held to maturity at March 31, 1999, contain unrealized
gains and losses of $777,000 and $255,000, respectively. For the entire
securities portfolio, net unrealized gains were at $5,511,000 at March 31, 1999,
as compared with a $6,145,000 net unrealized gain at December 31, 1998.
Total loans increased $4.6 million or 1.49% from December 31, 1998 to March
31, 1999.
Total deposits increased $7.9 million or 1.62% from December 31, 1998, to
March 31, 1999. A $7.9 million increase in savings and interest-bearing demand
deposits and a $2.6 million increase in time deposits more than offset a $3.2
million decrease in non-interest bearing demand deposits. The overall increase
in deposits was primarily due to the additional branch offices, which were
opened. Time deposits at March 31, 1999, represented 31.56% of total deposits
as compared to 31.55% at December 31, 1998.
Stockholders' equity increased $590,000 or 1.11% as net income of
$1,425,000 was offset by a $157,000 decrease in the equity component related to
available for sale securities, $638,000 in dividends paid to stockholders and
$40,000 in the repurchase of treasury stock.
Cash and cash equivalents decreased by $3.5 million during the three months
ended March 31, 1999. Operating activities, principally the result of the
Company's net income and the decrease of other assets, provided $3.1 million in
net cash. Investing activities used $13.0 million in net cash, primarily
reflecting the increase in the Company's investment portfolio. Financing
activities provided $6.5 million in net cash, reflecting an increase in deposits
partially offset by a decrease in short term borrowings and a cash dividend paid
on 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 off
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, 1999:
<TABLE>
<CAPTION>
Amount Ratio
(In Thousands)
<S> <C> <C>
Risk-Based Capital Ratios:
Actual Tier I Capital 50,963 15.85%
Tier I Capital minimum amount 12,862 4.00%
------- -----
Excess $38,101 11.85%
======= =====
Actual Combined Tier I and Tier II Capital $54,906 17.08%
Combined Tier I and Tier II Capital minimum requirement 25,724 8.00%
------- -----
Excess $29,182 9.08%
======= =====
Leverage Ratio:
Actual Tier I Capital to average first quarter assets $50,963 9.20%
Minimum leverage target* * *
------- -----
Excess * *
</TABLE>
* No formal minimum leverage target (other than the tree percent floor
described above) has been established for the Company or the Bank as of March
31, 1999.
ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk
Not applicable -- no significant change from
Annual Report on Form 10-K.
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, 1999: On March 24, 1999, the Company filed a Current Report
on Form 8-K in connection with a change in the Registrant's Certifying
Accountants.
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, 1999
- ---------------------
Date
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20888
<INT-BEARING-DEPOSITS> 214
<FED-FUNDS-SOLD> 10725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108972
<INVESTMENTS-CARRYING> 83051
<INVESTMENTS-MARKET> 83573
<LOANS> 316116
<ALLOWANCE> 3943
<TOTAL-ASSETS> 556339
<DEPOSITS> 496814
<SHORT-TERM> 3004
<LIABILITIES-OTHER> 2617
<LONG-TERM> 0
0
0
<COMMON> 21279
<OTHER-SE> 32624
<TOTAL-LIABILITIES-AND-EQUITY> 556339
<INTEREST-LOAN> 6261
<INTEREST-INVEST> 2480
<INTEREST-OTHER> 187
<INTEREST-TOTAL> 8928
<INTEREST-DEPOSIT> 3344
<INTEREST-EXPENSE> 3388
<INTEREST-INCOME-NET> 5540
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 4130
<INCOME-PRETAX> 2037
<INCOME-PRE-EXTRAORDINARY> 1425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1425
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 7.01
<LOANS-NON> 1276
<LOANS-PAST> 2583
<LOANS-TROUBLED> 1888
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3897
<CHARGE-OFFS> 89
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 3943
<ALLOWANCE-DOMESTIC> 3943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
