<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] 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 No.)
250 Oak Ridge Road, Oak Ridge, New Jersey 07438
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 697-2000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of September 30, 2000 there were 12,564,860 outstanding shares of Common
Stock, no par value.
1
<PAGE>
LAKELAND BANCORP, INC.
Form 10-Q Index
<TABLE>
<CAPTION>
PAGE
Part I Financial Information
Item 1. Financial Statements:
<S> <C>
Consolidated Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999 1
Consolidated Income Statements - Unaudited Three Months and Nine Months
ended September 30, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity - Unaudited Nine
months ended September 30, 2000 and Year ended December 31, 1999 3
Consolidated Statements of Cash Flows - Unaudited Nine Months Ended September 30,
2000 and 1999 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
The Securities and Exchange Commission maintains a web site which contains reports,
proxy and information statements and other information relating to registrants that file
electronically at the address: http:/ / www.sec.gov.
</TABLE>
2
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31,
ASSETS (unaudited) 1999
--------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
Cash and due from banks $37,648 $31,386
Federal funds sold 6,300 8,956
--------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 43,948 40,342
Interest bearing deposits with banks 216 216
Investment securities available for sale 175,391 152,591
Investment securities held to maturity; fair value of $108,256
in 2000 and $122,751 in 1999 109,967 125,130
Loans, net of deferred loan fees 506,338 476,514
Less: allowance for possible loan losses 8,574 7,668
--------------------------------------------------------------------------------------------------------------------------
Net loans 497,764 468,846
Premises and equipment - net 23,050 21,897
Accrued interest receivable 5,922 5,979
Other assets 18,034 15,169
--------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $874,292 $830,170
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Non-interest bearing $175,266 $165,559
Savings and interest bearing transaction accounts 356,458 355,845
Time deposits under $100 191,274 180,287
Time deposits $100 and over 53,313 35,048
--------------------------------------------------------------------------------------------------------------------------
Total deposits 776,311 736,739
Fed funds purchased and securities sold
under agreements to repurchase 14,425 10,489
Long-term debt 1,000 6,000
Other liabilities 6,392 4,660
--------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 798,128 757,888
--------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
Stockholders' equity:
Common stock, no par value; authorized shares,
40,000,000 at September 30, 2000 and December 31, 1999; issued shares,
12,672,262 at September 30, 2000 and December 31, 1999; outstanding shares,
12,564,860 at
September 30, 2000 and 12,668,262 at December 31, 1999 71,212 71,330
Retained Earnings 8,062 3,548
Treasury stock, at cost (1,243) (67)
Accumulated other comprehensive losses (1,729) (2,381)
Loan for options exercised (138) (148)
--------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 76,164 72,282
--------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $874,292 $830,170
==========================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
1
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
(unaudited)
----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees $10,212 $9,478 $29,801 $27,724
Federal funds sold 272 333 444 1,086
Taxable investment securities 3,608 3,387 10,490 9,746
Tax exempt investment securities 592 606 1,837 1,687
----------------------------------------------------------------------------------------------- --------------------------
TOTAL INTEREST INCOME 14,684 13,804 42,572 40,243
----------------------------------------------------------------------------------------------- --------------------------
INTEREST EXPENSE
Deposits 5,328 4,798 14,872 14,638
Interest on short-term borrowings 198 145 534 346
Long-term debt 43 98 195 251
----------------------------------------------------------------------------------------------- --------------------------
TOTAL INTEREST EXPENSE 5,569 5,041 15,601 15,235
----------------------------------------------------------------------------------------------- --------------------------
NET INTEREST INCOME 9,115 8,763 26,971 25,008
Provision for possible loan losses 500 140 1,500 405
----------------------------------------------------------------------------------------------- --------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 8,615 8,623 25,471 24,603
NONINTEREST INCOME
Service charges on deposit accounts 1,199 1,093 3,557 3,167
Commissions and fees 284 208 775 643
Gain on sale of leases 580 --- 1,087 ---
Gain (loss) on the sales of securities (21) --- (63) 30
Other income 226 194 662 803
----------------------------------------------------------------------------------------------- --------------------------
TOTAL NONINTEREST INCOME 2,268 1,495 6,018 4,643
----------------------------------------------------------------------------------------------- --------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,027 3,762 11,327 11,211
Net occupancy and equipment expense 1,296 1,174 3,931 3,564
Stationery, supplies and postage expense 313 318 985 1,022
Merger related expenses --- 2,431 --- 2,431
Other expenses 1,536 1,387 4,286 3,897
----------------------------------------------------------------------------------------------- --------------------------
TOTAL NONINTEREST EXPENSE 7,172 9,072 20,529 22,125
----------------------------------------------------------------------------------------------- --------------------------
Income before provision for income taxes 3,711 1,046 10,960 7,121
Provision for income taxes 1,189 671 3,601 2,628
----------------------------------------------------------------------------------------------- --------------------------
NET INCOME $2,522 $375 $7,359 $4,493
=============================================================================================== ==========================
EARNINGS PER COMMON SHARE
Basic and diluted $0.20 $0.03 $0.58 $0.35
----------------------------------------------------------------------------------------------- --------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
(unaudited)
----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
NET INCOME $2,522 $375 $7,359 $4,493
------------------------------------------------------------------------------------------------- --------------------------
OTHER COMPREHENSIVE INCOME NET OF TAX:
Unrealized securities gains (losses) arising during period 949 (194) 690 (2,352)
Less: reclassification for gains(losses) included in Net Income 13 (1) 38 19
------------------------------------------------------------------------------------------------- --------------------------
Other Comprehensive Gain (Loss) 936 (193) 652 (2,371)
------------------------------------------------------------------------------------------------- --------------------------
TOTAL COMPREHENSIVE INCOME $3,458 $182 $8,011 $2,122
================================================================================================= ==========================
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common stock Additional earnings Comprehensive Loan for
------------------------
Number of Paid-in (Accumulated Treasury Income Options
(dollars in thousands) Shares Amount Capital deficit) Stock (Loss) Exercised Total
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 12,672,262 $31,681 $50,836 ($9,297) ($129) $841 ($169) $73,763
Net Income 1999 --- --- --- 5,400 --- --- --- 5,400
Other comprehensive loss,
net of tax --- --- --- --- --- (3,222) --- (3,222)
Reallocate for no par value stock --- 40,077 (50,836) 10,759 --- --- --- ---
Exercise of stock options --- (428) --- --- 697 --- --- 269
Payment on loan issued for
options exercised --- --- --- --- --- --- 21 21
Cash dividend --- --- --- (3,314) --- --- --- (3,314)
Purchase of treasury stock --- --- --- --- (635) --- --- (635)
----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 12,672,262 71,330 --- 3,548 (67) (2,381) (148) 72,282
Net Income, nine months ended
September 30, 2000 --- --- --- 7,359 --- --- --- 7,359
Other comprehensive income,
net of tax --- --- --- --- --- 652 --- 652
Exercise of stock options --- (118) --- --- 337 --- --- 219
Payment on loan issued for
options exercised --- --- --- --- --- --- 10 10
Cash dividend --- --- --- (2,846) --- --- --- (2,846)
Purchase of treasury stock --- --- --- (1,513) --- --- (1,513)
----------------------------------------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2000
(unaudited) 12,672,262 $71,212 $0 $8,061 ($1,243) ($1,729) ($138) $76,163
----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
</TABLE>
3
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS-(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (in thousands)
Net income $7,359 $4,493
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees
and costs 240 40
Depreciation and amortization 1,600 1,492
Provision for loan losses 1,500 405
(Gain) loss on sales of securities 21 (30)
(Increase) decrease in other assets 131 (256)
Increase (decrease) in other liabilities 1,742 (1)
-----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,593 6,143
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks --- (11)
Proceeds from repayments on and maturity of securities:
Available for sale 18,115 28,051
Held for maturity 19,913 19,954
Proceeds from sales of securities available for sale 14,576 5,087
Purchase of securities:
Available for sale (55,084) (57,270)
Held for maturity (4,344) (27,250)
Net increase in loans (30,288) (19,561)
Purchase of leasing company (3,100) ---
Capital expenditures (3,003) (2,810)
Net (increase) decrease in other real estate owned (141) 619
-----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (43,356) (53,191)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 39,573 30,079
Increase in securities sold under agreements
to repurchase 3,936 7,492
Repayment of long-term debt (5,000) ---
Purchase of treasury stock (1,513) (499)
Exercise of stock options 219 180
Dividends paid (2,846) (2,378)
-----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 34,369 34,874
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,606 (12,174)
Cash and cash equivalents, beginning of year 40,342 63,805
-----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $43,948 $51,631
===========================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
Note 1. Basis of Presentation.
This quarterly report presents the consolidated financial statements of
Lakeland Bancorp, Inc. (the Company) and its subsidiaries, Lakeland Bank
(Lakeland) and The National Bank of Sussex County (NBSC) (collectively, the
Banks).
The Company's financial statements reflect all adjustments and
disclosures which management believes are necessary for a fair presentation of
interim results. The results of operations for the quarter presented does not
necessarily indicate the results that the Company will achieve for all of 2000.
You should read these interim financial statements in conjunction with the
consolidated financial statements and accompanying notes that are presented in
the Lakeland Bancorp, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999.
The financial information in this quarterly report has been prepared in
accordance with the Company's customary accounting practices; these financial
statements have not been audited. Certain information and footnote disclosures
required under generally accepted accounting principles have been condensed or
omitted, as permitted by rules and regulations of the Securities and Exchange
Commission.
Note 2. Statement of Cash Flow Information.
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
----------------------------------------
<S> <C> <C>
Supplemental schedule of noncash investing and (in thousands)
financing activities:
Cash paid during the period for income taxes $3,535 $2,995
Cash paid during the period for interest 15,081 14,659
Transfer of securities available for sale to securities held
to maturity --- 25,396
Transfer of loans receivable to other real estate owned 326 257
Loans to facilitate the sale of other real estate owned --- 394
</TABLE>
Note 3. Earnings Per Share.
Basic earnings per share for a particular period of time is calculated
by dividing net income by the weighted average number of common shares
outstanding during that period.
Diluted earnings per share is calculated by dividing net income by the
weighted average number of outstanding common shares and common share
equivalents. The Company's only outstanding "common share equivalents" are
options to purchase its common stock.
5
<PAGE>
The following schedule shows the Company's earnings per share for the periods
presented:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
(In thousands except per share data) 2000 1999 2000 1999
------------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Income applicable to common stock $2,522 $375 $7,359 $4,493
Weighted average number of common
shares outstanding 12,565 12,661 12,645 12,662
Options issued to executive and officers 77 50 78 57
------------------------------------ --------------------------------
Weighted average number of common
shares and common share equivalents 12,642 12,711 12,723 12,719
Basic earnings per share $0.20 $0.03 $0.58 $0.35
---------------------------------------------------------------------------------------- --------------------------------
Diluted earnings per share $0.20 $0.03 $0.58 $0.35
---------------------------------------------------------------------------------------- --------------------------------
</TABLE>
Note 4. Investment Securities
<TABLE>
<CAPTION>
AVAILABLE FOR SALE September 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $72,951 $84 $(1,561) $71,474 $83,693 $92 $(1,798) $81,987
Mortgage-backed securities 33,305 112 (343) 33,074 12,330 54 (378) 12,006
States and political
subdivisions 38,126 36 (752) 37,410 42,236 23 (1,426) 40,833
Other debt securities 22,092 96 (297) 21,891 9,683 --- (397) 9,286
Other equity securities 11,531 11 --- 11,542 8,467 12 --- 8,479
-----------------------------------------------------------------------------------------------------------------------------------
$178,005 $339 $(2,953) $175,391 $156,409 $181 $(3,999) $152,591
===================================================================================================================================
<CAPTION>
HELD TO MATURITY September 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $59,275 $45 $(740) $58,580 $72,311 $48 $(1,197) $71,162
Mortgage-backed securities 24,646 55 (516) 24,185 24,882 15 (522) 24,375
States and political
subdivisions 15,091 23 (158) 14,956 16,735 12 (240) 16,507
Other 10,955 --- (420) 10,535 11,202 --- (495) 10,707
-----------------------------------------------------------------------------------------------------------------------------------
$109,967 $123 $(1,834) $108,256 $125,130 $75 $(2,454) $122,751
===================================================================================================================================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $10,755 $10,731 $16,871 $16,839
Due after one year through
five years 83,631 82,352 63,745 62,527
Due after five years through ten
years 27,167 26,761 4,605 4,603
Due after ten years 11,616 10,931 100 102
-----------------------------------------------------------------------------------------------------------
133,169 130,775 85,321 84,071
Mortgage-backed securities 33,305 33,074 24,646 24,185
Other investments 11,531 11,542 --- ---
-----------------------------------------------------------------------------------------------------------
Total securities $178,005 $175,391 $109,967 $108,256
===========================================================================================================
</TABLE>
Note 5. Impaired Loans.
The Company adopted Statement of Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (known as "SFAS No. 114"),
and Statement of Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan, Income Recognition and Disclosures," as of January 1,
1995. SFAS No. 114 requires that certain impaired loans be measured based on the
present value of expected future cash flows, discounted at the loan's original
effective interest rate.
The following table shows the Company's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 as of
September 30, 2000 and 1999, and the average recorded investment in impaired
loans during the three months preceding those dates (in thousands):
(in thousands) Average Recorded
Investment (over
Date Investment Valuation Allowance preceding nine months)
-------------------------------------------------------------------------------
September 30, 2000 $4,522 $846 $4,192
September 30, 1999 2,826 992 3,539
Interest received on impaired loans ordinarily is recorded as interest
income. However, if management is not reasonably certain that an impaired loan
will be repaid in full, all payments received are recorded as reductions of
principal. The Company recognized interest on impaired loans of $207,000 in the
first nine months of 2000. Interest that would have accrued had the loans
performed under original terms would have been $417,000 for the first nine
months of 2000.
Note 6. Acquisition
On April 4, 2000, Lakeland Bank purchased NIA National Leasing Inc.
(NIA). NIA leases equipment to small to medium size businesses. The transaction
was accounted for under the purchase method of accounting. Lakeland recorded
$2.6 million of goodwill to be amortized over 15 years. The results of
operations for the period April 4, 2000 through September 30, 2000 are included
in the Company's income for the three months and nine months ended September 30,
2000. NIA was merged into Lakeland Bank and is a division of Lakeland Bank.
In June 2000, SFAS No. 138 Accounting for Certain Derivative Instruments
and Certain Hedging Activities an amendment of FASB Statement No. 133 was
issued. SFAS No. 138 amends SFAS No. 133 for the following items: normal
purchases and normal sales exception, hedging the benchmark interest rate,
hedging recognized foreign currency-denominated debt instruments and hedging
with intercompany derivatives. SFAS No. 138 is required to be adopted
concurrently with SFAS No. 133. The Company has reviewed the provisions of SFAS
No. 133, as amended by SFAS No. 137 and SFAS No. 138 and does not anticipated
these statements having a material affect on the Company's financial position or
results of operations.
7
<PAGE>
Note 7. Subsequent Events
On October 19, 2000, the Company's Board of Directors declared an $0.08
dividend payable on November 15, 2000 to shareholders of record as of October
31, 2000. This cash dividend represents a $0.005 or 6.7% increase over previous
quarters. The Company's Board at that time also approved a 5% stock dividend
payable on November 15, 2000 to shareholders of record as of October 31, 2000.
The shares issued in the stock dividend will not be eligible for the cash
dividend on November 15,2000. The shares outstanding and earnings per share
numbers have not been restated for the stock dividend in this 10-Q.
PART I -- ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read this section in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Statements Regarding Forward-Looking Information
The information disclosed in this document includes various forward-
looking statements that are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 with respect to credit
quality (including delinquency trends and the allowance for possible loan
losses), corporate objectives, and other financial and business matters. The
words "anticipates", "projects", "intends", "estimates", "expects", "believes",
"plans", "may", "will,", "should", "could", and other similar expressions are
intended to identify such forward-looking statements. The Company cautions that
these forward-looking statements are necessarily speculative and speak only as
of the date made, and are subject to numerous assumptions, risks and
uncertainties, all of which may change over time. Actual results could differ
materially from such forward-looking statements.
In addition to the factors disclosed by the Company elsewhere in this
document, the following factors, among others, could cause the Company's actual
results to differ materially and adversely from such forward-looking statements:
pricing pressures on loan and deposit products; competition; changes in economic
conditions nationally, regionally and in the Company's markets; the extent and
timing of actions of the Federal Reserve Board; changes in levels of market
interest rates; clients' acceptance of the Company's products and services;
credit risks of lending activities and competitive factors; and the extent and
timing of legislative and regulatory actions and reforms.
The above-listed risk factors are not necessarily exhaustive,
particularly as to possible future events, and new risk factors may emerge from
time to time. Certain events may occur that could cause the Company's actual
results to be materially different than those described in the Company's
periodic filings with the Securities and Exchange Commission. Any statements
made by the Company that are not historical facts should be considered to be
forward-looking statements. The Company is not obligated to update and does not
undertake to update any of its forward-looking statements made herein.
Results of Operations
Net Income
Net income for the third quarter of 2000 was $2.5 million or $0.20 per
diluted share compared to net income of $375,000 or $0.03 per diluted share for
the same period in 1999. Return on Average Assets was 1.17% and Return on
Average Equity was 13.47% for the third quarter of 2000. Net income for third
quarter 1999 included $2.4 million in merger related expenses. Excluding the
impact of the merger related expenses, net income in third quarter 1999 would
have been $2.0 million or $0.16 per diluted share.
Net income for the first nine months of 2000 was $7.4 million or $0.58
per diluted share compared to $4.5 million or $0.35 per diluted share for the
same period last year. Return on Average Assets was 1.16% and Return on Average
Equity was 13.32% for the first nine months of 2000. Excluding the impact of
merger related expenses, net income for the first nine months of 1999 would have
been $6.2 million or $0.49 per diluted share.
8
<PAGE>
Net Interest Income
Net interest income on a tax equivalent basis for third quarter 2000 was
$9.4 million, representing a $351,000 or 3.7% increase from the $9.1 million
earned in third quarter 1999. The increase in net interest income results from
an increase in yields on average earning assets combined with a more favorable
mix of interest earning assets. The net interest margin was 4.71% for third
quarter 2000 compared to 4.64% for the same period last year.
Interest income on a tax equivalent basis increased from $14.1 million
in third quarter 1999 to $15.0 million in 2000, an increase of $879,000 or 6.2%.
The increase in interest income in third quarter 2000 was due to an improvement
in the mix of earning assets as well as an increase in the yield on earning
assets resulting from increased rates. Loans as a percent of average earning
assets increased from 57.8% in third quarter last year to 62.5% in third quarter
this year. Federal funds sold as a percent of average earning assets declined
from 3.3% in third quarter 1999 to 1.2% in third quarter 2000. The yield on the
investment portfolio improved 26 basis points from 6.06% in third quarter 1999
to 6.32% in third quarter 2000. The yield on the loan portfolio improved from
8.14% to 8.21% in the same time periods.
Total interest expense at $5.6 million for third quarter 2000 increased
$528,000 or 10.5% from the same period last year. An increase in the cost of
funds from third quarter 1999 to third quarter 2000 caused interest expense to
increase by $496,000 and an increase in average interest bearing liabilities of
$3.8 million caused interest expense to increase by $32,000.
Net interest income on a tax equivalent basis increased from $25.9
million for the first nine months of 1999 to $28.0 million for the first nine
months of 2000, an increase of $2.1 million or 8.1%. The net interest margin
increased from 4.50% for the first nine months of 1999 to 4.78% for the same
period in 2000. Interest income increased from $41.1 million to $43.6 million
during that time period. An increase in average earning assets of $14.1 million
from the first nine months of 1999 to the first nine months of 2000 contributed
to an increase in interest income. The yield on interest earning assets
increased from 7.15% for the first nine months of 1999 to 7.44% for the first
nine months of 2000 partially because of a more favorable mix of earning assets
and partially because of the increasing rate environment in 2000. The tax
equivalent yield on the investment portfolio improved from 5.96% in the first
nine months of 1999 to 6.24% for the same period in 2000. The yield on the loan
portfolio improved from 8.05% for the first nine months of 1999 to 8.15% in
2000. Interest expense increased from $15.2 million in the first nine months of
1999 to $15.6 million in the first nine months of 2000. Even though market
interest rates have increased from the first nine months of 1999 to the first
nine months of 2000, the average cost of interest bearing funds only increased 7
basis points to 3.48% for the first nine months of 2000. The average cost of
deposits decreased 2 basis points to 2.65% for the first nine months in 2000 due
to a shift of deposits from time deposits to non-interest bearing demand
deposits.
Provision for Possible Loan Losses
In determining the provision for possible loan losses management
considers historical loan loss experience, changes in composition and volume of
the portfolio, the level and composition of non-performing loans, the adequacy
of the allowance for possible loan losses, and prevailing economic conditions.
The provision for loan losses increased to $500,000 for the third
quarter of 2000, as compared with $140,000 for the same quarter last year.
Management increased the level of the provision in third quarter 2000 compared
to third quarter last year due to management's current evaluation of the loan
portfolio. During the third quarter of 2000, the Company charged off loans of
$269,000 and recovered $152,000 in previously charged off loans compared to
$168,000 and $51,000, respectively, during the same period in 1999.
For the first nine months of 2000, the provision was $1.5 million
compared to $405,000 for the same period last year. The Company charged off
$953,000 and recovered previously charged off loans of $360,000 during the first
nine months of 2000 compared to respective charge-offs and recoveries of
$528,000 and $238,000 for the same period in 1999. The increase in the provision
for possible loan losses from the first nine months of 1999 to the first nine
months of 2000 relates to the higher level of charge-offs for the first nine
months of 2000 compared to the same period in 1999.
Noninterest Income
Noninterest income increased from $1.5 million to $2.3 million from
third quarter 1999 to third quarter 2000 primarily as a result of $580,000 in
gains on sales of leases sold by its leasing division. Also contributing were
increases in service charges
9
<PAGE>
on deposit accounts which increased from $1.1 million in third quarter 1999 to
$1.2 million in third quarter 2000 as a result of increased deposit related
fees. Commissions and fees increased from $208,000 in third quarter 1999 to
$284,000 in third quarter 2000 as a result of an increase in loan origination
fees. Other income increased from $194,000 for third quarter 1999 to $226,000 in
2000 as a result of a reduction in mortgage sales during that time period.
Noninterest income increased from $4.6 million for the first nine months
of 1999, to $6.0 million for the first nine months of 2000, an increase of $1.4
million, or 30.4% for the same reasons that noninterest income increased from
third quarter 1999 to third quarter 2000. Gains on sales of leases of $1.1
million during the first nine months of 2000 was the primary reason for the
increase. Service charges on deposits increased $390,000 or 12.3% from the first
nine months of 1999 to the first nine months of 2000. Commissions and fees
increased from $643,000 for the first nine months of 1999 to $775,000 for the
first nine months of 2000 as a result of increased loan fee income and increased
commissions received from full service brokerage services. Other income declined
from $803,000 for the first nine months of 1999 to $662,000 for the first nine
months of 2000, primarily because gains on sales of mortgages declined resulting
from a decrease in mortgage sales during that time period.
Noninterest Expense
Noninterest expense decreased from $9.1 million in the third quarter of
1999 to $7.2 million in 2000, a decrease of $1.9 million. Excluding the impact
of $2.4 million in merger related expenses in third quarter 1999, noninterest
expenses increased $531,000 or 8.0%. The majority of the expense increase
relates to operating expenses of Lakeland's newly acquired leasing division.
Salaries and employee benefits increased $265,000 from third quarter 1999 to
$4.0 million in 2000 primarily as a result of salaries paid to the employees of
the newly acquired leasing division. Net occupancy and equipment expense
increased from $1.2 million in 1999 to $1.3 million in 2000 as a result of
increased software licensing fees for the Company's computer system which was
upgraded in late 1999. Other expenses increased $149,000 in third quarter 1999
to third quarter 2000 as a result of expenses related to the leasing division
and from increases in telephone expense.
Comparing year-to-date non-interest expense shows that non-interest
expense decreased from $22.1 million for the first nine months of 1999 to $20.5
million in 2000, a decrease of $1.6 million. Excluding the impact of the merger
related expenses in 1999, noninterest expenses increased $835,000 or 4.2%.
Salaries and benefits increased by $116,000 to $11.3 million. Net occupancy and
equipment expense increased from $3.6 million for the first nine months of 1999
to $3.9 million for the first nine months of 2000 resulting from expenses
related to the opening of a new branch of NBSC during fourth quarter last year.
Other expenses increased from $3.9 million to $4.3 million primarily as a result
of expenses related to the leasing division.
Management uses the efficiency ratio as a means of measuring improvement
in its overhead related expenses. The efficiency ratio is the ratio of
noninterest expense excluding amortization of goodwill and expense related to
other real estate owned to tax equivalent net interest income and noninterest
income excluding securities gains or losses. The Company's efficiency ratio for
the first nine months of 2000 was 60% compared to 67% for the year ended
December 31, 1999 excluding merger related expenses.
Income Taxes
The Company's effective tax rate was 32.9% in the first nine months of
2000 compared to 36.9% in the first nine months of 1999. The Company's effective
tax rate decreased from 1999 to 2000 as a result of recording merger related
expenses in 1999 that were not tax deductible.
Financial Condition
The Company's total assets increased $44.1 million or 5.3% from $830.2
million at December 31, 1999, to $874.3 million at September 30, 2000. Total
deposits increased from $736.7 million on December 31, 1999 to $776.3 million on
September 30, 2000, an increase of $39.6 million.
Loans
Loans, net of deferred loan fees increased from $476.5 million on
December 31, 1999 to $506.3 million on September 30, 2000, an increase of $29.8
million, or 6.3%. Most of this growth was in installment and home equity loans
which increased $20.7 million, or 19.3% to $128.0 million at September 30, 2000.
Commercial loans increased $8.7 million or 4.1% to $223.0 million.
10
<PAGE>
Risk Elements
The following schedule sets forth certain information regarding the
Company's non-accrual, past due and renegotiated loans and other real estate
owned for the periods presented:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(in thousands) 2000 1999 1999
-----------------------------------------
<S> <C> <C> <C>
Non-performing loans:
Non-accrual loans $2,960 $2,961 $3,352
Loans past due 90 days or more 1,880 2,210 2,324
Renegotiated loans --- 389 391
-----------------------------------------
TOTAL NON-PERFORMING LOANS 4,840 5,560 6,067
Other real estate owned 558 418 704
-----------------------------------------
TOTAL NON-PERFORMING ASSETS $5,398 $5,978 $6,771
=========================================
</TABLE>
There were no loans at September 30, 2000, other than those included on
the above table, where the Company was aware of any credit conditions of any
borrowers that would indicate a strong possibility of the borrowers not
complying with present terms and conditions of repayment and which may result in
such loans being included as non-accrual, past due or renegotiated at a future
date.
Non-accrual loans remained substantially the same at $3.0 million on
September 30, 2000 compared to year-end 1999. There are no loan relationships in
non-accrual loans with balances in excess of $1 million, and one loan
relationship in non-accrual loans with a balance between $500,000 and $1
million.
On September 30, 2000, the Company had $4.5 million in impaired loans
compared to $4.3 million at year-end 1999. For more information on these loans
see Note 5 in Notes to the Consolidated Financial Statements of this Quarterly
Report on Form 10-Q. The impairment of the loans is measured using the present
value of future cash flows on certain impaired loans and is based on the fair
value of the underlying collateral for the remaining loans. Based on such
evaluation, $846,000 has been allocated to the allowance for possible loan
losses for impairment.
11
<PAGE>
The following table sets forth for the periods presented, 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>
For the nine For the For the nine
months ended year ended months ended
September 30, December 31, September 30,
(dollars in thousands) 2000 1999 1999
--------------------------------------------
<S> <C> <C> <C>
Balance of the allowance at the
beginning of the year $7,668 $7,984 $7,984
--------------------------------------------
Loans charged off:
Commercial 136 1,670 130
Home Equity and consumer 198 182 121
Real estate--mortgage 619 571 277
--------------------------------------------
Total loans charged off 953 2,423 528
--------------------------------------------
Recoveries:
Commercial 173 228 162
Home Equity and consumer 82 88 68
Real estate--mortgage 105 10 8
--------------------------------------------
Total Recoveries 360 326 238
--------------------------------------------
Net charge-offs: 593 2,097 290
Provision for possible loan losses
charged to operations 1,500 1,781 405
--------------------------------------------
Ending balance $8,575 $7,668 $8,099
============================================
Ratio of net charge-offs to average loans
outstanding 0.12% 0.45% 0.06%
Ratio of allowance at end of period as a
percentage of period end total loans 1.69% 1.61% 1.72%
</TABLE>
The ratio of the allowance for possible loan losses to loans outstanding
reflects management's evaluation of the underlying credit risk inherent in the
loan portfolio. The determination of the adequacy of the allowance for possible
loan losses and periodic provisioning for estimated losses included in the
consolidated financial statements is the responsibility of management. The
evaluation process is undertaken on a quarterly basis.
Methodology employed for assessing the adequacy of the allowance for
possible loan losses consists of the following criteria:
. The establishment of reserve amounts for all specifically
identified criticized loans that have been designated as requiring
attention by management's internal loan review program.
. The establishment of reserves for pools of homogeneous types of
loans not subject to specific review, including 1 - 4 family
residential mortgages and consumer loans.
. An allocation for the non-criticized loans in each portfolio is
based upon the historical average loss experience of these
portfolios. The same percentage is applied to all off-balance sheet
exposures.
Consideration is given to the results of ongoing credit quality
monitoring processes, the adequacy and expertise of the Company's lending staff,
underwriting policies, loss histories, delinquency trends, and the cyclical
nature of economic and business conditions. Since many of the Company's loans
depend on the sufficiency of collateral as a secondary means of repayment, any
adverse trend in the real estate markets could affect underlying values
available to protect the Company against loss.
12
<PAGE>
Based upon the process employed and giving recognition to all
accompanying factors related to the loan portfolio, management considers the
allowance for possible loan losses to be adequate at September 30, 2000.
Investment Securities
For detailed information on the composition and maturity distribution of
the Company's investment security portfolio, see Note 4. Total investment
securities increased from $277.7 million on December 31, 1999 to $285.4 million
on September 30, 2000, an increase of $7.7 million, or 2.8%. Investment
securities held to maturity declined from $125.1 million on December 31, 1999 to
$110.0 million on September 30, 2000, a decrease of $15.1 million as a result of
paydowns and maturities. Investment securities available for sale increased from
$152.6 million on December 31, 1999 to $175.4 million on September 30, 2000 as
maturities in the held to maturity portfolio were invested in the available for
sale portfolio. The increase in the available for sale portfolio rather than the
held to maturity portfolio will give the Company greater flexibility in
responding to changes in market conditions.
Deposits
Total deposits increased from $736.7 million on December 31, 1999 to
$776.3 million on September 30, 2000, an increase of 5.4%. Total non-interest
bearing deposits increased from $165.6 million to $175.3 million, an increase of
$9.7 million, or 5.9%. Time deposits under $100,000 increased from $180.3
million at year-end 1999 to $191.3 million on September 30, 2000, an increase of
$11 million or 6.1%. Time deposits over $100,000 increased from $35.0 million at
year-end 1999 to $53.3 million on September 30, 2000 as a result of an increase
in municipal deposits.
Liquidity
Cash and cash equivalents increased by $3.6 million from December 31,
1999 to September 30, 2000. Operating activities, principally the result of the
Company's net income, provided $12.6 million in net cash. Investing activities
used $43.4 million in net cash, primarily reflecting use of funds for the
purchase of investment securities of $59.4 million and use of funds for loans of
$30.3 million. Financing activities provided $34.4 million in net cash,
reflecting an increase in deposits and short-term borrowings of $43.5 million,
offset partially by a payment of cash dividends of $2.8 million. The Banks
anticipate that they will have sufficient funds available to meet their current
loan commitments and deposit maturities. Core deposits (which exclude time
deposits over $100,000) as a percent of assets were 83% as of September 30,
2000. At September 30, 2000, the Company's investment portfolio of $285.4
million had an estimated average life of 3.4 years. At September 30, 2000, the
Banks had outstanding loan origination commitments of $72.1 million and total
time deposits issued in amounts of $100,000 or more maturing within one year of
$53.3 million.
Interest Rate Risk
The Company monitors and controls interest rate risk by using interest
rate sensitivity modeling. Net interest income simulation considers the relative
sensitivities of the balance sheet including the effects of interest rate caps
on adjustable rate mortgages and the relatively stable aspects of core deposits.
As such, net interest income simulation is designed to address the probability
of interest rate changes and the behavioral response of the balance sheet to
those changes. Market Value of Portfolio Equity represents the fair value of the
net present value of assets, liabilities and off-balance sheet items.
With interest rate sensitivity modeling, management projects future
interest income based on the interest earning assets and interest bearing
liabilities it currently has on its balance sheet and then estimates the effects
of various changes in interest rates on those assets and liabilities. Based on
that modeling, if rates were to increase 200 basis points over a twelve month
period, net interest income would decline $893,000 or 2.4%. If rates were to
decline 200 basis points over a twelve month period, net interest income would
increase $2.1 million or 5.4%. The change in Market Value of Portfolio Equity is
measured by estimating the change in the market value of assets, liabilities and
off-balance sheet items assuming fluctuations or rate shocks of plus 200 basis
points and minus 200 basis points. Based on management's interest rate
sensitivity modeling, with an immediate interest rate increase of 200 basis
points, the Market Value of Portfolio Equity would decrease 15%. With an
immediate decrease in interest rates of 200 basis points, the Market Value of
Portfolio Equity would increase 8%. The information set forth in
13
<PAGE>
this paragraph is based on significant estimates and assumptions, and
constitutes a forward looking statement within the meaning of that term set
forth in Rule 173 of the Securities Act of 1933 and Rule 3-6 of the Securities
Exchange Act of 1934.
Capital Resources
Stockholders' equity increased from $72.3 million on December 31, 1999
to $76.2 million on September 30, 2000. Book value per common share increased to
$6.06 on September 30, 2000 from $5.71 on December 31, 1999. The increase in
stockholders' equity from December 31, 1999 to September 30, 2000 results from
net income and decreases in accumulated other comprehensive losses resulting
from increases in market values of the Company's investment securities available
for sale offset by dividends paid to shareholders.
The Company and its subsidiaries, Lakeland and NBSC, are subject to
various regulatory capital requirements that are monitored by federal banking
agencies. Failure to meet minimum capital requirements can lead to certain
supervisory actions by regulators; any supervisory action could have a direct
material effect on the Company or its subsidiaries' financial statements.
Management believes, as of September 30, 2000, that the Company and its
subsidiaries met all capital adequacy requirements to which they are subject.
The capital ratios for the Company and its subsidiaries at September 30,
2000, and the minimum regulatory guidelines for such capital ratios for
qualification as a well-capitalized institution are as follows:
<TABLE>
<CAPTION>
Tier 1 Capital Tier 1 Capital Total Capital
to Total Average to Risk-Weighted to Risk-Weighted
Assets Ratio Assets Ratio Assets Ratio
September 30, September 30, September 30,
Capital Ratios: 2000 2000 2000
------------ -------------- -----------
<S> <C> <C> <C>
The Company 8.72% 14.15% 15.41%
Lakeland Bank 8.47% 13.13% 14.33%
NBSC 7.80% 14.52% 15.79%
"Well capitalized" institution under FDIC
Regulations 5.00% 6.00% 10.00%
</TABLE>
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
See "Interest Rate Risk" on page 13 and the Annual Report on Form 10-K
for the year ended December 31, 1999.
14
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Change in Securities Not Applicable
Item 3 Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5 Other Information Not Applicable
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
None
(b) Current Reports on Form 8-K filed during the quarter ended
September 30, 2000.
None
15
<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\ Roger Bosma
---------------------------------------------
Roger Bosma
President and Chief Executive Officer
\s\ Joseph F. Hurley
---------------------------------------------
Joseph F. Hurley
Executive Vice President and
Chief Financial Officer
November 11, 2000
-----------------
Date
