<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 2000 there were 12,639,825 outstanding shares of Common Stock, no
par value.
<PAGE>
LAKELAND BANCORP, INC.
Form 10-Q Index
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 2000 (unaudited) and December 31, 1999 1
Consolidated Income Statements - Unaudited Three Months and Six Months
ended June 30, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity - Unaudited Six
months ended June 30, 2000 and Year ended December 31, 1999 3
Consolidated Statements of Cash Flows - Unaudited Six Months Ended June 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 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
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.
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 December 31,
ASSETS (unaudited) 1999
-----------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 43,912 $ 31,386
Federal funds sold 5,925 8,956
------------------------------------------------------------------------------------------- -------------
Total cash and cash equivalents 49,837 40,342
Interest bearing deposits with banks 216 216
Investment securities available for sale 168,266 152,591
Investment securities held to maturity; fair value of $113,528
in 2000 and $122,751 in 1999 116,159 125,130
Loans, net of deferred loan fees 488,990 476,514
Less: allowance for possible loan losses 8,191 7,668
------------------------------------------------------------------------------------------- -------------
Net loans 480,799 468,846
Premises and equipment - net 22,377 21,897
Accrued interest receivable 6,067 5,979
Other assets 18,753 15,169
------------------------------------------------------------------------------------------- -------------
TOTAL ASSETS $862,474 $ 830,170
=========================================================================================== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------- -------------
LIABILITIES:
Deposits:
Non-interest bearing $178,520 $ 165,559
Savings and interest bearing transaction accounts 357,392 355,845
Time deposits under $100 185,859 180,287
Time deposits $100 and over 42,057 35,048
------------------------------------------------------------------------------------------- -------------
Total deposits 763,828 736,739
Securities sold under agreements to repurchase 12,612 10,489
Long-term debt 6,000 6,000
Other liabilities 5,478 4,660
------------------------------------------------------------------------------------------- -------------
TOTAL LIABILITIES 787,918 757,888
------------------------------------------------------------------------------------------- -------------
Commitments and contingencies ---- ----
Stockholders' equity:
Common stock, no par value; authorized shares,
40,000,000 at June 30, 2000 and December 31, 1999; issued shares, 12,672,262
at June 30, 2000 and December 31, 1999; outstanding shares, 12,639,825 at
June 30, 2000 and 12,668,262 at December 31, 1999 71,244 71,330
Retained Earnings 6,487 3,548
Treasury stock, at cost (369) (67)
Accumulated other comprehensive income (loss) (2,665) (2,381)
Loan for options exercised (141) (148)
------------------------------------------------------------------------------------------- -------------
TOTAL STOCKHOLDERS' EQUITY 74,556 72,282
------------------------------------------------------------------------------------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $862,474 $ 830,170
=========================================================================================== =============
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
(unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
INTEREST INCOME
Loans and fees $9,783 $9,212 $19,589 $18,246
Federal funds sold 104 360 172 753
Taxable investment securities 3,521 3,296 6,882 6,359
Tax exempt investment securities 615 556 1,245 1,081
------------------------------------------------------------------------------------------------- -----------------------
TOTAL INTEREST INCOME 14,023 13,424 27,888 26,439
------------------------------------------------------------------------------------------------- -----------------------
INTEREST EXPENSE
Deposits 4,857 4,906 9,544 9,840
Interest on short-term borrowings 156 118 336 201
Long-term debt 75 78 152 153
------------------------------------------------------------------------------------------------- -----------------------
TOTAL INTEREST EXPENSE 5,088 5,102 10,032 10,194
------------------------------------------------------------------------------------------------- -----------------------
NET INTEREST INCOME 8,935 8,322 17,856 16,245
Provision for possible loan losses 500 160 1,000 265
------------------------------------------------------------------------------------------------- -----------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 8,435 8,162 16,856 15,980
NONINTEREST INCOME
Service charges on deposit accounts 1,233 1,086 2,358 2,074
Commissions and fees 232 222 492 435
Gain on sale of leases 507 0 507 0
Gain (loss) on the sales of securities 0 5 (42) 30
Other income 194 321 436 609
------------------------------------------------------------------------------------------------- -----------------------
TOTAL NONINTEREST INCOME 2,166 1,634 3,751 3,148
------------------------------------------------------------------------------------------------- -----------------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,754 3,653 7,300 7,299
Net occupancy expense 569 550 1,181 1,115
Furniture and equipment 742 630 1,454 1,275
Stationary, supplies and postage 301 343 672 704
Other expenses 1,625 1,252 2,750 2,660
------------------------------------------------------------------------------------------------- -----------------------
TOTAL NONINTEREST EXPENSE 6,991 6,428 13,357 13,053
------------------------------------------------------------------------------------------------- -----------------------
Income before provision for income taxes 3,610 3,368 7,250 6,075
Provision for income taxes 1,176 1,090 2,412 1,957
------------------------------------------------------------------------------------------------- -----------------------
NET INCOME $2,434 $2,278 $4,838 $4,118
================================================================================================= =======================
EARNINGS PER COMMON SHARE
Basic and diluted $0.19 $0.18 $ 0.38 $0.33
------------------------------------------------------------------------------------------------- -----------------------
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
(unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
NET INCOME $2,434 $2,278 $4,838 $ 4,118
------------------------------------------------------------------------------------------------- -----------------------
OTHER COMPREHENSIVE INCOME NET OF TAX:
Unrealized securities gains (losses) arising during period 97 (1,847) (301) (2,158)
Less: reclassification for gains(losses) included in Net Income -- (4) 17 (20)
------------------------------------------------------------------------------------------------- -----------------------
Other Comprehensive Gain (Loss) 97 (1,851) (284) (2,178)
------------------------------------------------------------------------------------------------- -----------------------
TOTAL COMPREHENSIVE INCOME $2,531 $427 $4,554 $ 1,940
================================================================================================= =======================
</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, six months ended
June 30, 2000 --- --- --- 4,838 --- --- --- 4,838
Other comprehensive income,
net of tax --- --- --- --- --- (284) --- (284)
Exercise of stock options --- (86) --- --- 157 --- --- 71
Payment on loan issued for
options exercised --- --- --- --- --- --- 7 7
Cash dividend --- --- --- (1,899) --- --- --- (1,899)
Purchase of treasury stock --- --- --- (459) --- --- (459)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE JUNE 30, 2000
(unaudited) 12,672,262 $71,244 $ 0 $6,487 ($369) ($2,665) ($141) $74,556
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS-(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
2000 1999
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Net income $ 4,838 $ 4,118
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees
and costs 190 201
Depreciation and amortization 1,051 995
Provision for loan losses 1,000 265
(Gain) loss on sales and calls of securities 42 (30)
Gains on dispositions of premises and equipment -- 1
(Gain) loss on other real estate owned (89) (48)
(Increase) decrease in other assets 877 413
Increase (decrease) in other liabilities (101) 261
--------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,808 6,176
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks -- (10)
Proceeds from repayments on and maturity of securities:
Available for sale 12,880 17,304
Held for maturity 13,198 14,310
Proceeds from sales of securities available for sale 1,978 6,868
Purchase of securities:
Available for sale (31,760) (47,529)
Held for maturity (3,734) (19,898)
Net increase in loans (12,874) (18,369)
Purchase of leasing company (3,100) --
Proceeds from dispositions of premises and equipment 7 1
Capital expenditures (1,788) (1,091)
Net (increase) decrease in other real estate owned (45) 467
--------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (25,238) (47,947)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 27,089 36,176
Increase in securities sold under agreements
to repurchase 2,123 6,919
Proceeds from issuance of long-term debt -- 1,000
Purchase of treasury stock (459) (499)
Exercise of stock options 71 180
Dividends paid (1,899) (1,420)
--------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,925 42,356
--------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9,495 585
Cash and cash equivalents, beginning of year 40,342 63,805
--------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,837 $ 64,390
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
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 six months ended
June 30,
2000 1999
-----------------------------------------
Supplemental schedule of noncash investing and financing activities: (in thousands)
<S> <C> <C>
Cash paid during the period for income taxes $ 1,570 $ 1,110
Cash paid during the period for interest 9,930 10,133
Transfer of securities available for sale to securities held
to maturity --- 33,465
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 six months ended
June 30, June 30, June 30, June 30,
(In thousands except per share data) 2000 1999 2000 1999
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Income (loss) applicable to common stock $ 2,434 $ 2,278 $ 4,838 $ 4,118
Weighted average number of common
shares outstanding 12,659 12,661 12,664 12,662
Options issued to executive and officers 85 54 71 54
-------------------------------------- ---------------------------------
Weighted average number of common
shares and common shares equivalents 12,744 12,715 12,735 12,716
Basic earnings per share $ 0.19 $ 0.18 $ 0.38 $ 0.33
------------------------------------------------------------------------------------------ ---------------------------------
Diluted earnings per share $ 0.19 $ 0.18 $ 0.38 $ 0.33
------------------------------------------------------------------------------------------ ---------------------------------
</TABLE>
Note 4. Investment Securities
<TABLE>
<CAPTION>
AVAILABLE FOR SALE June 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 $ 83,117 $ 7 $ (2,236) $ 80,888 $ 83,693 $ 92 $ (1,798) $ 81,987
Mortgage-backed securities 24,322 104 (445) 23,981 12,330 54 (378) 12,006
Obligations of states and
political subdivisions 40,601 80 (1,379) 39,302 42,236 23 (1,426) 40,833
Other debt securities 14,951 24 (408) 14,567 9,683 --- (397) 9,286
Other equity securities 9,516 12 --- 9,528 8,467 12 --- 8,479
------------------------------------------------------------------------------------------------------------------------------
$ 172,507 $ 227 $ (4,468) $ 168,266 $ 156,409 $ 181 $ (3,999) $ 152,591
==============================================================================================================================
HELD TO MATURITY June 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Lpsses Value Cost Gains Losses Value
------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and
U.S. government agencies $ 64,574 $ 18 $ (1,161) $ 63,431 $ 72,311 $ 48 $ (1,197) $ 71,162
Mortgage-backed securities 25,510 46 (687) 24,869 24,882 15 (522) 24,375
States and political
subdivisions 15,104 13 (319) 14,798 16,735 12 (240) 16,507
Other 10,971 --- (541) 10,430 11,202 --- (495) 10,707
------------------------------------------------------------------------------------------------------------------------------
$ 116,159 $ 77 $ (2,708) $ 113,528 $ 125,130 $ 75 $ (2,454) $ 122,751
==============================================================================================================================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
June 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 $ 17,550 $ 17,512 $ 15,533 $ 15,491
Due after one year through
five years 82,706 80,612 69,170 67,286
Due after five years through ten
years 26,870 25,971 5,845 5,778
Due after ten years 11,543 10,662 100 104
------------------------------------------------------------------------------------------------------------
138,669 134,757 90,648 88,659
Mortgage-backed securities 24,322 23,981 25,511 24,869
Other investments 9,516 9,528 --- ---
------------------------------------------------------------------------------------------------------------
Total securities $ 172,507 $ 168,266 $ 116,159 $ 113,528
------------------------------------------------------------------------------------------------------------
</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
June 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 six months)
-------------------------------------------------------------------------------
June 30, 2000 $4,767 $751 $4,308
June 30, 1999 3,552 $570 2,280
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 $96,000 in the
first six months of 2000. Interest that would have accrued had the loans
performed under original terms would have been $256,000 for the first six 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 June 30, 2000 are included in
the income for the three months and six months ended June 30, 2000. NIA was
merged into Lakeland Bank and will be a division of Lakeland Bank.
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.
7
<PAGE>
Statements Regarding Forward Looking Information
This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
can be identified by use of words such as "believes," "expects" and similar
words or variations. Such statements are not historical facts and involve
certain risks and uncertainties. Actual results may differ materially from the
results discussed in these forward looking statements. Factors that might cause
a difference include, but are not limited to, changes in interest rates,
economic conditions, deposit and loan growth, loan loss provisions, or customer
retention. The Company assumes no obligation for updating any such forward-
looking statements at any time.
Results of Operations
Net Income
Net income for the second quarter of 2000 was $2.4 million or $0.19 per
diluted share compared to net income of $2.3 million or $0.18 per diluted share
for the same period in 1999. Return on Average Assets was 1.15% and Return on
Average Equity was 13.20% for the second quarter of 2000.
Net income for the first six months of 2000 was $4.8 million or $0.38
per diluted share compared to $4.1 million or $0.33 per diluted share for the
same period last year, an increase of 17%. Return on Average Assets was 1.15%
and Return on Average Equity was 13.28% for the first half of 2000.
Net Interest Income
Net interest income on a tax equivalent basis for second quarter 2000
was $9.3 million, representing a $647,000 or 7.5% increase from the $8.6 million
earned in second 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 and interest bearing liabilities. The net
interest margin was 4.80% for second quarter 2000 compared to 4.46% for the same
period last year.
Interest income on a tax equivalent basis increased from $13.7 million
in second quarter 1999 to $14.4 million in 2000, an increase of $631,000 or
4.6%. The increase in interest income in second quarter 2000 was due to a 29
basis point increase in the yield on earning assets. Increases in rates
contributed to the increase in yield on earning assets. An improvement in the
mix of earning assets also contributed to the increase in yields. Loans as a
percent of average earning assets increased from 60% in second quarter last year
to 62% in second quarter this year. Federal funds sold as a percent of average
earning assets declined from 3.7% in second quarter 1999 to 0.8% in second
quarter 2000.
Total interest expense at $5.1 million for second quarter 2000
decreased marginally from the same period last year. A 4 basis point increase in
the cost of funds from second quarter 1999 to second quarter 2000 caused
interest expense to increase by $66,000 but was offset by a decrease in average
interest bearing liabilities of $9.6 million, which caused interest expense to
decrease by $81,000. The change in the mix of deposits played an important role
in controlling the cost of funds in an increasing rate environment. Non-interest
bearing demand deposits as a percent of total deposits increased from 20.1% to
23.1% from second quarter 1999 to second quarter 2000. Time deposits declined
from 32.2% of total deposits to 29.7% from second quarter 1999 to second quarter
2000.
Net interest income on a tax equivalent basis increased from $16.8
million for the first six months of 1999 to $18.5 million for the first six
months of 2000, an increase of $1.7 million or 10.1%. Interest income increased
from $27.0 million to $28.6 million during that time period. An increase in
average earning assets of $14.6 million from the first half of 1999 to the first
half of 2000 contributed to an increase in interest income. The yield on
interest earning assets increased from 7.15% for the first half of 1999 to 7.41%
for the first half of 2000 partially because of the increasing rate environment
in 2000 and partially because of a more favorable mix of earning assets.
Interest expense decreased from $10.2 million in the first six months of 1999 to
$10.0 million in the first six months of 2000. The cost of funds declined 5
basis points during that time period as a result of 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
8
<PAGE>
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 second
quarter of 2000, as compared with $160,000 for the same quarter last year. The
increase in the provision in second quarter 2000 compared to second quarter last
year is due to the continuing high level of non-performing loans. During the
second quarter of 2000, the Company charged off loans of $130,000 and recovered
$116,000 in previously charged off loans compared to $182,000 and $84,000,
respectively, during the same period in 1999.
For the first six months of 2000, the provision was $1.0 million
compared to $265,000 for the same period last year. The Company charged off
$684,000 and recovered previously charged off loans of $207,000 during the first
half of 2000 compared to respective charge-offs and recoveries of $360,000 and
$187,000 for the same period in 1999. The increase in the provision for loan
losses relates to the increase in non-performing assets from December 31, 1999
to June 30, 2000 and to the higher level of charge-offs for the first six months
of 2000 compared to the same period in 1999.
Noninterest Income
Noninterest income increased from $1.6 million to $2.2 million from
second quarter 1999 to second quarter 2000 primarily as a result of gains of
$507,000 on sales of leases sold by its newly acquired leasing division. Also
contributing were increases in service charges on deposit accounts which
increased from $1.1 million in second quarter 1999 to $1.2 million in second
quarter 2000 as a result of a higher retention of deposit related fees. Other
income declined from $322,000 for second quarter 1999 to $194,000 in 2000 as a
result of a decline in gains on sales of mortgages during that time period.
Other miscellaneous income areas that declined included credit card income and
income on company owned life insurance policies.
Noninterest income increased from $3.1 million for the first six months
of 1999, to $3.8 million for the first six months of 2000, an increase of
$603,000, or 19.2% for the same reasons that income increased from second
quarter 1999 to second quarter 2000. Gains on sales of leases of $507,000 in
second quarter 2000 was the primary reason for the increase. Service charges on
deposits increased $284,000 or 13.7% from the first half of 1999 to the first
half of 2000. Commissions and fees increased from $435,000 for the first half of
1999 to $492,000 for the first half of 2000 as a result of increased loan fee
income and increased commissions received from full service brokerage services.
Other income declined from $609,000 for the first half of 1999 to $436,000 for
the first half of 2000, primarily because gains on sales of mortgages declined
resulting from declines in mortgage sales during that time period.
Noninterest Expense
Noninterest expense increased from $6.4 million in the second quarter
of 1999 to $7.0 million in 2000, an increase of $563,000 or 8.8%. The majority
of the expense increase relates to operating expenses of Lakeland's newly
acquired leasing division. Salaries and employee benefits increased $101,000
from second quarter 1999 to $3.8 million in 2000 as a result of salaries paid to
the employees of the newly acquired leasing division. Furniture and equipment
expense increased from $630,000 in 1999 to $742,000 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 from $1.3 million in second
quarter 1999 to $1.6 million in second quarter 2000 as a result of expenses
related to the leasing division and from increases in marketing expense and
legal fees.
Comparing year-to-date non-interest expense shows that non-interest
expense increased from $13.1 million for the first six months of 1999 to $13.4
million in 2000, an increase of $304,000, or 2.3%. Salaries and benefits
remained substantially the same at $7.3 million. The addition of salary and
benefit expenses related to the leasing division were offset by decreases in
expenses resulting from reductions in staff as a result of attrition related to
the acquisition of NBSC and the merger of Metropolitan State Bank with Lakeland
Bank. Net occupancy expense increased from $1.1 million for the first six months
of 1999 to $1.2 million for the first six months of 2000 resulting from expenses
related to the addition of a branch to NBSC during fourth quarter last year.
Income Taxes
The Company's effective tax rate was 33.3% in the first half of 2000
compared to 32.2% in the first half of 1999. The Company's interest income on
tax-exempt securities as a percent of pre-tax income decreased from 17.8% in the
first half of 1999 to 17.2% in the first half of 2000, causing the Company's
effective tax rate to increase.
9
<PAGE>
Financial Condition
The Company's total assets increased $32.3 million or 3.9% from $830.2
million at December 31, 1999, to $862.5 million at June 30, 2000. Total deposits
increased from $736.7 million on December 31, 1999 to $763.8 million on June 30,
2000, an increase of $27.1 million.
Loans
Loans, net of deferred loan fees increased from $476.5 million on
December 31, 1999 to $489.0 million on June 30, 2000, an increase of $12.5
million, or 2.6%. Most of this growth was in commercial loans and commercial
mortgages which increased a combined $6.2 million, or 3.0% to $213.1 million at
June 30, 2000. Home equity and consumer installment loans also increased $5
million or 4.7% to $111.9 million.
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>
June 30, December 31, June 30,
(in thousands) 2000 1999 1999
-----------------------------------
<S> <C> <C> <C>
Non-performing loans:
Non-accrual loans $ 3,003 $ 2,961 $ 1,846
Loans past due 90 days or more 2,628 2,210 3,586
Renegotiated loans --- 389 397
-----------------------------------
TOTAL NON-PERFORMING LOANS 5,631 5,560 5,829
Other real estate owned 551 418 931
-----------------------------------
TOTAL NON-PERFORMING ASSETS $ 6,182 $ 5,978 $ 6,760
===================================
</TABLE>
There were no loans at June 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
June 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.
Other real estate owned increased from $418,000 on December 31, 1999 to
$551,000 on June 30, 2000. The increase reflected $163,000 in sold properties,
$326,000 in new properties and $30,000 in recoveries. Gains on sale of other
real estate owned totaled $89,000.
On June 30, 2000, the Company had $4.8 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, $751,000 has been allocated to the allowance for possible loan
losses for impairment.
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:
10
<PAGE>
<TABLE>
<CAPTION>
For the six For the For the six
months ended year ended months ended
June 30, December 31, June 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 38 1,670 110
Home Equity and consumer 105 182 90
Real estate--mortgage 541 571 160
----------------------------------------------
Total loans charged off 684 2,423 360
----------------------------------------------
Recoveries:
Commercial 103 228 152
Home Equity and consumer 58 88 30
Real estate--mortgage 46 10 5
----------------------------------------------
Total Recoveries 207 326 187
----------------------------------------------
Net charge-offs: 477 2,097 173
Provision for possible loan losses
charged to operations 1,000 1,781 265
----------------------------------------------
Ending balance $8,191 $7,668 $8,076
==============================================
Ratio of net charge-offs to average loans
outstanding 0.10% 0.45% 0.04%
Ratio of allowance at end of period as a
percentage of period end total loans 1.68% 1.61% 1.73%
</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.
Based upon the process employed and giving recognition to all accompanying
factors related to the loan portfolio,
11
<PAGE>
management considers the allowance for possible loan losses to be adequate at
June 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 $284.4 million
on June 30, 2000, an increase of $6.7 million, or 2.4%. Investment securities
held to maturity declined from $125.1 million on December 31, 1999 to $116.2
million on June 30, 2000, a decrease of $8.9 million. Investment securities
available for sale increased from $152.6 million on December 31, 1999 to $168.2
million on June 30, 2000 as maturities in the held to maturity portfolio were
invested in the available for sale portfolio.
Deposits
Total deposits increased from $736.7 million on December 31, 1999 to $763.8
million on June 30, 2000, an increase of 3.7%. Total non-interest bearing
deposits increased from $165.6 million to $178.5 million, an increase of $12.9
million, or 7.8%. Time deposits under $100,000 increased from $180.3 million at
year-end 1999 to $185.9 million on June 30, 2000, an increase of $5.6 million or
3.2%. Time deposits over $100,000 increased from $35.0 million at year-end 1999
to $42.1 million on June 30, 2000 as a result of an increase in municipal
certificates of deposit.
Liquidity
Cash and cash equivalents increased by $9.5 million from December 31, 1999
to June 30, 2000. Operating activities, principally the result of the Company's
net income, provided $7.8 million in net cash. Investing activities used $25.2
million in net cash, primarily reflecting use of funds for the purchase of
investment securities of $35.5 million and use of funds for loans of $12.9
million. Financing activities provided $26.9 million in net cash, reflecting an
increase in deposits and short-term borrowings of $29.2 million, offset
partially by a payment of cash dividends of $1.9 million. The Banks anticipate
that they will have sufficient funds available to meet their current loan
commitments and deposit maturities. At June 30, 2000, the Banks have outstanding
loan origination commitments of $78.4 million and total time deposits issued in
amounts of $100,000 or more maturing within one year of $35.0 million.
Capital Resources
Stockholders' equity increased from $72.3 million on December 31, 1999 to
$74.6 million on June 30, 2000. Book value per common share increased to $5.90
on June 30, 2000 from $5.71 on December 31, 1999. The increase in stockholders'
equity from December 31, 1999 to June 30, 2000 results from net income offset by
dividends to shareholders and increases in accumulated other comprehensive
losses resulting from declines in market values of the Company's investment
securities available for sale.
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 June 30, 2000, that the Company and its subsidiaries meet all
capital adequacy requirements to which they are subject.
The capital ratios for the Company and its subsidiaries at June 30, 2000,
and the minimum regulatory guidelines for such capital ratios for qualification
as a well-capitalized institution are as follows:
12
<PAGE>
<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
June 30, June 30, June 30,
Capital Ratios: 2000 2000 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
The Company 8.81% 14.67% 15.92%
Lakeland Bank 8.46% 13.74% 14.92%
NBSC 7.85% 14.75% 16.01%
"Well capitalized" institution under FDIC
Regulations 5.00% 6.00% 10.00%
</TABLE>
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
Not applicable - no significant change from Annual Report on Form 10-K.
13
<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.
At the Company's Annual Meeting of Stockholders on May 3, 2000, Mary Ann
Deacon, Bruce G. Bohuny, Michael A. Dickerson and Joseph P. O'Dowd were elected
as directors of Lakeland Bancorp, Inc. for three year terms. The votes were as
follows:
Name Shares For Authority Withheld
---- ---------- ------------------
Mary Ann Deacon 10,171,090 209,715
Bruce G. Bohuny 10,177,691 203,114
Michael A. Dickerson 10,059,969 320,836
Joseph P. O'Dowd 10,201,464 179,341
The second proposal, for the Lakeland Bancorp, Inc. 2000 Equity
Compensation Program (Stock Option Plan) was approved. The vote was as follows:
For Against Abstain
--- ------- -------
7,884,691 1,033,211 255,745
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 June
30, 2000.
None
14
<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
August 11, 2000
---------------
Date
15
