-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OMThNuQkq+FJsuS7YYXDq0gptq8h8lct4gmC+SCi++qLJAVc7uhjaoTbMmKV59v7 oCnVFH5lG/Auy3qj2EE0GA== 0000950130-99-002875.txt : 19990512 0000950130-99-002875.hdr.sgml : 19990512 ACCESSION NUMBER: 0000950130-99-002875 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKELAND BANCORP INC CENTRAL INDEX KEY: 0000846901 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 222953275 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17820 FILM NUMBER: 99616906 BUSINESS ADDRESS: STREET 1: 250 OAK RIDGE RD CITY: OAK RIDGE STATE: NJ ZIP: 07438 BUSINESS PHONE: 9736972000 MAIL ADDRESS: STREET 1: 250 OAK RIDGE RD CITY: OAKRIDGE STATE: NJ ZIP: 07438 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999. [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission File Number 33-27312 _____________________________ Lakeland Bancorp, Inc. ---------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2953275 ------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 250 Oak Ridge Road, Oak Ridge, New Jersey 07438-8906 -------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (973) 697-2000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------------------------- APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 31, 1999, 8,500,788 common shares, $2.50 par value, were outstanding. LAKELAND BANCORP, INC. INDEX Page Number ------ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 1 CONSOLIDATED STATEMENTS OF CONDITION AS OF DECEMBER 31, 1998 AND MARCH 31, 1999 (UNAUDITED) 2 CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED) 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 17 PART II. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K SIGNATURES 19 LAKELAND BANCORP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS Certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Lakeland Bancorp, Inc. ( the registrant or the Company) believes that the disclosures presented are adequate to assure that the information presented is not misleading in any material respect. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements, and notes thereto, included in the registrant's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the three month period ended March 31, 1999, are not necessarily indicative of the results to be expected for the entire fiscal year. 1 LAKELAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
December 31, March 31, 1998 1999 ------------- ------------- ASSETS Cash and due from banks $ 24,193,899 $ 20,888,158 Federal funds sold 10,875,000 10,725,000 ------------ ------------ Cash and cash equivalents 35,068,899 31,613,158 Certificates of deposit 204,033 214,033 Securities available for sale, at estimated fair value 116,847,825 108,971,956 Securities held to maturity; estimated fair value of $68,271,000 in 1998 and $83,573,295 in 1999 67,302,146 83,051,009 Loans 307,596,324 312,173,467 Premises and equipment 14,260,225 14,087,694 Accrued interest receivable 4,414,733 4,304,270 Other assets 2,863,222 1,923,447 ------------ ------------ Total assets $548,557,407 $556,339,034 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest-bearing demand $107,097,017 $103,873,407 Savings and interest-bearing demand 225,894,802 233,755,617 Club accounts 1,661,786 2,397,405 Time 125,144,292 127,977,167 Time of $100,000 and over 29,082,870 28,810,516 ------------ ------------ Total deposits 488,880,767 496,814,112 ------------ ------------ Borrowed money 3,795,114 3,004,038 Other liabilities 2,567,989 2,617,489 ------------ ------------ Total liabilities 495,243,870 502,435,639 Commitments Stockholders' equity Common stock, par value $2.50 per share; authorized shares 14,806,718; issued shares 8,511,588 in 1998 and 8,511,588 in 1999; outstanding shares 8,502,988 in 1998 and 8,500,788 in 1999; 21,278,970 21,278,970 Surplus 29,557,747 18,937,950 Undivided profits (accumulated deficit) (491,609) 10,915,404 Accumulated other comprehensive income, net 3,097,429 2,940,221 Treasury stock, at cost (8,600 and 10,800 shares in 1998 and 1999, respectively) (129,000) (169,150) ------------ ------------ Total stockholders' equity 53,313,537 53,903,395 ------------ ------------ Total liabilities and stockholders' equity $548,557,407 $556,339,034 ============ ============
See accompanying notes to consolidated financial statements. 2 LAKELAND BANCORP, INC, AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ---------------------------- 1998 1999 ------------- ------------- INTEREST INCOME Loans and fees $6,214,297 $6,261,481 Federal funds sold 187,709 187,305 Securities U.S. Treasury 993,358 924,655 U.S. Government agencies 767,600 795,620 States and political subdivisions 364,195 463,369 Other 80,625 295,873 ---------- ---------- Total interest income 8,607,784 8,928,303 ---------- ---------- INTEREST EXPENSE Deposits 3,190,229 3,343,505 Borrowed money 36,967 44,762 ---------- ---------- Total interest expense 3,227,196 3,388,267 ---------- ---------- Net interest income 5,380,588 5,540,036 ---------- ---------- PROVISION FOR LOAN LOSSES 48,882 105,000 Net interest income after provision for loan losses 5,331,706 5,435,036 ---------- ---------- OTHER INCOME Service charges on deposit accounts 587,864 600,062 Gain on sale of investment securities 53,542 13,591 Other income 133,477 118,421 ---------- ---------- Total other income 774,883 732,074 ---------- ---------- OTHER EXPENSES Salaries and benefits 2,107,150 2,253,836 Occupancy expense, net 392,129 412,783 Furniture and equipment 378,577 425,855 Other 1,178,577 1,038,013 ---------- ---------- Total other expenses 4,056,433 4,130,487 ---------- ---------- INCOME BEFORE INCOME TAXES 2,050,156 2,036,623 INCOME TAXES 684,711 611,684 ---------- ---------- NET INCOME $1,365,445 $1,424,939 ========== ========== Net income per common share Basic 0.16 0.17 Diluted 0.16 0.17 Weighted average number of shares outstanding Basic 8,488,138 8,501,619 Diluted 8,488,138 8,501,619
See accompanying notes to consolidated financial statements. 3 LAKELAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31, ------------------------------ 1998 1999 -------------- -------------- Net income $1,365,445 $1,424,939 ---------- ---------- Other comprehensive income, net of income taxes Unrecognized holding gains (losses) on securities available for sale, net of income taxes (benefit) of $161,990 and $(76,365), respectively 228,751 (148,238) Less gains on dispositions of securities available for sale, net of income taxes of $18,204 and $4,621, respectively (35,338) (8,970) ---------- ---------- Total other comprehensive income (loss) 193,413 (157,208) ---------- ---------- Comprehensive income $1,558,858 $1,267,731 ========== ==========
See accompanying notes to consolidated financial statements. 4 LAKELAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------ 1998 1999 -------------- -------------- Cash flows from operating activities Net income $ 1,365,445 $ 1,424,939 Adjustments to reconcile net income to net cash provided by operating activities Net amortization and accretion 152,935 76,375 Depreciation and amortization of premises and equipment 266,195 319,630 Provision for loan losses 48,882 105,000 Gain on sales of investment securities (53,542) (13,591) Decrease in accrued interest receivable 405,799 110,463 Decrease in other assets 310,995 939,776 Increase in other liabilities 191,886 174,842 ------------ ------------ Net cash provided by operating activities 2,688,595 3,137,434 Cash flows from investing activities Net change in certificates of deposit (908) (10,000) Proceeds from maturities of and repayments on securities available for sale 10,826,000 5,576,303 Proceeds from sales of securities available for sale 6,816,000 2,384,586 Proceeds from calls of securities available for sale 1,500,000 - Purchases of securities available for sale (10,710,254) (15,744,340) Proceeds from maturities of and repayments on securities held to maturity 6,448,000 3,689,825 Purchases of securities held to maturity (5,931,687) (4,124,521) Net increase in loans receivable (219,038) (4,682,143) Additions to premises and equipment (372,952) (147,101) ------------ ------------ Net cash (used in) provided by investing activities 8,355,161 (13,057,391) Cash flows from financing activities Net increase (decrease) in deposits (1,712,030) 7,933,345 Net decrease in short-term borrowings (874,627) (791,076) Proceeds from sale of common stock 229,653 - Cash dividends paid on common stock (535,500) (637,903) Purchase of treasury stock - (40,150) ------------ ------------ Net cash provided by (used in) financing activities (2,892,504) 6,464,216 Net (decrease) increase in cash and cash equivalents 8,151,252 (3,455,741) Cash and cash equivalents - beginning 41,168,103 35,068,899 ------------ ------------ Cash and cash equivalents - ending $ 49,319,355 $ 31,613,158 ============ ============ Supplemental disclosures of cash flow information Cash paid during the three month period for Income taxes $ 37,450 $ 225,000 Interest $ 3,279,342 $ 3,422,419 Supplemental schedule of noncash investing and financing activities Transfer of investment securities transferred from available for sale to held for sale $ - $ 15,314,167
See accompanying notes to consolidated financial statements. 5 LAKELAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements under generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the annual financial statements and notes thereto included in Form 10-K for the fiscal year ended December 31,1998. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended March 31, 1999, are not necessarily indicative of the results which may be expected for the entire fiscal year. Amounts previously reported by the Corporation in its consolidated statement of income for the three months ended March 31, 1998, have been retroactively restated to include the accounts of Metropolitan State Bank (Metropolitan), which on February 20, 1998, was merged with a newly formed subsidiary of the Corporation with Metropolitan as the surviving bank. Each share of Metropolitan common stock outstanding was converted to 0.941 shares of the Corporation's common stock, resulting in the issuance of 669,867 shares. The merger was accounted for under the pooling of interests method of accounting. On December 7, 1998, the Corporation entered into an Agreement and Plan of Merger (the Merger Agreement) and a Stock Option Agreement (the Option Agreement) with High Point Financial Corp. (High Point) pursuant to which outstanding shares of High Point common stock will be converted into shares of the Corporation's common stock and High Point's subsidiary, National Bank of Sussex County, will become a wholly owned subsidiary of the Corporation. Pursuant to the Merger Agreement, each outstanding share of High Point Common Stock (3,811,480 shares of High Point common stock were outstanding as of December 31, 1998) will be converted into 1.2 shares of the Corporation's common stock. At December 31, 1998, the Corporation owned 344,252 shares of High Point Common Stock which will be cancelled upon the consummation of the merger. The merger is subject to regulatory approval, the approval of the Corporation's and High Point's shareholders and other standard conditions. The merger is anticipated to be accounted for under the pooling of interests method of accounting. NOTE 2 - NET INCOME PER COMMON SHARE Basic net income per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of stock options, if dilutive, using the treasury stock method. On August 26, 1998, the Corporation's Board of Directors authorized a 2 for 1 stock split in the form of a 100% stock dividend, which was distributed on October 1, 1998. Per share amounts have been retroactively restated to give effect to this stock dividend. 6 LAKELAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE 3 - STOCKHOLDERS' EQUITY The $491,609 deficit in undivided profits contained in the December 31, 1998 consolidated financial statements is the result of a bookkeeping entry charging undivided profits $10,617,797 in connection with Corporation's accounting for its 2 for 1 stock split effected in the form of a 100% stock dividend distributed October 1, 1998. In accordance with New Jersey corporate law, the Corporation's Board of Directors on March 10, 1999, approved the reversing of this accounting treatment of the stock dividend, thereby moving the $10,617,797 from the capital stock account to the undivided profits account to more accurately reflect the Corporation's financial condition. This reclassifications was made in the Corporation's unaudited consolidated statement of financial condition as of March 31, 1999. NOTE 4 - SECURITIES AVAILABLE FOR SALE
March 31, 1999 ----------------------------------------- Amortized Gross unrealized Fair market ----------------- cost Gains Losses value --------- -------- ------- ----------- (in thousands) U.S. Treasury $ 24,465 $ 334 $ (23) $ 24,776 U.S. Government agencies 26,284 35 (259) 26,062 Mortgage-backed securities 2,671 23 (11) 2,683 States and political subdivisions 40,010 309 (119) 40,200 Other debt securities 9,041 3 (123) 8,919 Equity securities 1,512 4,820 - 6,332 -------- ------ ----- -------- $103,983 $5,524 $(535) $108,972 ======== ====== ===== ======== December 31, 1998 ----------------------------------------- Amortized Gross unrealized Fair market ------------------ cost Gains Losses value --------- -------- ------ ----------- (in thousands) U.S. Treasury $ 28,552 $ 587 $ (19) $ 29,120 U.S. Government agencies 25,719 62 (110) 25,671 Mortgage-backed securities 3,279 32 (14) 3,297 States and political subdivisions 38,456 384 (60) 38,780 Other debt securities 14,163 25 (100) 14,088 Equity securities 1,503 4,389 - 5,892 -------- ------ ----- -------- $111,672 $5,479 $(303) $116,848 ======== ====== ===== ========
7 LAKELAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE 4 - SECURITIES AVAILABLE FOR SALE (CONTINUED) The following is a summary of securities available for sale by maturity:
1999 1998 ---------------------- ---------------------- Amortized Fair market Amortized Fair market cost value cost value --------- ----------- --------- ----------- (in thousands) Due in one year or less $ 16,535 $ 16,576 $ 21,669 $ 21,755 Due after one year through five years 68,815 69,092 60,842 61,384 Due after five years through ten years 11,908 11,771 15,293 15,441 Due after ten years 2,542 2,518 9,086 9,079 Mortgage-backed securities 2,671 2,683 3,279 3,297 Equity securities 1,512 6,332 1,503 5,892 -------- -------- -------- -------- $103,983 $108,972 $111,672 $116,848 ======== ======== ======== ========
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY
March 31, 1999 ----------------------------------------- Amortized Gross unrealized Fair market ----------------- cost Gains Losses value --------- -------- ------- ----------- (in thousands) U.S. Treasury $38,427 $ 486 $ (54) $38,859 U.S. Government agencies 26,853 201 (37) 27,017 Mortgage-backed securities 2,150 21 (36) 2,135 States and political subdivisions 4,372 67 - 4,439 Other debt securities 11,249 2 (128) 11,123 ------- ------ ----- ------- $83,051 $ 777 $(255) $83,573 ======= ====== ===== ======= December 31, 1998 ----------------------------------------- Amortized Gross unrealized Fair market ---------------- cost Gains Losses value --------- -------- ------ ----------- (in thousands) U.S. Treasury $32,576 $ 630 $ - $33,206 U.S. Government agencies 21,910 317 (27) 22,200 Mortgage-backed securities 2,165 23 (5) 2,183 States and political subdivisions 4,513 78 - 4,591 Other debt securities 6,138 6 (53) 6,091 ------- ------ ----- ------- $67,302 $1,054 $ (85) $68,271 ======= ====== ===== =======
8 LAKELAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED) The following is a summary of securities held to maturity by maturity:
1999 1998 ---------------------- --------------------------- Amortized Fair market Amortized Fair market cost value cost value --------- ----------- ------------- ------------ (in thousands) Due in one year or less $13,697 $13,754 $ 14,916 $ 15,007 Due after one year through five years 66,501 66,964 48,257 49,095 Due after five years through ten years 503 411 1,664 1,677 Due after ten years 200 309 300 309 Mortgage-backed securities 2,150 2,135 2,165 2,183 ------- ------- ------------ ----------- $83,051 $83,573 $ 67,302 $ 68,271 ======= ======= ============ ===========
NOTE 6 - LOANS
December 31, March 31, 1998 1999 ------------ ----------- (in thousands) Loans $ 311,671 $ 316,232 Less Unearned income (178) (116) Allowance for loan losses (3,897) (3,943) ------------ ----------- $ 307,596 $ 312,173 ============ ===========
A summary of the activity in the allowance for loan losses is as follows:
Three months ended March 31, ---------------------------- 1998 1999 ------------ ----------- Balance - beginning $4,142,340 $3,897,024 Provisions charged to operations 48,882 105,000 Loans charged off (446,792) (89,064) Recoveries of loans previously charged off 229,287 30,158 ------------ ----------- Balance of allowance at end of period $3,973,717 $3,943,118 ============ ===========
Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows: 9 LAKELAND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE 6 - LOANS (CONTINUED) December 31, March 31, 1998 1999 ------------ ------------ Recorded investment in impaired loans: With recorded allowances $ 1,133 $ 802 Without recorded allowances 1,119 1,116 ---------- -------- Total impaired loans 2,252 1,918 ---------- -------- Related allowance for loan losses 381 423 ---------- -------- Net impaired loans $ 1,871 $ 1,495 ========== ======== Three months ended March 31, ----------------------------- 1998 1999 ------------ ---------- Average recorded investment $3,388,188 $597,384 Interest income recognized 22,337 16,374 10 PART I -- ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW -------- During the first quarter of 1998, Lakeland Bancorp, Inc. (the "Company") consummated its acquisition of Metropolitan State Bank ("MSB"). The transaction was accounted for as a pooling of interests. As a result, the Company's financial statements have been retroactively adjusted to combine the Company's accounts and MSB's accounts for all prior periods. See Notes to Consolidated Financial Statements. Three Month Summary The first three months of 1999 resulted in slightly increased earnings for Lakeland Bancorp, Inc. (the "Company"), when compared to the same period in 1998. Net income increased $59,494, or 4.36%, to $1,424,939 for the first three months of 1999 from $1,365,445 for the same period in 1998. Net income per share basic and diluted increased $.01 to $.17. Increases of $159,448 in net interest income and a decrease of $73,027 in income tax expense more than offset increases of $56,118 in the provision for loan losses and $74,054 in total other expenses, and a decrease of $42,808 in total other income. The Company's annualized return on average assets and average stockholders' equity for the first three months of 1999 were 1.03% and 10.61%, respectively, compared to 1.08% and 11.07%, respectively, for the same period in 1998. Results of Operations Total interest income increased $320,519, or 3.72% to $8,928,303 for the three months ended March 31, 1999, when compared to $8,607,784 for the same period in 1998. The overall increase in this category was a result of increases of $47,184 or .76% in interest earned on the loan portfolio and $273,739 or 12.41% in interest earned on the securities portfolio. The increase in interest income on loans was primarily attributable to an increase in average balances of $19.0 million, which was partially offset by a 46 basis point decrease in yield. Loan volume increases were reflected in commercial loans, which increased on average by 5.2% and mortgage loans, which increased on average by 13.8%, which were partially offset by a decrease in consumer loans, which decreased on average by 2.8%. The increase in interest income on investment securities was attributable to an increase in average balances of $35.7 million, (reflecting a $28.0 million increase in the average volume of taxable securities and a 11 $7.7 million increase in the average volume of non-taxable securities). which was partially offset by a 35 basis point decrease in yield. Interest income on federal funds sold was unchanged as a $2.2 million increase in average balances was offset by a 78 basis point decrease in yield. Total interest expense increased $161,071 or 4.99%. Of this increase, interest expense on deposits increased $153,276 or 4.80% to $3,343,505 for the first quarter of 1999 compared to $3,190,229 for the same period in 1998. This increase is primarily attributable to an increase of $36.4 million in average balances of interest bearing deposits (which partially funded the increases in loans and investment securities), which was partially offset by an 18 basis point decline in yield. Net interest income increased $159,448 or 2.96% to $5,540,036 for the first three months of 1999 from $5,380,588 for the same period in 1998, primarily as the result of increased balances of net earning assets. The annualized net interest margin (the average yield on interest earning assets, less the average cost of interest-bearing liabilities) decreased from 3.89% to 3.56%. While the average yield on earning assets decreased 50 basis points from 7.51% to 7.01%, the average rate paid on interest-bearing liabilities decreased 17 basis points from 3.62% to 3.45%. The provision for loan losses increased $56,118 or 114.80% to $105,000 for the three months ended March 31, 1999, as compared with $48,882 for the same prior year period. During the first quarter of 1999, the Company charged off loans of $89,000 and recovered $30,000 in previously charged off loans compared to $447,000 and $230,000, respectively, during the same period in 1998. The $89,000 in charged-off loans in 1999 is the result of the charging off of nine consumer installment loans. The allowance for loan losses at March 31, 1999, and December 31, 1998, was 1.25% of total loans, compared to 1.36% at March 31, 1998. The Company believes, based on management's ongoing review of loan quality, economic conditions, loss experience, and loan growth, that the allowance for loan losses is adequate. This statement represents a forward- looking statement. Actual results could differ materially from this statement based upon a number of conditions, including the financial viability of the Company's loan customers, the value of the Company's collateral, and general economic conditions. 12 The following table sets forth for the three months ended March 31, 1999 and 1998, and for each of the years in the five years ended December 31, 1998, the activity of the allowance for loan losses account.
THREE MONTHS ENDED -------------------- March 31, YEAR ENDED DECEMBER 31, ----------- ------- ------------------------------------------------ 1999 1998 1998 1997 1996 1995 1994 ----------- ------- -------- -------- -------- -------- -------- (Dollars in Thousands) Balance of allowance at beginning of period........................... $3,897 $4,142 $4,142 $3,585 $3,470 $3,547 $3,455 ------ ------ ------ ------ ------ ------ ------ Charge-offs: Commercial.......................... 35 232 834 466 451 119 339 Installment......................... 54 49 426 133 328 291 250 Mortgage............................ -- 166 -- -- 70 217 23 ------ ------ ------ ------ ------ ------ ------ Total charge-offs................ 89 447 1,260 599 849 627 612 ------ ------ ------ ------ ------ ------ ------ Recoveries: Commercial.......................... 21 211 256 20 25 128 69 Installment......................... 9 19 61 77 31 65 66 Mortgage............................ -- -- -- 33 -- -- -- ------ ------ ------ ------ ------ ------ ------ Total recoveries................. 30 230 317 130 56 193 135 ------ ------ ------ ------ ------ ------ ------ Net charge-offs........................ 59 217 943 469 793 434 477 ------ ------ ------ ------ ------ ------ ------ Provision for loan losses.............. 105 49 698 1,026 908 357 569 ------ ------ ------ ------ ------ ------ ------ Balance of allowance at end of period.. $3,943 $3,974 $3,897 $4,142 $3,585 $3,470 $3,547 ====== ====== ====== ====== ====== ====== ====== Ratio of net charge-offs to average loans outstanding................... .02% .07% .32% .17% .32% .19% .23% Balance of allowance at end of period as a percent of total loans......... 1.25% 1.36% 1.25% 1.42% 1.33% 1.49% 1.62%
The Company has established criteria to identify loans which may be impaired. Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment, while other larger-balance loans are independently evaluated. A loan evaluated for impairment is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. An insignificant delay, which is defined as up to 90 days by the Company, will not cause a loan to be classified as impaired. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, if the loan is collateral dependent, the fair value of the related collateral. Loan allowances, based upon impaired loan evaluations, are included in the allowance for loan loss. The Company's policy concerning non-accrual loans states that loans, without consideration as to loan balance, are placed on a non-accrual status when payments are 90 days delinquent or more, unless the asset is both well secured and in the process of collection. Due to the difference in measurement criteria, the populations of non-accrual and impaired loans, while having many common elements, will be different in the aggregate. 13 Loans, or portions thereof, are charged-off when it is determined that a loss has occurred. Until such time, an allowance for loan loss is maintained for estimated losses. With regard to interest income recognition for payments received on impaired loans, as well as all non-accrual loans, the Company applies any payments to principal as long as there is doubt as to the collectibility of the loan balance. As of March 31, 1999, based on the above criteria, the Company classified three commercial loans, totaling $1,791,773; and, one mortgage loan, totaling $126,160, as impaired. The impairment of these loans is based on the fair value of the underlying collateral for these loans. Based upon such evaluation of these impaired loans, $422,638 has been allocated to the allowance for loan losses. The following schedule sets forth certain information regarding the Company's non-accrual, past due and renegotiated loans and other real estate owned as of March 31, 1999 and 1998, and as of December 31 of each of the last five years:
March 31, DECEMBER 31, ------------------ ------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 --------- ------- ------- ------- ------- ------- ------- (In Thousands) Non-accrual loans...................... $ 1,520 $2,950 $1,257 $2,007 $1,845 $2,366 $2,658 Past due loans......................... 2,583 1,965 4,248 1,400 2,200 679 1,039 Renegotiated loans..................... 1,888 913 1,468 1,529 2,567 2,325 $1,740 ------ ------ ------ ------ ------ ------ ------ Total non-accrual, past due and renegotiated loans 5,991 5,828 6,973 4,936 6,612 5,370 5,437 Other real estate owned 394 648 788 648 177 951 1,302 ------ ------ ------ ------ ------ ------ ------ Total............................... $ 6,385 $6,476 $7,761 $5,584 $6,789 $6,321 $6,739 ====== ====== ====== ====== ====== ====== ======
Included in the above schedule at March 31, 1999, is one non-accrual commercial loan, totaling $223,586; two commercial loans past due over 90 days, totaling $1,568,187; and, one mortgage loan past due over 90 days, totaling $126,160, which represents all loans categorized as impaired. At March 31, 1999, non-accrual loans totaled $1,520,000, an increase of $263,000 compared to December 31, 1998. This net change is primarily the result of the addition of two commercial loans totaling $31,000 and one consumer loan totaling $228,000, which have been added to this category. Of the total non- accrual loans at March 31, 1999, all are either in foreclosure, in various stages of litigation, or on a repayment schedule. At March 31, 1999, loans past due 90 days or more and still accruing totaled $2,583,000, a decrease of $1,665,000 compared to December 31, 1998. This net change is primarily the result of the reduction of one commercial loan, totaling $1,332,000, which has become current and the reduction of two commercial loans, totaling $274,000, and one mortgage loan, totaling $161,000, which have been renegotiated. At March 31, 1999, renegotiated loans totaled $1,888,000, an increase of $420,000 compared to December 31, 1998. All renegotiated loans are current with respect to the revised terms with the exception of two loans past due over 90 days, which are categorized as impaired. This net change is primarily the result of the previously two noted renegotiated commercial loans and one renegotiated mortgage loan, which have been added to this category. At March 31, 1999, other real estate owned totaled $394,000, a decrease of $394,000 compared to December 31, 1998. This net change is primarily the result of the sale of properties held in this category during the first quarter of 1999. 14 Total other income decreased $42,808 or 5.52% to $732,074 for the first three months of 1999 from $774,883 for the same period in 1998. This decrease is primarily the result of a $40,000 decrease in gain on disposition of securities. Other expenses increased by $74,054 or 1.83% to $4,130,487 for the first three months of 1999 from $4,056,433 for the same period in 1998. Salaries and benefits increased by $146,686 or 6.96%. This was due to increased staffing levels, partially due to three additional branch offices being opened, along with normal salary increases. Occupancy expense increased $20,654 or 5.27%. Furniture and fixtures expense increased $47,278 or 12.49%. These increases are a result of the aforementioned branch expansion. Other expenses decreased in the aggregate $140,564 or 11.93%. The Company incurred $316,000 in acquisition expense during the first quarter of 1998 with regard to the acquisition of Metropolitan State Bank. Exclusive of this acquisition expense, other expenses increased approximately $175,436 or 20.34%. Approximately $134,000 of this increase is due to higher expenses incurred due to the increased number of branches and the Company's banking business. The remaining $41,000 represents supplemental pension expense incurred in 1999, relating to the funding of an annuity for the Chief Executive Officer of Metropolitan State Bank. The effective tax decreased from 33.39% at March 31, 1998, to 30.03% at March 31, 1999. The decrease in income tax expense was due primarily to an increase in tax-exempt income, as well as a decrease in pre-tax earnings. 15 Financial Condition The Company's total assets increased $7.8 million or 1.42% from $548.5 million at December 31, 1998, to $556.3 million at March 31, 1999. A $3.5 million decrease in cash and cash equivalents and a $1.2 million decrease in other assets was offset by increases of $7.9 million in the Company's securities portfolio, and $4.6 million in the loan portfolio. At March 31, 1999, the Company's securities portfolio of $192.0 million is segregated into classifications of "available for sale" and "held to maturity". Unrealized gains and losses of $5,503,000 and $515,000, respectively, contained in the available for sale portfolio, have been recorded, net of deferred taxes, as a separate component of stockholders' equity. The effect of such adjustment at March 31, 1999, is to increase stockholders' equity by $2,940,000. Securities held to maturity at March 31, 1999, contain unrealized gains and losses of $777,000 and $255,000, respectively. For the entire securities portfolio, net unrealized gains were at $5,511,000 at March 31, 1999, as compared with a $6,145,000 net unrealized gain at December 31, 1998. Total loans increased $4.6 million or 1.49% from December 31, 1998 to March 31, 1999. Total deposits increased $7.9 million or 1.62% from December 31, 1998, to March 31, 1999. A $7.9 million increase in savings and interest-bearing demand deposits and a $2.6 million increase in time deposits more than offset a $3.2 million decrease in non-interest bearing demand deposits. The overall increase in deposits was primarily due to the additional branch offices, which were opened. Time deposits at March 31, 1999, represented 31.56% of total deposits as compared to 31.55% at December 31, 1998. Stockholders' equity increased $590,000 or 1.11% as net income of $1,425,000 was offset by a $157,000 decrease in the equity component related to available for sale securities, $638,000 in dividends paid to stockholders and $40,000 in the repurchase of treasury stock. Cash and cash equivalents decreased by $3.5 million during the three months ended March 31, 1999. Operating activities, principally the result of the Company's net income and the decrease of other assets, provided $3.1 million in net cash. Investing activities used $13.0 million in net cash, primarily reflecting the increase in the Company's investment portfolio. Financing activities provided $6.5 million in net cash, reflecting an increase in deposits partially offset by a decrease in short term borrowings and a cash dividend paid on common stock. 16 CAPITAL RESOURCES In March 1989, the FDIC adopted a risk-based capital policy statement which imposed a minimum capital standard on insured banks. The minimum ratio of off risk-based capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least half of the total capital is to be comprised of common stock equity and qualifying perpetual preferred stock, less goodwill ("Tier I capital"). The remainder ("Tier II capital") may consist of mandatory convertible debt securities, qualifying subordinated debt, other preferred stock and a portion of the allowance for loan losses. The Federal Reserve Board adopted a similar risk-based capital guideline for the Company which is computed on a consolidated basis. In addition, the Federal Reserve Board has established leverage ratio guidelines (Tier I capital to average quarterly assets, less goodwill) for bank holding companies. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The following table reflects the Company's capital ratios as of March 31, 1999:
Amount Ratio (In Thousands) Risk-Based Capital Ratios: Actual Tier I Capital 50,963 15.85% Tier I Capital minimum amount 12,862 4.00% ------- ----- Excess $38,101 11.85% ======= ===== Actual Combined Tier I and Tier II Capital $54,906 17.08% Combined Tier I and Tier II Capital minimum requirement 25,724 8.00% ------- ----- Excess $29,182 9.08% ======= ===== Leverage Ratio: Actual Tier I Capital to average first quarter assets $50,963 9.20% Minimum leverage target* * * ------- ----- Excess * *
* No formal minimum leverage target (other than the tree percent floor described above) has been established for the Company or the Bank as of March 31, 1999. ITEM 3 Quantitative and Qualitative Disclosures About Market Risk Not applicable -- no significant change from Annual Report on Form 10-K. 17 PART II OTHER INFORMATION Item 1 Legal Proceedings Not Applicable Item 2 Change in Securities Not Applicable Item 3 Defaults Upon Senior Securities Not Applicable Item 5 Other Information Not Applicable Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) Current Reports on Form 8-K Filed During The Quarter Ended March 31, 1999: On March 24, 1999, the Company filed a Current Report on Form 8-K in connection with a change in the Registrant's Certifying Accountants. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lakeland Bancorp, Inc. ---------------------------------- (Registrant) /s/ Arthur L. Zande ---------------------------------- Arthur L. Zande Executive Vice President (Chief Executive Officer) /s/ William J. Eckhardt ---------------------------------- William J. Eckhardt Vice President and Treasurer (Chief Financial Officer) May 11, 1999 - --------------------- Date 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 1000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 20888 214 10725 0 108972 83051 83573 316116 3943 556339 496814 3004 2617 0 0 0 21279 32624 556339 6261 2480 187 8928 3344 3388 5540 105 14 4130 2037 1425 0 0 1425 .17 .17 7.01 1276 2583 1888 0 3897 89 30 3943 3943 0 0
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