SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
June 30, 1995 Number 0-11487
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1559596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
202 East Center Street
P.O. Box 1387, Warsaw, Indiana 46581-1387
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (219)267-6144
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Outstanding at June 30, 1995
Common Stock, $1 Stated Value 1,438,496
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
As of June 30, 1995 and December 31, 1994
(Unaudited)
(Page 1 of 2)
June 30, December 31,
1995 1994
------------- -------------
ASSETS
------
Cash and cash equivalents
Cash and due from banks $ 26,217,000 $ 21,346,000
Short-term investments 1,372,000 2,801,000
------------- -------------
Total cash and cash equivalents 27,589,000 24,147,000
Securities available for sale
U. S. Treasury securities 26,863,000 25,916,000
Mortgage-backed securities 34,069,000 29,987,000
State and municipal securities 1,189,000 933,000
Other debt securities 2,096,000 1,026,000
Equity securities 1,724,000 1,738,000
------------- -------------
Total securities available for sale
(carried at fair value at June 30, 1995
and December 31, 1994) 65,941,000 59,600,000
Securities held to maturity
U. S. Treasury securities 14,657,000 14,714,000
Mortgage-backed securities 86,205,000 80,815,000
State and municipal securities 14,285,000 13,608,000
Other debt securities 3,054,000 1,015,000
------------- -------------
Total securities held to maturity
(market value of $118,830,000 at
June 30, 1995 and $103,723,000
at December 31, 1994) 118,201,000 110,152,000
Real estate mortgages held for sale 560,000 175,000
Loans:
Total loans 306,508,000 287,956,000
Less: Allowance for loan losses 4,877,000 4,866,000
------------- -------------
Net loans 301,631,000 283,090,000
Land, premises and equipment, net 11,891,000 11,295,000
Accrued income receivable 3,786,000 3,464,000
Other assets 3,706,000 5,040,000
------------- -------------
Total assets $ 533,305,000 $ 496,963,000
============= =============
(Continued)
Part I
Item 1 - Financial Statements
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
As of June 30, 1995 and December 31, 1994
(Unaudited)
(Page 2 of 2)
June 30, December 31,
1995 1994
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
Deposits:
Noninterest bearing deposits $ 64,925,000 $ 62,830,000
Interest bearing deposits 345,208,000 333,910,000
------------- -------------
Total deposits 410,133,000 396,740,000
Short-term borrowings
Federal funds purchased 3,075,000 4,000,000
U.S. Treasury demand notes 3,932,000 2,573,000
Securities sold under agreements
to repurchase 60,692,000 41,750,000
------------- -------------
Total short-term borrowings 67,699,000 48,323,000
Accrued expenses payable 3,160,000 3,280,000
Other liabilities 1,103,000 1,299,000
Long-term debt 17,432,000 17,432,000
------------- -------------
Total liabilities 499,527,000 467,074,000
Commitments, off-balance sheet risks
and contingencies
STOCKHOLDERS' EQUITY
--------------------
Common stock: $1.00 stated value, 2,750,000 shares
authorized, 1,438,496 shares issued and outstanding
as of June 30, 1995 and December 31, 1994 1,438,000 1,438,000
Additional paid-in capital 7,827,000 7,827,000
Retained earnings 24,442,000 22,279,000
Unrealized net gain (loss) on securities available for sale 71,000 (1,655,000)
------------- -------------
Total stockholders' equity 33,778,000 29,889,000
Total liabilities and stockholders' equity $ 533,305,000 $ 496,963,000
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
For the Three Months and Six Months Ended June 30, 1995, and 1994
(Unaudited)
(Page 1 of 2)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
INTEREST AND DIVIDEND INCOME
----------------------------
Interest and fees on loans: Taxable $ 7,372,000 $ 5,701,000 $14,189,000 $11,044,000
Tax exempt 56,000 70,000 121,000 142,000
----------- ----------- ----------- -----------
Total loan income 7,428,000 5,771,000 14,310,000 11,186,000
Short-term investments 25,000 60,000 90,000 73,000
Securities:
U.S. Treasury and Government agency securities 610,000 534,000 1,209,000 1,060,000
Mortgage-backed securities 1,869,000 1,484,000 3,654,000 2,991,000
Obligations of state and political subdivisions 227,000 180,000 453,000 366,000
Other debt securities 97,000 47,000 198,000 96,000
Equity investments 33,000 23,000 66,000 44,000
----------- ----------- ----------- -----------
Total interest and dividend income 10,289,000 8,099,000 19,980,000 15,816,000
INTEREST EXPENSE
-----------------
Interest on deposits 4,088,000 2,809,000 7,820,000 5,581,000
Interest on short-term borrowings 894,000 412,000 1,726,000 763,000
Interest on long-term debt 250,000 250,000 495,000 403,000
----------- ----------- ----------- -----------
Total interest expense 5,232,000 3,471,000 10,041,000 6,747,000
----------- ----------- ----------- -----------
NET INTEREST INCOME 5,057,000 4,628,000 9,939,000 9,069,000
-------------------
Provision for loan losses 30,000 75,000 60,000 345,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,027,000 4,553,000 9,879,000 8,724,000
------------------------- ----------- ----------- ----------- -----------
NONINTEREST INCOME
------------------
Trust fees 167,000 161,000 392,000 361,000
Service charges on deposit accounts 577,000 536,000 1,099,000 983,000
Other income (net) 283,000 296,000 552,000 918,000
Net gains on the sale of real estate mortgages held for sale 35,000 48,000 52,000 124,000
Net investment securities gains (losses) (7,000) 9,000 (23,000) 3,000
----------- ----------- ----------- -----------
Total noninterest income 1,055,000 1,050,000 2,072,000 2,389,000
NONINTEREST EXPENSE
-------------------
Salaries and employee benefits 2,060,000 1,800,000 4,025,000 3,550,000
Occupancy and equipment expenses 632,000 494,000 1,252,000 993,000
Other expenses 1,395,000 1,151,000 2,636,000 2,173,000
----------- ----------- ----------- -----------
Total noninterest expense 4,087,000 3,445,000 7,913,000 6,716,000
(Continued)
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
(Page 2 of 2)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,995,000 2,158,000 4,038,000 4,397,000
----------------------------------
Income tax expense 648,000 813,000 1,385,000 1,647,000
----------- ----------- ----------- -----------
NET INCOME $ 1,347,000 $ 1,345,000 $ 2,653,000 $ 2,750,000
---------- =========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 1,438,496 1,438,496 1,438,496 1,438,496
EARNINGS PER COMMON SHARE
-------------------------
Net Income $ 0.93 $ 0.93 $ 1.84 $ 1.91
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
Unrealized
Net Gain (Loss)
Common Stock on Securities Total
------------------------ Paid in Retained Available Stockholders'
Shares Amount Capital Earnings For Sale Equity
----------- ------------ ------------ ------------- -------------- --------------
Balances, January 1, 1994 1,438,496 $ 1,438,000 $ 7,827,000 $ 18,001,000 $ 646,000 $ 27,912,000
Net income for six months
ended June 30, 1994 2,750,000 2,750,000
Net change in unrealized net gain (loss)
on securities available for sale (1,341,000) (1,341,000)
Cash dividends declared -
$.28 per share (403,000) (403,000)
----------- ------------ ------------ ------------- -------------- --------------
Balances, June 30, 1994 1,438,496 $ 1,438,000 $ 7,827,000 $ 20,348,000 $ (695,000) $ 28,918,000
=========== ============ ============ ============= ============== ==============
Balances, January 1, 1995 1,438,496 $ 1,438,000 $ 7,827,000 $ 22,279,000 $ (1,655,000) $ 29,889,000
Net income for six months
ended June 30, 1995 2,653,000 2,653,000
Net change in unrealized net gain (loss)
on securities available for sale 1,726,000 1,726,000
Cash dividends declared -
$.34 per share (490,000) (490,000)
----------- ------------ ------------ ------------- -------------- --------------
Balances, June 30, 1995 1,438,496 $ 1,438,000 $ 7,827,000 $ 24,442,000 $ 71,000 $ 33,778,000
=========== ============ ============ ============= ============== ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
(Page 1 of 2)
1995 1994
------------- -------------
Cash flows from operating activities
Net Income $ 2,653,000 $ 2,750,000
------------- -------------
Adjustments to reconcile net income to net cash
from operating activites
Depreciation 560,000 552,000
Provision for loan losses 60,000 345,000
Loans originated for sale (8,921,000) (6,500,000)
Write-down of other real estate owned 0 0
Net (gain) loss on sale of loans (52,000) (124,000)
Proceeds from sale of loans 8,588,000 8,313,000
Net (gain) loss on sale of premises and equipment 0 1,000
Net (gain) loss on sale of securities available for sale 13,000 0
Net (gain) loss on calls of securities held to maturity 10,000 (3,000)
Net investment amortization (accretion) 99,000 233,000
Increase (decrease) in income taxes payable 371,000 (291,000)
Increase (decrease) in deferred taxes payable (202,000) 524,000
(Increase) decrease in income receivable (322,000) (184,000)
Increase (decrease) in accrued expenses payable (491,000) (217,000)
(Increase) decrease in other assets 404,000 1,993,000
Increase (decrease) in other liabilities (196,000) (378,000)
------------- -------------
Total adjustments (79,000) 4,264,000
------------- -------------
Net cash from operating activities 2,574,000 7,014,000
------------- -------------
Cash flows from investing activities
Proceeds from maturities and calls of securities held to maturity 2,713,000 5,898,000
Proceeds from maturities and calls of securities available for sale 3,537,000 1,015,000
Purchases of securities available for sale (7,493,000) (1,103,000)
Purchases of securities held to maturity (10,746,000) 0
Purchases of trading account securities 0 0
Proceeds from sales of trading account securities 0 0
Proceeds from sales of securities available for sale 336,000 0
Net (increase) decrease in total loans (18,601,000) (9,907,000)
Proceeds from sale of premises and equipment 15,000 82,000
Purchases of premises and equipment (1,171,000) (788,000)
------------- -------------
Net cash from investing activities (31,410,000) (4,803,000)
------------- -------------
(Continued)
Part I
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1995 and 1994
(Unaudited)
(Page 2 of 2)
1995 1994
------------- -------------
Cash flows from financing activities
Net increase (decrease) in total deposits $ 13,393,000 $ (4,402,000)
Proceeds from short-term borrowings 243,765,000 203,313,000
Payments on short-term borrowings (224,390,000) (191,298,000)
Proceeds from long-term borrowings 0 8,132,000
Dividends paid (490,000) (403,000)
------------- -------------
Net cash from financing activities 32,278,000 15,342,000
------------- -------------
Net increase (decrease) in cash and cash equivalents 3,442,000 17,553,000
Cash and cash equivalents at beginning of the period 24,147,000 12,869,000
------------- -------------
Cash and cash equivalents at end of the period $ 27,589,000 $ 30,422,000
============= =============
Cash paid during the period for:
Interest $ 9,625,000 $ 6,774,000
============= =============
Income taxes $ 1,690,000 $ 1,413,000
============= =============
Loans transferred to real estate mortgages held for sale $ 0 $ 0
============= =============
Loans transferred to other real estate $ 0 $ 107,000
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
This report is filed for Lakeland Financial Corporation (the
Corporation) and its wholly owned subsidiary, Lake City Bank (the Bank).
All significant intercompany balances and transactions have been eliminated
in consolidation.
The condensed financial statements included herein have been prepared
by the Corporation, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Corporation believes that the disclosures are adequate and do not make the
information presented misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements
and notes thereto included in the Corporation's latest annual report and
Form 10-K. In the opinion of management, all adjustments which are
necessary for a fair statement of the results for interim periods are
reflected in the quarterly statements included herein.
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
June 30, 1995
FINANCIAL CONDITION
The financial statements reflect the Corporation s continued growth
within the Bank s traditional markets and expansion into new market areas.
The Bank is acquiring Gateway Bank at 901 S. Detroit, LaGrange, Indiana.
This acquisition will add approximately $19.5 million in assets, including
around $9.1 million in loans, and approximately $18.5 million in deposits.
The Gateway Bank will open as the LaGrange Office of Lake City Bank on July
17, 1995. The Bank has also purchased a building and property at 507 E. 9th
Street, Rochester, Indiana. The appropriate regulatory applications have
been filed and it is anticipated this facility will open in the Fall of
1995. Construction on the Elkhart Concord Office at 4202 Elkhart Road,
Goshen, Indiana continues and this office is also scheduled to open in the
Fall of 1995.
Total assets of the Corporation totaled $533,305,000 as of June 30,
1995. This is an increase of $36,342,000 or 7.3 percent from $496,963,000
reported at December 31, 1994. Total loans were $306,508,000 at June 30,
1995. This is an increase of $18,552,000 or 6.4 percent from December 31,
1994 balance. Total securities (including available for sale (AFS) and held
to maturity (HTM)) increased $14,390,000 or 8.5 percent to $184,142,000 as
of June 30, 1995, from $169,752,000 at December 31, 1994. Earning assets
increased to $492,582,000 at June 30, 1995. This is an increase of
$31,898,000 or 6.9 percent from the December 31, 1994 total of
$460,684,000.
Total deposits and securities sold under agreements to repurchase
(repurchase agreements) consist primarily of funds generated within the
Bank's primary market area as defined by its Community Reinvestment Act
(CRA) statement. At June 30, 1995 these funds totaled $470,825,000. This
represented a $32,335,000 or 7.4 percent increase from December 31, 1994.
The growth has been primarily in certificates of deposit and repurchase
agreements. Certificates of deposit increased $20,641,000 or 9.4 percent
from the balance at December 31, 1994. The repurchase agreement balance
increased $18,942,000 or 45.4 percent from the balance at December 31,
1994. In addition to these local funding sources, the Bank borrows modestly
through the Treasury, Tax and Loan program, occasionally through federal
fund lines with correspondent banks and through term advances from the
Federal Home Loan Bank of Indianapolis (FHLB). Including these non-local
sources, funding totaled $495,264,000 at June 30, 1995. This is a
$32,769,000 or 7.1 percent increase from $462,495,000 reported at December
31, 1994.
On an average daily basis, total earning assets increased 13.3 percent
and 12.0 percent for the three month period and the six month period ended
June 30, 1995 respectively, as compared to similar periods ended June 30,
1994. On an average daily basis, total deposits and purchased funds
increased 13.4 percent and 12.7 percent for the three month period and six
month period ended June 30, 1995, as compared to the three month period and
six month period ended June 30, 1994. These increases are a result of the
growth in existing Bank offices and the opening of three new offices;
Elkhart East and Shipshewana in November, 1994 and Middlebury in March,
1995.
The Bank's AFS portfolio is managed with consideration given to
factors such as the Bank's capital levels, growth prospects,
asset/liability structure and liquidity needs. At June 30, 1995 the AFS
portfolio constituted 35.8 percent of the total investment security
portfolio. During the first six months of 1995 purchases for the HTM and
AFS portfolios were $10,746,000 and $7,493,000 respectively. At June 30,
1995, the net after-tax unrealized gain in the AFS portfolio included in
stockholders' equity was $71,000, an increase of $1,726,000 from the
unrealized loss included in stockholders equity at December 31, 1994.
Future investment activity is difficult to predict, as it is dependent upon
loan and deposit trends; but the Bank anticipates activity in both the AFS
and HTM portfolios. All mortgage-backed securities are purchased in
compliance with the FFIEC high risk security tests.
As previously indicated, total loans increased $18,552,000 to
$306,508,000 as of June 30, 1995, from $287,956,000 at December 31, 1994.
Loan growth is net of loans reclassified to other real estate. The Bank
continues to experience good commercial loan demand, particularly in
Elkhart and LaGrange Counties. Commercial loans at June 30, 1995 increased
6.0 percent from the level at December 31, 1994. Retail loans at June 30,
1995 increased 10.4 percent from December 31, 1994. Real estate loans
(excluding mortgages held for sale) increased 3.3 percent from December 31,
1994. A general slowing in real estate activity and the sale of real estate
mortgages into the secondary market continues to impact the real estate
loan portfolio growth.
The Bank continues to actively serve the mortgage needs of its CRA
defined market area by originating both conforming and nonconforming real
estate mortgages. The Bank is experiencing slower demand for new mortgage
loans and refinancings in its service area. During the first six months of
1995 the Bank originated mortgages for sale totaling $4,043,000. This
program of mortgage sales continues to produce the liquidity needed to meet
the mortgage needs of the markets served by the Bank, and to generate a
long term servicing portfolio. As a part of the CRA commitment to making
real estate financing available in all markets, the Bank continues to
originate non-conforming loans which are held to maturity or prepayment.
Loans renegotiated as troubled debt restructuring are those loans for
which either the contractual interest rate has been reduced and/or other
concessions are granted to the borrower because of a deterioration in the
financial condition of the borrower which results in the inability of the
borrower to meet the terms of the loan. Loans renegotiated as troubled debt
restructuring totaled $1,459,000 at June 30, 1995 as compared to $1,406,000
at December 31, 1994. The loans classified as troubled debt restructuring
at June 30, 1995 are performing in accordance with the modified terms.
The Indiana State legislature has enacted laws relating to a state
chartered bank's legal lending limit, by adopting the basic regulations
applied by the Office of the Comptroller of the Currency (OCC) to national
banks. These guidelines set overall limits on lending activity, but actual
bank limits are subject to Board of Director approval. Based upon these new
regulations, the Bank's June 30, 1995 legal loan limit was approximately
$5,770,000. The legal loan limit will continue to increase as the Bank's
combined equity and allowance for loan losses continues to increase. At its
January 10, 1995 meeting, the Bank's Board of Directors modestly increased
the Bank's policy limit by $250,000, to $3,500,000 for any one borrower.
With a relatively low administrative loan limit of $3,500,000, it appears
that most of the Bank's loan portfolios consist primarily of loans to
consumers and small businesses, and that the Bank's lending practices and
policies support national economic policies.
As a result of these loan and deposit trends, the Bank's average daily
loans/deposits ratio amounted to 76.0 percent at June 30, 1995, an increase
from 72.6 percent at year-end 1994, and 73.2 percent at June 30, 1994. The
Bank's average daily loans/total deposits and repurchase agreements ratio
amounted to 67.9 percent at June 30, 1995. This is an increase from 67.3
percent at year-end 1994.
The Bank, through its Asset/Liability Committee (ALCO), manages
interest rate risk by monitoring both its GAP position and the computer
simulated earnings impact of various rate scenarios. The Bank then modifies
its long term risk parameters by attempting to generate the type of loans,
investments, and deposits that currently fit ALCO needs. The current long
term guideline approved by the Board of Directors defines a neutral rate
sensitivity ratio (GAP/Total Assets) as plus or minus 20 percent. However,
the ALCO is authorized to manage this ratio outside these limits on a short
term basis, as the committee's expectation of interest rates dictates.
Management has estimated that as of June 30, 1995, the Bank's GAP/Total
Assets ratios were (10.5) percent, (15.4) percent, and (21.3) percent for
the three, six, and twelve month time periods respectively. For this
analysis, savings accounts have been assumed to be immediately repriceable,
and therefore are included as repriceable liabilities in each of these
ratios. The December 31, 1994, three, six, and twelve month GAP ratios were
(10.5) percent, (14.5) percent, and (18.2) percent respectively.
Management supplements the GAP analysis with a computer simulation
approach to manage the interest rate risk of the Bank. This computer
simulation analysis measures the net interest income impact of a 300 basis
point change in interest rates during the next 12 months. If the change in
net interest income is less than 3 percent of primary capital, the balance
sheet structure is considered to be within acceptable risk levels. At June
30, 1995, the Bank's potential pretax exposure was well within the Bank's
policy limit. This policy was last reviewed and approved by the Board of
Directors in May, 1995.
The Bank is a member of the FHLB of Indianapolis. Membership has
enabled the Bank to participate in the housing programs sponsored by the
FHLB, thereby enhancing the Bank's ability to offer additional programs
throughout its trade area. The Bank first borrowed under this program in
December, 1992. This advance was $8,000,000 payable in three years. The
Bank's second advance was made on June 25, 1993. This advance was
$1,300,000 to be paid June 24, 2003. The most recent borrowing was
$8,132,000 in March, 1994, to be paid January 14, 1997. All borrowings are
collateralized by residential real estate mortgages. Membership in the FHLB
requires an equity investment in FHLB stock. The amount required is
computed annually, and is based upon a formula which considers the Bank's
total investment in residential real estate loans, mortgage-backed
securities and any FHLB advances outstanding at year-end. The Bank's current
investment in FHLB stock is $1,724,000.
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banks maintain an 8.0 percent Tier II risk
based capital ratio. The FDIC has also established definitions of "well
capitalized" as a 5.0 percent Tier I leverage capital ratio, a 6.0 percent
Tier I risk based capital ratio and a 10.0 percent Tier II risk based
capital ratio. As of June 30, 1995, the Bank's ratios were 6.3 percent,
10.1 percent and 11.3 percent respectively, excluding the SFAS No. 115
adjustment. These are comparable to the ratios of 6.3 percent, 10.1 percent
and 11.3 percent reported at December 31, 1994, and ratios of 6.3 percent,
10.1 percent and 11.4 percent reported at June 30, 1994. With the SFAS No.
115 equity adjustment at June 30, 1995, the Tier I leverage ratio, Tier I
risk based capital and Tier II risk based capital ratios were 6.3 percent,
10.1 percent and 11.4 percent. All ratios continue to be above "well
capitalized" regardless of whether SFAS No. 115 is included or excluded
from the calculation.
The Bank was examined by the Indiana Department of Financial
Institutions (DFI) as of March 31, 1995. This exam began in the later part
of June, 1995. The Bank was also examined by the FDIC as of March 31, 1994,
in June, 1994.
Total stockholders' equity increased $3,889,000 or 13.0 percent from
December 31, 1994 to $33,778,000 at June 30, 1995. Net income of
$2,653,000, less cash dividends paid of $490,000, and plus the change in
the unrealized net gain (loss) on securities available for sale of
$1,726,000 comprise this overall increase.
(Intentionally left blank)
RESULTS OF OPERATIONS
Net Interest Income
For the six month period ended June 30, 1995, total interest and
dividend income increased $4,164,000 or 26.3 percent to $19,980,000, from
$15,816,000 during the same six months of 1994. The interest and dividend
income increased $2,190,000 or 27.0 percent for the three month period
ended June 30, 1995, as compared to the three month period ended June 30,
1994. Daily average earning assets for the first two quarters of 1995
increased to $475,172,000, a 12.0 percent increase over the same period in
1994. For the second quarter alone, the daily average earning assets
increased to $483,034,000 or 13.3 percent as compared to the daily average
earning assets of the second quarter of 1994. The tax equivalent yields on
average earning assets increased by 103 basis points for the six month
period ended June 30, 1995 when compared to the same respective period of
1994. For the three month period ended June 30, 1995 this yield increased
96 basis points over the yield for the three month period ended June 30,
1994.
The six month tax equivalent yield comparison reflects the interest
rate environment experienced during 1995 and 1994. In 1994, interest rates
in general, and the prime rate in particular, increased substantially. This
increase in rates during 1994 has continued during the first quarter of
1995 and leveled-off during the second quarter of 1995.
Local lending activity and demand for the Bank's deposit products have
impacted the composition of earning assets and the related interest and
dividend income. Total loan income amounted to $14,310,000 and $7,428,000
for the six month and three month periods ended June 30, 1995, as compared
to $11,186,000 and 5,771,000 for the same periods in 1994. These are
increases of 27.9 percent and 28.7 percent. Comparing average daily loan
balances during the first two quarters of 1995 to the same period in 1994
indicates a 9.7 percent increase in loan balances. The higher rate of
growth in loan income as compared to growth in loan balances, reflects
increased yields on the predominately prime rate based commercial
portfolio.
Total investment income from all security accounts amounted to
$5,580,000 for the six month period ended June 30, 1995 and $2,836,000 for
the three month period ended June 30, 1995. This compares to the $4,557,000
and $2,268,000 recorded for the same periods in 1994. These increases in
income reflect increases in average daily balances of 14.2 percent and 17.5
percent respectively. The positive impact of the growth in average daily
securities was enhanced by increases in the investment income tax
equivalent yields in 1995, as compared to 1994, which increased 44 and 39
basis points for the six and three month periods ended June 30.
The yield on equity investments is the result of the dividend paid on
the FHLB stock. The dividend rate was 5.0 percent for the first quarter of
1994 and 5.25 percent of the second quarter of 1994. The dividend rate rose
consistently during 1994 and was 7.75 percent for the first and second
quarters of 1995.
Income from short-term investments amounted to $90,000 for the six
month period ended June 30, 1995 and $25,000 for the three month period
ended June 30, 1995. This compares to $73,000 and $60,000 for the same
respective periods in 1994. The differences in the short-term investment
income are a result of higher balances being maintained in short-term
investments during the first three months of 1995 and lower balances being
maintained during the second three months of 1995 as compared to the same
period of 1994, plus a 211 basis point increase in the average daily tax
equivalent yield during the first six months of 1995 as compared to the
first six months of 1994.
Total interest expense increased $3,294,000 or 48.8 percent to
$10,041,000 for the six month period ended June 30, 1995, from $6,747,000
for the six month period ended June 30, 1994. For the three month period
ended June 30, 1995, as compared to the same period of 1994, total interest
expense increased $1,761,000 or 50.7 percent. The Corporation's daily cost
of funds during the six month period ended June 30, 1995 increased 103
basis points, as compared to the same period of 1994. For the three month
period ended June 30, 1995 versus the same period in 1994, the increase was
108 basis points.
The increase in the average daily cost of funds was accompanied by an
increase in total deposit and purchased funds. On an average daily basis,
total deposits (including demand deposits) and purchased funds increased
12.7 percent for the six month period ended June 30, 1995, as compared to
the similar period ended June 30, 1994. Total deposits and purchased funds
increased 13.4 percent for the three month period ended June 30, 1995 when
compared to the same period in 1994.
The net effect of all factors affecting total interest and dividend
income and total interest expense was to increase net interest income. For
the six month period ended June 30, 1995, net interest income totaled
$9,939,000, an increase of 9.6 percent or $870,000 over the first six
months of 1994. For the three month period ended June 30, 1995 the increase
was $429,000 or 9.3 percent when compared to the same three months in 1994.
The variation in net interest income reflects both local and national
market conditions as well as the ALCO's efforts to manage the margin and
asset growth.
Provision for Loan Losses
It is the policy of the Bank to maintain the allowance for loan losses
at a level that is deemed appropriate based upon loan loss experience, the
nature of the portfolio, the growth expected for the portfolio and the
evaluation of the economic outlook for the current year and subsequent
years. Special consideration is given to nonperforming and nonaccrual loans
as well as factors that management feels deserve recognition during the
entire life of the portfolio. For several years the Bank has maintained a
quarterly loan review program designed to provide reasonable assurance that
the allowance is maintained at a reasonable level and that changes in the
status of loans are reflected in the financial statements in a timely
manner. The adherence to this policy has resulted in fluctuations in the
provision for loan losses. Consequently, the increase in net interest
income before provision for loan losses, discussed above, may not
necessarily flow through to the net interest income after provision for
loan losses. The provision amounted to $60,000 and $30,000 for the six and
three month periods ended June 30, 1995, as compared to $345,000 and
$75,000 for the similar periods of 1994.
As of June 30, 1995, the allowance for loan losses totaled $4,877,000.
This total included specific allocations for potential problem credits in
each loan portfolio (commercial, agriculture, residential real estate,
consumer and lines of credit). The current allowance of $4,877,000
represents a $11,000 increase over the December 31, 1994 balance. During
the first six months of 1995 the provision for loan loss was $60,000, with
net charge-offs of $49,000. The growth in the allowance for loan losses
reflects several factors. These factors include the overall growth of the
portfolio, management's estimate of the long term risk inherent in the
portfolio, and the expansion into new market areas. Although peer group
information is not available for a presentation of the Bank's June 30, 1995
results, the Uniform Bank Performance Report (UBPR) is available for March
31, 1995 information. This report indicates that the Bank's allowance for
loan losses as a percentage of total loans was 1.7 percent at March 31,
1995. This compares to an average of 1.7 percent for all insured commercial
banks having assets between $500 million and $1 billion. This ratio for the
bank was 1.7 percent at December 31, 1994. If deemed appropriate, a general
reserve may be allocated to each loan portfolio. At June 30, 1995, the
unallocated reserve was approximately $3,640,000. The unallocated reserves
at December 31, 1994 was $3,694,000.
As of June 30, 1995, loans delinquent 30 days or more that were
included in the accompanying financial statements as accrual loans totaled
approximately $696,000. At June 30, 1995, there were loans totaling
$59,000 on nonaccrual. It is management's opinion that the $4,877,000
allowance for loan losses is adequate to cover loan losses currently
anticipated to be inherent in the portfolio.
Net interest income after provision for loan losses totaled $9,879,000
for the six month period ended June 30, 1995 and $5,027,000 for the three
month period ended June 30, 1995. This represents increases of 13.2 percent
and 10.4 percent respectively over the same periods ended June 30, 1994.
Noninterest Income
Total noninterest income decreased $317,000 or 13.3 percent to
$2,072,000 for the six month period ended June 30, 1995, from $2,389,000
recorded for the six month period ended June 30, 1994. Total noninterest
income for the three month period ended June 30, 1995, was $1,055,000 which
was $5,000 or .5 percent higher than the noninterest income for the three
months ended June 30, 1994.
Trust fees, which represent basic recurring service fee income,
increased $31,000 or 8.6 percent to $392,000 for the six month period ended
June 30, 1995, as compared to $361,000 for the first six months of 1994.
For the three month period ended June 30, 1995, trust fees were $167,000,
an increase of $6,000 over the fees for the same period in 1994. The major
fee increases were in employee benefit plans and investment services fees.
Service charges on deposit accounts increased 11.8 percent or $116,000
during the six month period ended June 30, 1995, totaling $1,099,000, as
compared to the same period in 1994. These service charges increased
$41,000 for the three month period ended June 30, 1995, over the amount
recorded for the three month period ended June 30, 1994. The fees on the
LCB Club account (the Bank's low cost checking account service) increased
28.8 percent during the six month period ended June 30, 1995, as compared
to the same period in 1994.
Other income (net) consists of normal recurring fee income, as well as
other income that management classifies as nonrecurring. Other income (net)
decreased 39.9 percent or $366,000 to $552,000 for the six month period
ended June 30, 1995, as compared to the same period in 1994. It decreased
$13,000 or 4.4 percent for the three months ended June 30, 1995 as compared
to the same months in 1994. Recurring components of other income increased
17.2 percent during the first six months of 1995, as compared to the first
six months of 1994 and increased 15.2 percent for the three months of the
second quarter of 1995, as compared to the three months of the second
quarter of 1994. The major increases for the first six months were in safe
deposit rent, mortgage service fees, loan insurance income and credit card
fees.
The nonrecurring components of other income decreased $440,000 or 92.2
percent as compared to the same period in 1994. In the first quarter of
1994 ORE gains amounted to $404,000. The majority of this was related to
the reversal of previously established valuation reserves and accrued
liquidation reserves which were originally established to reflect the
estimated disposition cost of assets classified as ORE. In the second
quarter of 1994 there were two additional significant nonrecurring items
which added $51,000 to other income. No transactions of the same magnitude
occurred in 1995 resulting in the decrease in the nonrecurring other
income.
The profits from the sale of mortgages during the six month period
ended June 30, 1995, totaled $52,000, as compared to $124,000 during the
same period in 1994. For the second quarter of 1995 only, these profits
were $35,000 as compared to $48,000 for the same period in 1994. These
declines from the prior periods are a reflection of the rising rate
environment which has reduced the volume of mortgages originated.
Net investment security gains (losses) amounted to $(23,000) and
$(7,000) for the six and three month periods ended June 30, 1995, as
compared to $3,000 and $9,000 for the six and three month periods ended
June 30, 1994. In the first six months of 1995 and 1994, special calls of
zero coupon bonds were responsible for these small gains and losses.
Additional calls are expected in future periods. In addition, in the first
three months of 1995 there were sales of municipal securities which were
approaching maturity from the available for sale portfolio.
Noninterest Expense
Noninterest expense increased $1,197,000 or 17.8 percent to $7,913,000
for the six month period ended June 30, 1995, as compared to the first six
months of 1994. Noninterest expense increased $642,000 or 18.6 percent when
comparing the three months ended June 30, 1995 to the three months ended
June 30, 1994.
For the six months ended June 30, 1995, salaries and employee benefits
increased to $4,025,000, a $475,000 increase or 13.4 percent as compared to
the first six months of 1994. When comparing the three months ended June
30, 1995, to the same period in 1994, the increase was $260,000 or 14.4
percent. These increases reflect the additions of the Elkhart East,
Shipshewana and Middlebury locations, as well as normal salary increases.
Full-time equivalent employees increased to 284 at June 30, 1995, from 265
at June 30, 1994.
For the six and three month periods ended June 30, 1995, occupancy and
equipment expenses were $1,252,000 and $632,000 respectively, a $259,000
increase or 26.1 percent and $138,000 or 28.0 percent from the same periods
one year ago. This performance reflects the ordinary timing differences
incurred with these types of expenses, as well as additional occupancy
expense related to the new locations added in 1995 and 1994. These expenses
are expected to continue to increase in 1995 with the opening of the
LaGrange, Elkhart Concord and Rochester locations.
For the six month period ended June 30, 1995, other expenses totaled
$2,636,000 as compared to $2,173,000 during the same period in 1994. This
is an increase of 21.3 percent or $463,000. For the second quarter of 1995
as compared to the second quarter of 1994 the increase was $244,000 or 21.2
percent. The addition of the new locations in 1994 and 1995 has had an
impact on noninterest expense and has resulted in increases in business
development and telephone, postage, and supplies expenses. Business
development expense increased $157,000 and telephone, postage, and supplies
expense increased $99,000 for the six months ended June 30, 1995, as
compared to the six months ended June 30, 1994. Data processing fees
increased $91,000 when comparing these same periods. When comparing the
three months of the second quarter of 1995 to the same months in 1994, the
business development expenses increased $78,000, telephone, postage and
supplies expense increased $48,000 and data processing fees increased
$37,000.
Income Before Income Tax Expense
As a result of the above factors, income before income tax expense
decreased to $4,038,000 for the first six months of 1995, as compared to
$4,397,000 for the same period in 1994. This is a decrease of $359,000 or
8.2 percent. For the three months ended June 30, 1995, as compared to the
three months ended June 30, 1994, the decrease in income before income tax
expense was $163,000 or 7.6 percent.
Income Tax Expense
Income tax expense decreased to $1,385,000 for the first six months of
1995, as compared to $1,647,000 for the same period in 1994. This is a
$262,000 or 15.9 percent decrease. Income tax expense for the second
quarter of 1995 decreased $165,000 or 20.3 percent as compared to the
second quarter of 1994.
The combined State franchise tax expense and the Federal income tax
expense as a percent of income before income tax expense decreased to 34.3
percent during the first six months of 1995, as compared to 37.6 percent
during the same period in 1994. It decreased to 32.5 percent for the three
months ended June 30, 1995, as compared to 37.7 percent for the same three
months in 1994. Currently the State franchise tax rate is 8.5 percent and
is a deductible expense for computing Federal income tax.
Net Income
As a result of all factors indicated above, net income decreased to
$2,653,000 for the first six months of 1995, a decrease of $97,000 or 3.5
percent from the $2,750,000 recorded over the same period in 1994. Earnings
per share for the first six months of 1995 were $1.84 per share as compared
to $1.91 per share for the first six months of 1994. For the three months
ended June 30, 1995, net income was $1,347,000 as compared to $1,345,000
for the three months ended June 30, 1994, an increase of $2,000 or .2
percent.
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
June 30, 1995
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
There were no submissions of matters to a vote by security
holders during the quarter ended June 30, 1995.
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
June 30, 1995
Part II - Other Information
Signatures
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 FINANCIAL CORPORATION
(Registrant)
Date: August 4, 1995 R. Douglas Grant
----------------
R. Douglas Grant - President
Date: August 4, 1995 Terry M. White
--------------
Terry M. White - Secretary/Treasurer