UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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 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 (574)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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at October 31, 2003
Common Stock, No Par Value 5,780,473
LAKELAND FINANCIAL CORPORATION
Form 10-Q Quarterly Report
Table of Contents
PART I.
Page Number
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . 25
PART II.
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 28
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . 28
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 28
Item 4. Submission of Matters to a Vote of Security Holders . . . 28
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 28
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 28
Form 10-Q Signature Page. . . . . . . . . . . . . . . . . . . . . . 30
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 1 - FINANCIAL STATEMENTS
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2003 and December 31, 2002
(in thousands)
(Page 1 of 2)
September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 52,373 $ 74,149
Short-term investments 7,233 13,000
------------ ------------
Total cash and cash equivalents 59,606 87,149
Securities available-for-sale:
U. S. Treasury and government agency securities 13,962 17,284
Mortgage-backed securities 209,683 222,036
State and municipal securities 52,520 34,785
------------ ------------
Total securities available-for-sale
(carried at fair value) 276,165 274,105
Real estate mortgages held-for-sale 9,742 10,395
Loans:
Total loans 847,714 822,676
Less: Allowance for loan losses 10,064 9,533
------------ ------------
Net loans 837,650 813,143
Land, premises and equipment, net 26,444 24,768
Accrued income receivable 4,945 4,999
Goodwill 4,970 4,970
Other intangible assets 930 1,042
Other assets 27,710 27,215
------------ ------------
Total assets $ 1,248,162 $ 1,247,786
============ ============
(Continued)
1
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2003 and December 31, 2002
(in thousands except for share and per share data)
(Page 2 of 2)
September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing deposits $ 193,258 $ 192,787
Interest bearing deposits 808,779 720,538
------------ ------------
Total deposits 1,002,037 913,325
Short-term borrowings:
Federal funds purchased 7,000 30,000
Securities sold under agreements
to repurchase 78,765 124,968
U.S. Treasury demand notes 3,289 4,000
Other borrowings 10,000 26,000
------------ ------------
Total short-term borrowings 99,054 184,968
Accrued expenses payable 7,575 12,503
Other liabilities 1,285 2,417
Long-term borrowings 30,047 31,348
Guaranteed preferred beneficial interests in
Company's subordinated debentures 19,365 19,345
------------ ------------
Total liabilities 1,159,363 1,163,906
STOCKHOLDERS' EQUITY
Common stock: No par value, 90,000,000 shares authorized,
5,822,429 shares issued and 5,776,202 outstanding as of
September 30, 2003, and 5,813,984 shares issued and 5,767,010
outstanding at December 31, 2002 1,453 1,453
Additional paid-in capital 9,924 8,537
Retained earnings 78,358 70,819
Accumulated other comprehensive income (26) 3,937
Treasury stock, at cost (910) (866)
------------ ------------
Total stockholders' equity 88,799 83,880
------------ ------------
Total liabilities and stockholders' equity $ 1,248,162 $ 1,247,786
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
2
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months and Nine Months Ended September 30, 2003 and 2002
(in thousands except for share and per share data)
(Unaudited)
(Page 1 of 2)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
- ----------------------------
Interest and fees on loans: Taxable $ 11,543 $ 12,309 $ 35,453 $ 36,960
Tax exempt 74 58 203 125
------------ ------------ ------------ ------------
Total loan income 11,617 12,367 35,656 37,085
Short-term investments 48 73 133 165
Securities:
U.S. Treasury and government agency securities 145 340 460 1,077
Mortgage-backed securities 2,473 3,028 8,099 8,825
State and municipal securities 550 402 1,475 1,202
Other debt securities 0 6 0 208
------------ ------------ ------------ ------------
Total interest and dividend income 14,833 16,216 45,823 48,562
INTEREST EXPENSE
- ----------------
Interest on deposits 3,421 4,277 10,909 12,855
Interest on short-term borrowings 244 536 897 2,091
Interest on long-term debt 756 778 2,296 2,105
------------ ------------ ------------ ------------
Total interest expense 4,421 5,591 14,102 17,051
------------ ------------ ------------ ------------
NET INTEREST INCOME 10,412 10,625 31,721 31,511
- -------------------
Provision for loan losses 380 1,041 1,764 2,290
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,032 9,584 29,957 29,221
- ------------------------- ------------ ------------ ------------ ------------
NONINTEREST INCOME
- ------------------
Trust and brokerage fees 627 590 1,802 1,889
Service charges on deposit accounts 1,736 1,785 5,136 4,922
Other income (net) 1,729 728 4,179 2,470
Net gains on the sale of real estate mortgages
held-for-sale 383 493 2,655 1,204
Net securities gains/(losses) (8) 39 (8) 55
------------ ------------ ------------ ------------
Total noninterest income 4,467 3,635 13,764 10,540
NONINTEREST EXPENSE
- -------------------
Salaries and employee benefits 5,076 4,803 14,789 13,937
Occupancy and equipment expense 1,192 1,171 3,772 3,352
Other expense 2,821 2,619 8,753 8,672
------------ ------------ ------------ ------------
Total noninterest expense 9,089 8,593 27,314 25,961
(Continued)
3
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months and Nine Months Ended September 30, 2003 and 2002
(in thousands except for share and per share data)
(Unaudited)
(Page 2 of 2)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 5,410 4,626 16,407 13,800
- --------------------------------
Income tax expense 1,819 1,605 5,552 4,766
------------ ------------ ------------ ------------
NET INCOME $ 3,591 $ 3,021 $ 10,855 $ 9,034
- ---------- ============ ============ ============ ============
Other comprehensive income, net of tax:
Unrealized gain/(loss) on available-
for-sale securities (1,399) 386 (3,963) 2,823
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME $ 2,192 $ 3,407 $ 6,892 $ 11,857
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING FOR BASIC EPS 5,819,671 5,813,984 5,816,830 5,813,984
BASIC EARNINGS PER COMMON SHARE $ 0.62 $ 0.52 $ 1.87 $ 1.55
- ------------------------------- ============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING FOR DILUTED EPS 6,017,241 5,992,824 5,982,283 5,957,792
DILUTED EARNINGS PER COMMON SHARE $ 0.60 $ 0.50 $ 1.81 $ 1.52
- --------------------------------- ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
4
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(in thousands)
(Unaudited)
(Page 1 of 2)
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 10,855 $ 9,034
------------ ------------
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 1,675 1,755
Provision for loan losses 1,764 2,290
Amortization of intangible assets 132 132
Amortization of mortgage servicing rights 541 296
Impairment of mortgage servicing rights (107) 461
Loans originated for sale (128,014) (56,724)
Net gain on sale of loans (2,655) (1,204)
Proceeds from sale of loans 130,401 64,894
Net loss on sale of premises and equipment 1 24
Net (gain) loss on sale of securities available-for-sale 8 (55)
Net securities amortization 1,065 1,271
(Decrease) in taxes payable (353) (623)
Decrease in income receivable 55 378
Increase (decrease) in accrued expenses payable (151) 925
(Increase) in life insurance cash surrender value (518) 0
(Increase) decrease in other assets (364) 2,225
Increase (decrease) in other liabilities (79) 531
------------ ------------
Total adjustments 3,401 16,576
------------ ------------
Net cash from operating activities 14,256 25,610
------------ ------------
Cash flows from investing activities:
Proceeds from maturities, sales and calls of securities available-for-sale 110,508 59,321
Purchases of securities available-for-sale (119,743) (62,519)
Net increase in total loans (27,801) (55,483)
Proceeds from sales of land, premises and equipment 0 11
Purchase of land, premises and equipment (3,351) (1,942)
------------ ------------
Net cash from investing activities (40,387) (60,612)
------------ ------------
(Continued)
5
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(in thousands)
(Unaudited)
(Page 2 of 2)
2003 2002
------------ ------------
Cash flows from financing activities:
Net increase in total deposits $ 88,712 $ 84,434
Proceeds from short-term borrowings 18,778,359 21,709,394
Payments on short-term borrowings (18,864,273) (21,794,574)
Proceeds from long-term borrowings 0 20,000
Payments on long-term borrowings (1,301) (34)
Dividends paid (3,199) (2,945)
Proceeds from the sale of common stock 333 0
(Purchase) of treasury stock (43) (153)
------------ ------------
Net cash from financing activities (1,412) 16,122
------------ ------------
Net decrease in cash and cash equivalents (27,543) (18,880)
Cash and cash equivalents at beginning of the period 87,149 79,123
------------ ------------
Cash and cash equivalents at end of the period $ 59,606 $ 60,243
============ ============
Cash paid during the period for:
Interest $ 14,668 $ 17,275
============ ============
Income taxes $ 5,881 $ 5,569
============ ============
Loans transferred to other real estate $ 1,530 $ 0
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
6
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
This report is filed for Lakeland Financial Corporation (the "Company")
and its wholly owned subsidiaries, Lake City Bank (the "Bank"), Lakeland
Capital Trust and Lakeland Statutory Trust II. All significant inter-company
balances and transactions have been eliminated in consolidation. Also included
is the Bank's wholly-owned subsidiary, LCB Investments Limited ("LCB
Investments").
The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with instructions for Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (all of which are normal and recurring in nature) considered
necessary for a fair presentation have been included. Operating results for
the three-month and nine-month periods ending September 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. The 2002 Lakeland Financial Corporation Annual Report on
Form 10-K should be read in conjunction with these statements.
NOTE 2. EARNINGS PER SHARE
Basic earnings per common share is based upon weighted-average common
shares outstanding. Diluted earnings per common share shows the dilutive
effect of additional common shares issueable.
Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. No
additional options were granted in the first nine months of 2003. Had
compensation cost for stock options been recorded in the financial statements,
net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more
options are granted.
7
Nine Months ended
September 30,
2003 2002
--------- ----------
Net income (in thousands) as reported $ 10,855 $ 9,034
Deduct: stock-based compensation expense
determined under fair value based method 403 500
--------- ----------
Pro forma net income $ 10,452 $ 8,534
========= ==========
Basic earnings per common share as reported $ 1.87 $ 1.55
Pro forma basic earnings per share $ 1.80 $ 1.46
Diluted earnings per common share as reported $ 1.81 $ 1.52
Pro forma diluted earnings per share $ 1.75 $ 1.43
Three Months ended
September 30,
2003 2002
--------- ----------
Net income (in thousands) as reported $ 3,591 $ 3,021
Deduct: stock-based compensation expense
determined under fair value based method 134 149
--------- ----------
Pro forma net income $ 3,457 $ 2,872
========= ==========
Basic earnings per common share as reported $ 0.62 $ 0.52
Pro forma basic earnings per share $ 0.59 $ 0.49
Diluted earnings per common share as reported $ 0.60 $ 0.50
Pro forma diluted earnings per share $ 0.57 $ 0.48
The common shares outstanding for the stockholders' equity section of the
consolidated balance sheet at September 30, 2003 reflects the acquisition of
46,227 shares of Company common stock to offset a liability for a directors'
deferred compensation plan. These shares are treated as outstanding when
computing the weighted-average common shares outstanding for the calculation
of both basic and diluted earnings per share.
8
NOTE 3. LOANS
September 30, December 31,
2003 2002
------------ ------------
(in thousands)
Commercial and industrial loans $ 580,501 $ 556,800
Agri-business and agricultural loans 74,217 68,137
Real estate mortgage loans 39,326 44,644
Real estate construction loans 2,820 2,540
Installment loans and credit cards 150,850 150,555
------------ ------------
Total loans $ 847,714 $ 822,676
============ ============
Impaired loans $ 3,828 $ 7,298
Non-performing loans $ 4,517 $ 7,603
NOTE 4. SUBSEQUENT EVENTS
On October 1, 2003 the Company completed the issuance of $30.0 million
(net proceeds of $29.5 million after underwriting fees of $525,000) of
floating rate trust preferred securities through Lakeland Statutory Trust II,
a subsidiary of the Company. The securities bear a variable interest rate of
three-month LIBOR plus 3.05%, have a term of 30 years and were privately
issued as part of a pooled trust preferred offering. Proceeds from the
issuance were used to redeem the Company's existing $20.0 million, 9.00% fixed
rate trust preferred securities that were issued through Lakeland Capital
Trust and for general corporate purposes. The redemption of the Company's
existing trust preferred securities resulted in a loss on extinguishment of
$804,000.
NOTE 5. RECLASSIFICATIONS
Certain amounts appearing in the financial statements and notes thereto
for prior periods have been reclassified to conform with the current
presentation. The reclassification had no effect on net income or
stockholders' equity as previously reported.
9
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
September 30, 2003
OVERVIEW
Lakeland Financial Corporation is the holding company for Lake City Bank.
The Company is headquartered in Warsaw, Indiana and operates 42 offices in 12
counties in northern Indiana. The Company earned $10.9 million for the first
nine months of 2003 versus $9.0 million in the same period of 2002, an
increase of 20.2%. The increase was driven by a $3.2 million increase in
non-interest income, a $526,000 decrease in the provision for loan losses and
a $210,000 increase in net interest income. Offsetting these positive impacts
was a $1.4 million increase in non-interest expense. Basic earnings per share
for the first nine months of 2003 were $1.87 per share versus $1.55 per share
for the first nine months of 2002. Diluted earnings per share reflect the
potential dilutive impact of stock options granted under an employee stock
option plan. Diluted earnings per share for the first nine months of 2003 were
$1.81 per share, versus $1.52 per share for the first nine months of 2002.
Net income for the third quarter of 2003 was $3.6 million, an increase of
18.9% versus $3.0 million for the comparable period of 2002. Basic earnings
per share for the third quarter of 2003 were $0.62 per share, versus $0.52 per
share for the third quarter of 2002. Diluted earnings per share for the third
quarter of 2003 were $0.60 per share, versus $0.50 per share for the third
quarter of 2002.
RESULTS OF OPERATIONS
Net Interest Income
For the nine-month period ended September 30, 2003, net interest income
totaled $31.7 million, an increase of 0.7%, or $210,000 versus the first nine
months of 2002. For the three-month period ended September 30, 2003, net
interest income totaled $10.4 million, a decrease of 2.0%, or $213,000, over
the same period of 2002. Net interest income increased in the nine-month
period of 2003 versus the comparable period of 2002, primarily due to an $84.1
million increase in average interest bearing assets combined with a $22.8
million increase in average non-interest bearing demand deposits. The net
interest margin declined by 27 basis points to 3.84% in the nine-month period
ended September 30, 2003 versus the comparable period of 2002. Net interest
income decreased in the three-month period ended September 30, 2003 versus the
10
comparable period of 2002 primarily due to a 32 basis point decline in the
Company's net interest margin from 4.04% to 3.72%. For the three-month period
ended September 30, 2003, average earning assets increased by $78.2 million,
and average non-interest bearing demand deposits increased by $26.1 million,
versus the same period in 2002.
During the first nine months of 2003, total interest and dividend income
decreased by $2.7 million, or 5.6% to $45.8 million, versus $48.6 million
during the same nine months of 2002. During the third quarter of 2003,
interest and dividend income decreased $1.4 million, or 8.5%, to $14.8
million, versus $16.2 million during the same quarter of 2002. Daily average
earning assets for the first nine months of 2003 increased 8.0% to $1.131
billion versus the same period in 2002. For the third quarter, daily average
earning assets increased 7.4% to $1.142 billion versus the same period of
2002. The tax equivalent yield on average earning assets decreased by 77 basis
points to 5.5% for the nine-month period ended September 30, 2003 versus the
same period of 2002. For the three-month period ended September 30, 2003, the
yield decreased 87 basis points to 5.3% from the yield for the three-month
period ended September 30, 2002.
The average daily loan balances for the first nine months of 2003
increased 11.1% to $843.3 million, over the average daily loan balances of
$759.4 million for the same period of 2002. During the same period, loan
interest income declined by $1.4 million, or 3.9%, to $25.7 million. The
decrease was the result of an 87 basis point decrease in the tax equivalent
yield on loans to 5.6% from 6.5% in the first nine months of 2002. The average
daily loan balances for the third quarter of 2003 increased $81.9 million, or
10.6%, to $853.4 million, versus $771.5 million for the same period of 2002.
During the same period, loan interest income declined by $750,000, or 6.1%, to
$11.6 million versus $12.4 million during the third quarter of 2002. The
decrease was the result of a 95 basis point decrease in the tax equivalent
yield on loans, to 5.4%, versus 6.3% in the third quarter of 2002.
The average daily securities balances for the first nine months of 2003
decreased $3.2 million, or 1.2%, to $270.9 million, versus $274.1 million for
the same period of 2002. During the same periods, income from securities
declined by $1.3 million, or 11.3%, to $10.0 million versus $11.3 million
during the first nine months of 2002. The decrease was primarily the result of
a 48 basis point decline in the tax equivalent yields on securities, to 5.3%
versus 5.8% in the first nine months of 2002. The average daily securities
balances for the third quarter of 2003 decreased $6.9 million, or 2.5%, to
$267.8 million, versus $274.6 million for the same period of 2002. During the
same periods, income from securities declined by $608,000, or 16.1%, to $3.2
million versus $3.8 million during the third quarter of 2002. The decrease was
primarily the result of a 63 basis point decrease in the tax equivalent yield
on securities, to 5.1%, versus 5.7% in the third quarter of 2002.
11
Total interest expense decreased $2.9 million, or 17.3%, to $14.1 million
for the nine-month period ended September 30, 2003, from $17.1 million for the
comparable period in 2002. The decrease was primarily the result of a 53 basis
point decrease in the Company's daily cost of funds to 1.66%, versus 2.19% for
the same period of 2002. Total interest expense decreased $1.2 million, or
20.9%, to $4.4 million for the three-month period ended September 30, 2003,
from $5.6 million for the comparable period of 2002. The decrease was
primarily the result of a 58 basis point decrease in the Company's daily cost
of funds to 1.53%, versus 2.11% for the same period of 2002. On an average
daily basis, total deposits (including demand deposits) increased $115.8
million, or 13.7%, to $961.8 million for the nine-month period ended September
30, 2003, versus $846.0 million in the same period in 2002. The average daily
deposit balances for the third quarter of 2003 increased $114.2 million, or
13.2%, to $982.6 million versus $868.4 million during the third quarter of
2002. On an average daily basis, noninterest bearing demand deposits increased
$22.8 million, or 15.6% and $26.1 million, or 17.1% for the nine and
three-month periods ended September 30, 2003, versus the same periods in 2002.
When comparing the nine months ended September 30, 2003 with the same period
of 2002, the average daily balance of time deposits, which pay a higher rate
of interest compared to demand deposit and transaction accounts, increased
$32.5 million and the rate paid on such accounts declined by 66 basis points
versus the same period in 2002. In the third quarter of 2003, the average
daily balance of time deposits decreased by $1.5 million and the rate paid on
such accounts declined by 63 basis points versus the same period in 2002.
During the remainder of 2003, management plans to continue efforts to grow
relationship type accounts such as demand deposit and Investors' Weekly
accounts, which traditionally pay a lower rate of interest compared to time
deposit accounts and are generally viewed by management as stable and reliable
funding sources. Average daily balances of borrowings decreased $21.8 million,
or 11.3%, to $171.3 million for the nine months ended September 30, 2003
versus $193.2 million for the same period in 2002, and decreased $16.3
million, or 9.0% for the three months ended September 30 2003. The rate on
borrowings decreased 41 basis points and 46 basis points, respectively, when
comparing the nine and three month periods of 2003 with the same periods of
2002. On an average daily basis, total deposits (including demand deposits)
and purchased funds increased 9.0% and 9.3%, respectively for the nine-month
and three-month periods ended September 30, 2003 versus the same periods in
2002. The following tables set forth consolidated information regarding
average balances and rates.
12
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands of dollars)
Nine Months Ended September 30,
-----------------------------------------------------------------------------
2003 2002
------------------------------------ ----------------------------------
Average Interest Average Interest
Balance Income Yield (1) Balance Income Yield (1)
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Earning assets:
Loans:
Taxable (2)(3) $ 835,909 $ 35,453 5.67 % $ 755,933 $ 36,960 6.54 %
Tax exempt (1) 7,362 203 4.90 3,447 125 6.67
Investments: (1)
Available for sale 270,941 10,034 5.32 274,116 11,312 5.80
Short-term investments 10,456 81 1.03 9,030 111 1.65
Interest bearing deposits 6,247 52 1.12 4,266 54 1.69
---------- ---------- ---------- ----------
Total earning assets 1,130,915 45,823 5.51 % 1,046,792 48,562 6.28 %
Nonearning assets:
Cash and due from banks 45,558 0 41,418 0
Premises and equipment 25,615 0 24,425 0
Other nonearning assets 38,271 0 25,528 0
Less allowance for loan losses (9,848) 0 (8,467) 0
---------- ---------- ---------- ----------
Total assets $ 1,230,511 $ 45,823 $ 1,129,696 $ 48,562
========== ========== ========== ==========
(1) Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2003
and 2002. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1,
1983 included the TEFRA adjustment applicable to nondeductible interest expenses.
(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the nine months
ended September 30, 2003 and 2002, are included as taxable loan interest income.
(3) Nonaccrual loans are included in the average balance of taxable loans.
13
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
(in thousands of dollars)
Nine Months Ended September 30,
---------------------------------------------------------------------------
2003 2002
----------------------------------- ----------------------------------
Average Interest Average Interest
Balance Expense Yield Balance Expense Yield
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
Savings deposits $ 60,101 $ 193 0.43 % $ 53,380 $ 320 0.80 %
Interest bearing checking accounts 281,178 2,366 1.12 227,444 2,738 1.61
Time deposits:
In denominations under $100,000 205,472 4,764 3.10 200,693 5,655 3.77
In denominations over $100,000 246,010 3,586 1.95 218,254 4,142 2.54
Miscellaneous short-term borrowings 121,119 897 0.99 150,076 2,091 1.86
Long-term borrowings 50,230 2,296 6.11 43,081 2,105 6.53
---------- ---------- ---------- ----------
Total interest bearing liabilities 964,110 14,102 1.96 % 892,928 17,051 2.55 %
Noninterest bearing liabilities
and stockholders' equity:
Demand deposits 169,009 0 146,239 0
Other liabilities 10,643 0 12,643 0
Stockholders' equity 86,749 0 77,886 0
Total liabilities and stockholders' ---------- ---------- ---------- ----------
equity $ 1,230,511 $ 14,102 $ 1,129,696 $ 17,051
========== ========== ========== ==========
Net interest differential - yield on
average daily earning assets $ 31,721 3.84 % $ 31,511 4.11 %
========== ==========
14
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands of dollars)
Three Months Ended September 30,
----------------------------------------------------------------------------
2003 2002
------------------------------------ ----------------------------------
Average Interest Average Interest
Balance Income Yield (1) Balance Income Yield (1)
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Earning assets:
Loans:
Taxable (2)(3) $ 845,388 $ 11,543 5.42 % $ 766,406 $ 12,309 6.37 %
Tax exempt (1) 8,037 74 4.78 5,110 58 5.92
Investments: (1)
Available for sale 267,757 3,168 5.11 274,626 3,776 5.74
Short-term investments 14,067 31 0.87 12,793 20 1.64
Interest bearing deposits 6,724 17 1.00 4,863 53 1.63
---------- ---------- ---------- ----------
Total earning assets 1,141,973 14,833 5.25 % 1,063,798 16,216 6.12 %
Nonearning assets:
Cash and due from banks 46,684 0 41,084 0
Premises and equipment 26,442 0 24,466 0
Other nonearning assets 38,917 0 25,155 0
Less allowance for loan losses (9,984) 0 (8,926) 0
---------- ---------- ---------- ----------
Total assets $ 1,244,032 $ 14,833 $ 1,145,577 $ 16,216
========== ========== ========== ==========
(1) Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2003
and 2002. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1,
1983 included the TEFRA adjustment applicable to nondeductible interest expenses.
(2) Loan fees, which are immaterial in relation to total taxable loan interest income for the three months
ended September 30, 2003 and 2002, are included as taxable loan interest income.
(3) Nonaccrual loans are included in the average balance of taxable loans.
15
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
(in thousands of dollars)
Three Months Ended September 30,
----------------------------------------------------------------------------
2003 2002
----------------------------------- -----------------------------------
Average Interest Average Interest
Balance Expense Yield Balance Expense Yield
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
Savings deposits $ 62,757 $ 54 0.34 % $ 54,974 $ 104 0.75 %
Interest bearing checking accounts 306,497 770 1.00 224,712 873 1.54
Time deposits:
In denominations under $100,000 202,165 1,496 2.94 205,119 1,857 3.59
In denominations over $100,000 232,677 1,101 1.88 231,197 1,443 2.47
Miscellaneous short-term borrowings 116,243 244 0.83 131,305 536 1.62
Long-term borrowings 49,408 756 6.07 50,695 778 6.09
---------- ---------- ---------- ----------
Total interest bearing liabilities 969,747 4,421 1.81 % 898,002 5,591 2.47 %
Noninterest bearing liabilities
and stockholders' equity:
Demand deposits 178,521 0 152,448 0
Other liabilities 8,504 0 14,405 0
Stockholders' equity 87,260 0 80,722 0
Total liabilities and stockholders' ---------- ---------- ---------- ----------
equity $ 1,244,032 $ 4,421 $ 1,145,577 $ 5,591
========== ========== ========== ==========
Net interest differential - yield on
average daily earning assets $ 10,412 3.72 % $ 10,625 4.04 %
========== ==========
16
Provision for Loan Losses
Based on management's review of the adequacy of the allowance for loan
losses, provisions for losses on loans of $1.8 million and $380,000 were
recorded during the nine-month and three-month periods ended September 30,
2003, versus provisions of $2.3 million and $1.0 million recorded during the
same periods of 2002. The decrease in the provision for loan losses for the
nine and three-month periods reflected a number of factors, including the
amount and status of impaired loans, the amount and status of past due
accruing loans (90 days or more), and management's overall view on current
credit quality, as discussed in more detail below in the analysis relating to
the Company's financial condition.
Noninterest Income
Noninterest income categories for the nine and three-month periods ended
September 30, 2003 and 2002 are shown in the following table:
Nine Months ended
September 30,
----------------------------------
Percent
2003 2002 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 1,802 $ 1,889 (4.6)%
Service charges on deposits 5,136 4,922 4.4
Other income (net) 4,179 2,470 69.2
Net gains on the sale of real estate
mortgages held-for-sale 2,655 1,204 120.5
Net securities gains/(losses) (8) 55 (114.6)
---------- ---------- ----------
Total noninterest income $ 13,764 $ 10,540 30.6 %
========== ========== ==========
17
Three Months ended
September 30,
----------------------------------
Percent
2003 2002 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 627 $ 590 6.3 %
Service charges on deposits 1,736 1,785 (2.8)
Other income (net) 1,729 728 137.5
Net gains on the sale of real estate
mortgages held-for-sale 383 493 (22.3)
Net securities gains/(losses) (8) 39 (120.5)
---------- ---------- ----------
Total noninterest income $ 4,467 $ 3,635 22.9 %
========== ========== ==========
Trust fees decreased $105,000 and increased $68,000, respectively, in the
nine-month and three-month periods ended September 30, 2003 versus the same
periods in 2002. The decrease in the nine-month period was primarily in
employee benefit plan, stock transfer, and living trust fees. The Company
exited the stock transfer business in late 2002. Many of the trust fees are
determined based upon the dollar amount of the assets held in the various
trusts. The overall decline in the stock market has adversely impacted the
value of those trust assets, and therefore reduced the trust income based upon
it. Brokerage fees increased $18,000 and decreased $31,000, respectively, in
the nine-month and three-month periods ended September 30, 2003 versus the
same periods in 2002.
The primary sources of the increase in service charges on deposit
accounts were fees related to business checking accounts as well as fees
related to new deposit services that were implemented in 2002.
Other income consists of normal recurring fee income such as mortgage
service fees, credit card fees, insurance income and fees, valuation of
mortgage servicing rights and safe deposit box rent, as well as other income
that management classifies as non-recurring. Other fee income increased $1.7
million and $1.0 million, respectively, in the nine-month and three-month
periods ended September 30, 2003 versus the same periods of 2002. The primary
drivers behind the increase in the nine-month period were a $568,000 reduction
in the charge for non-cash impairment of the Bank's mortgage servicing rights,
a $518,000 increase in the cash surrender value of bank owned life insurance,
a $243,000 increase in operating lease income and a $191,000 increase in
mortgage fees. Offsetting these was a $244,000 increase in the amortization of
the Bank's mortgage servicing rights. The primary reasons for the third
quarter increase were a $534,000 reduction in the charge for non-cash
18
impairment of the Bank's mortgage servicing rights, a $178,000 increase in the
cash surrender value of bank owned life insurance and a $164,000 increase in
operating lease income.
The increase in profits from the sale of mortgages reflected an increase
in the volume of mortgages sold during the nine-month and three-month periods
ended September 30, 2003 versus the same periods in 2002. During the first
nine months of 2003, the Company sold $128.7 million in mortgages versus $64.1
million in the comparable period of 2002. During the third quarter of 2003,
the Company sold $44.5 million in mortgages versus $20.8 million in the third
quarter of 2002. Despite the increase in mortgages sold in the third quarter
of 2003, profits from the sale of those mortgages were adversely impacted by
increases in mortgage interest rates. These increases in volume in the three
and nine-month periods ended September 30, 2003 were the result of the low
interest rate environment, which has resulted in increased mortgage refinance
activity and increased demand for home mortgages. Management does not
anticipate that this level of mortgage sales gains will continue during the
remainder of the year.
Noninterest Expense
Noninterest expense categories for the nine and three-month periods ended
September 30, 2003, and 2002 are shown in the following table:
Nine Months ended
September 30,
----------------------------------
Percent
2003 2002 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 14,789 $ 13,937 6.1 %
Occupancy and equipment expense 3,772 3,352 12.5
Other expense 8,753 8,672 0.9
---------- ---------- ----------
Total noninterest expense $ 27,314 $ 25,961 5.2 %
========== ========== ==========
19
Three Months ended
September 30,
----------------------------------
Percent
2003 2002 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 5,076 $ 4,803 5.7 %
Occupancy and equipment expense 1,192 1,171 1.8
Other expense 2,821 2,619 7.7
---------- ---------- ----------
Total noninterest expense $ 9,089 $ 8,593 5.8 %
========== ========== ==========
The increase in salaries and employee benefits reflected normal salary
increases, increases related to the employee 401(k) plan and incentive
compensation plan and higher health care costs. Total employees remained
stable with 455 at September 30, 2003, compared to 460 at September 30, 2002.
The increase in occupancy and equipment expense reflected higher property
taxes, as well as higher maintenance and repair expense due to an increased
commitment to the physical enhancement of offices and higher snow removal
costs required during the first quarter of 2003, versus the comparable period
of 2002.
Other expense includes corporate and business development, data
processing fees, telecommunications, postage, and professional fees such as
legal, accounting, and directors' fees. Other expense increased in the
three-month period ended September 30, 2003, primarily as a result of higher
professional fees driven by higher legal fees in the third quarter of 2003
versus the comparable period in 2002, as well as by a change in the Company's
directors' deferred compensation plan in 2003 which has reduced the quarterly
variability in plan expenses in 2003 versus 2002.
Income Tax Expense
Income tax expense increased $786,000, or 16.5%, for the first nine
months of 2003, compared to the same period in 2002. Income tax expense for
the third quarter of 2003 increased $214,000, or 13.3%, compared to the same
period of 2002. The combined state franchise tax expense and the federal
income tax expense as a percentage of income before income tax expense
decreased to 33.8% during the first nine months of 2003 compared to 34.5%
during the same period in 2002. It decreased to 33.6% for the third quarter of
2003, versus 34.7% for the third quarter of 2002.
20
FINANCIAL CONDITION
Certain of the Company's accounting policies are important to the
portrayal of the Company's financial condition, since they require management
to make difficult, complex or subjective judgments, some of which may relate
to matters that are inherently uncertain. Estimates associated with these
policies are susceptible to material changes as a result of changes in facts
and circumstances. Some of the facts and circumstances which could affect
these judgments include changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that
its critical accounting policies include determining the allowance for loan
losses, determining the fair value of securities and other financial
instruments and the valuation of mortgage servicing rights.
Total assets of the Company were $1.248 billion at both September 30,
2003, and December 31, 2002.
Total cash and cash equivalents decreased by $27.5 million, or 31.6%, to
$59.6 million at September 30, 2003 from $87.1 million at December 31, 2002.
The decrease was attributable to decreases in the Company's short-term
borrowings.
Total securities available-for-sale increased by $2.1 million, or 0.8%,
to $276.2 million at September 30, 2003 from $274.1 million at December 31,
2002. The increase was a result of securities purchases totaling $119.7
million. This increase was offset by a number of transactions in the
securities portfolio. Paydowns of $93.5 million were received, and the
amortization of premiums, net of the accretion of discounts, was $1.0 million.
Maturities, calls and sales of securities totaled $17.0 million, and the fair
market value of the securities declined by $6.1 million. The market value
decline was driven by paydowns received in the mortgage-backed portion on the
securities portfolio. The investment portfolio is managed to limit the
Company's exposure to risk by containing mostly CMO's and other securities
which are either directly or indirectly backed by the federal government or a
local municipal government.
Real estate mortgages held-for-sale decreased by $653,000, or 6.3%, to
$9.7 million at September 30, 2003 from $10.4 million at December 31, 2002.
The balance of this asset category is subject to a high degree of variability
depending on, among other things, recent mortgage loan rates and the timing of
loan sales into the secondary market. During the nine months ended September
30, 2003, $128.0 million in real estate mortgages were originated for sale and
$128.7 million in mortgages were sold.
Total loans, excluding real estate mortgages held-for-sale, increased by
$25.0 million or 3.0% to $847.7 million at September 30, 2003 from $822.7
million at December 31, 2002. The mix of loan types within the Company's
21
portfolio remained relatively unchanged, reflecting 77% commercial, 5% real
estate and 18% consumer loans at September 30, 2003 compared to 76%
commercial, 6% real estate and 18% consumer loans at December 31, 2002.
The Company has a relatively high percentage of commercial and commercial
real estate loans, most of which are extended to small or medium-sized
businesses. Commercial loans represent higher dollar loans to fewer customers
and therefore higher credit risk. Pricing is adjusted to manage the higher
credit risk associated with these types of loans. The majority of fixed rate
mortgage loans, which represent increased interest rate risk, are sold in the
secondary market, as well as some variable rate mortgage loans. The remainder
of the variable rate mortgage loans and a small number of fixed rate mortgage
loans are retained. Management believes the allowance for loan losses is at a
level commensurate with the overall risk exposure of the loan portfolio.
However, as a result of the continuing difficult economic climate, certain
borrowers may experience difficulty and the level of non-performing loans,
charge-offs, and delinquencies could rise and require further increases in the
provision for loan losses.
Loans are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance. The allowance is an amount
that management believes will be adequate to absorb probable losses relating
to specifically identified loans based on an evaluation as well as other
probable incurred losses inherent in the loan portfolio. The evaluations take
into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans,
and current economic conditions that may affect the borrower's ability to
repay. Management also considers trends in adversely classified loans based
upon a monthly review of those credits. An appropriate level of general
allowance is determined based on the application of loss percentages to graded
loans by categories. Federal regulations require insured institutions to
classify their own assets on a regular basis. The regulations provide for
three categories of classified loans - substandard, doubtful and loss. The
regulations also contain a special mention category. Special mention is
defined as loans that do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof
is classified as loss, the insured institution must either establish specified
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount. At September 30, 2003, on the
basis of management's review of the loan portfolio, the Company had $39.5
million of assets classified special mention, $28.0 million classified as
substandard, $333,000 classified as doubtful and $0 classified as loss as
compared to $47.6 million, $27.0 million, $211,000 and $200,000 at December
31, 2002.
22
Allowance estimates are developed by management in consultation with
regulatory authorities, taking into account both actual loss experience and
peer group loss experience, and are adjusted for current economic conditions.
Allowance estimates are considered a prudent measurement of the risk in the
Company's loan portfolio and are applied to individual loans based on loan
type. In accordance with FASB Statements 5 and 114, the allowance is provided
for losses that have been incurred as of the balance sheet date and is based
on past events and current economic conditions, and does not include the
effects of expected losses on specific loans or groups of loans that are
related to future events or expected changes in economic conditions. The
following table summarizes the loan loss reserve and nonperforming assets at
September 30, 2003 and December 31, 2002.
September 30, December 31,
2003 2002
------------- --------------
(in thousands)
ALLOWANCE FOR LOAN LOSSES:
Beginning balance, January 1 $ 9,533 $ 7,946
Provision for loan losses, year-to-date 1,764 3,056
Loans charged-off, year-to-date (1,396) (1,875)
Recoveries, year-to-date 163 406
-------------- --------------
Ending balance $ 10,064 $ 9,533
============== ==============
NONPERFORMING ASSETS:
Nonaccrual loans $ 1,291 $ 4,216
Loans past due over 90 days and accruing 3,226 3,387
Other real estate 1,530 44
Repossessions 120 94
-------------- --------------
Total nonperforming assets $ 6,167 $ 7,741
============== ==============
Total impaired loans decreased by $3.5 million to $3.8 million at
September 30, 2003 from $7.3 million at December 31, 2002. The decrease in the
impaired loans category resulted primarily from payments received on three
commercial credits totaling $2.8 million. The decrease in nonperforming loans
also resulted from the payments on the aforementioned loans. The impaired loan
total includes $1.3 million in nonaccrual loans. A loan is impaired when full
payment under the original loan terms is not expected. Impairment is evaluated
in total for smaller-balance loans of similar nature such as residential
23
mortgage, consumer, and credit card loans, and on an individual loan basis for
other loans. If a loan is impaired, a portion of the allowance may be
allocated so that the loan is reported, net, at the present value of estimated
future cash flows using the loan's existing rate or at the fair value of
collateral if repayment is expected solely from the collateral.
Total deposits increased by $88.7 million, or 9.7%, to $1.002 billion at
September 30, 2003 from $913.3 million at December 31, 2002. The increase
resulted from increases of $46.7 million in Investors' Weekly accounts, $42.0
million in NOW accounts, $8.0 million in savings accounts and $471,000 in
demand deposits. Offsetting these increases were declines of $8.2 million in
certificates of deposit and $340,000 in money market accounts.
Total short-term borrowings decreased by $85.9 million, or 46.5%, to
$99.0 million at September 30, 2003 from $184.9 million at December 31, 2002.
The decrease resulted from declines of $46.2 million in securities sold under
agreements to repurchase, $23.0 million in federal funds purchased and $16.0
million in other borrowings, primarily short-term advances from the Federal
Home Loan Bank of Indianapolis.
Total stockholders' equity increased by $4.9 million, or 5.9%, to $88.8
million at September 30, 2003 from $83.9 million at December 31, 2002. Net
income of $10.9 million, less dividends of $3.3 million, less the decrease in
the accumulated other comprehensive income of $4.0 million, plus $333,000 for
stock issued through options exercised, minus $43,000 for the cost of treasury
stock purchased comprised most of this increase. In addition, effective
January 1, 2003, the Company's directors' deferred compensation plan was
amended to no longer permit diversification outside of Company stock and to
require that settlement of deferred balances be made in shares of Company
stock. In accordance with EITF 97-14: "Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested," on
the date of the plan change the $1.1 million current value of the liability
for the Company shares was transferred to additional paid-in capital from
other liabilities.
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banking organizations maintain an 8.0% total risk
based capital ratio. The FDIC has also established definitions of "well
capitalized" as a 5.0% Tier I leverage capital ratio, a 6.0% Tier I risk based
capital ratio and a 10.0% total risk based capital ratio. All of the Company's
ratios continue to be above "well capitalized" levels. As of September 30,
2003, the Company's Tier 1 leverage capital ratio, Tier 1 risk based capital
ratio and total risk based capital ratio were 8.3%, 10.8% and 11.9%,
respectively.
24
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk represents the Company's primary market risk exposure.
The Company does not have a material exposure to foreign currency exchange
risk, does not have any material amount of derivative financial instruments
and does not maintain a trading portfolio. The board of directors annually
reviews and approves the policy used to manage interest rate risk. The policy
was last reviewed and approved in May 2003. The policy sets guidelines for
balance sheet structure, which are designed to protect the Company from the
impact that interest rate changes could have on net income, but does not
necessarily indicate the effect on future net interest income. The Company,
through its Asset/Liability Committee, manages interest rate risk by
monitoring the computer simulated earnings impact of various rate scenarios
and general market conditions. The Company then modifies its long-term risk
parameters by attempting to generate the type of loans, investments, and
deposits that currently fit the Company's needs, as determined by the
Asset/Liability Committee. This computer simulation analysis measures the net
interest income impact of various interest rate scenario changes during the
next 12 months. If the change in net interest income is less than 3% of
primary capital, the balance sheet structure is considered to be within
acceptable risk levels. At September 30, 2003, the Company's potential pretax
exposure was within the Company's policy limit, and not significantly
different from December 31, 2002.
ITEM 4 - CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as
amended) as of September 30, 2003. Based on that evaluation, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Company's disclosure controls and procedures were
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls.
FORWARD-LOOKING STATEMENTS
This document contains, and future oral and written statements of the
Company and its management may contain, forward-looking statements, within the
meaning of such term in the Private Securities Litigation Reform Act of 1995,
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of the Company. Forward-looking
statements, which may be based upon beliefs, expectations and assumptions of
the Company's management and on information currently available to management,
25
are generally identifiable by the use of words such as "believe," "expect,"
"anticipate," "plan," "intend," "estimate," "may," "will," "would," "could,"
"should" or other similar expressions. Additionally, all statements in this
document, including forward-looking statements, speak only as of the date they
are made, and the Company undertakes no obligation to update any statement in
light of new information or future events.
The Company's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors, which could have a
material adverse effect on the operations and future prospects of the Company
and its subsidiaries include, but are not limited to, the following:
o The strength of the United States economy in general and the strength of
the local economies in which the Company conducts its operations which
may be less favorable than expected and may result in, among other
things, a deterioration in the credit quality and value of the Company's
assets.
o The economic impact of past and any future terrorist attacks, acts of war
or threats thereof and the response of the United States to any such
threats and attacks.
o The effects of, and changes in, federal, state and local laws,
regulations and policies affecting banking, securities, insurance and
monetary and financial matters.
o The effects of changes in interest rates (including the effects of
changes in the rate of prepayments of the Company's assets) and the
policies of the Board of Governors of the Federal Reserve System.
o The ability of the Company to compete with other financial institutions
as effectively as the Company currently intends due to increases in
competitive pressures in the financial services sector.
o The inability of the Company to obtain new customers and to retain
existing customers.
o The timely development and acceptance of products and services, including
products and services offered through alternative delivery channels such
as the Internet.
o Technological changes implemented by the Company and by other parties,
26
including third party vendors, which may be more difficult or more
expensive than anticipated or which may have unforeseen consequences to
the Company and its customers.
o The ability of the Company to develop and maintain secure and reliable
electronic systems.
o The ability of the Company to retain key executives and employees and the
difficulty that the Company may experience in replacing key executives
and employees in an effective manner.
o Consumer spending and saving habits, which may change in a manner that
affects the Company's business adversely.
o Business combinations and the integration of acquired businesses, which
may be more difficult or expensive than expected.
o The costs, effects and outcomes of existing or future litigation.
o Changes in accounting policies and practices, as may be adopted by state
and federal regulatory agencies, the Financial Accounting Standards
Board, the Securities and Exchange Commission and the Public Company
Accounting Oversight Board.
o The ability of the Company to manage the risks associated with the
foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Additional information concerning the Company and its business,
including other factors that could materially affect the Company's financial
results, is included in the Company's filings with the Securities and Exchange
Commission.
27
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2003
Part II - Other Information
Item 1. Legal proceedings
-----------------
There are no material pending legal proceedings to which the Company
or its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
28
b. Reports
A report on Form 8-K was filed on October 15, 2003 under Item 12
which reported the Company's third quarter financial information
in the form of a press release.
A report on Form 8-K was filed on September 8, 2003 under Item 5
which reported the Company's issuance of new trust preferred
securities and call of existing securities in the form of a press
release.
A report on Form 8-K was filed on July 15, 2003 under Item 5 which
reported the Company's second quarter financial information in the
form of a press release.
29
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2003
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: November 3, 2003 /s/Michael L. Kubacki
Michael L. Kubacki - President and Chief
Executive Officer
Date: November 3, 2003 /s/David M. Findlay
David M. Findlay - Executive Vice President
and Chief Financial Officer
Date: November 3, 2003 /s/Teresa A. Bartman
Teresa A. Bartman - Vice President and
Controller
30