U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO
______.
Commission file number:
33-27312
New Jersey 22-2953275
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
250 Oak Ridge Road, Oak Ridge, New Jersey 07438
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(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (973)697-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by non-affiliates (for this purpose, persons and entities other than executive officers, directors, and 5% or more shareholders) of the registrant, as of February 1, 2001,is estimated to have been approximately $111,000,000. The number of shares outstanding of the registrant's Common Stock, as of February 1, 2001, was 13,121,504.
DOCUMENTS INCORPORATED BY REFERENCE:
Lakeland Bancorp, Inc's., Proxy Statement for its 2001 Annual Meeting of Shareholders (Part III).
LAKELAND BANCORP, INC.
Form 10-K Index
PART I
PAGE
Item 1. Business.......................................................... 2
Item 2. Properties........................................................ 11
Item 3. Legal Proceedings................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............... 11
Item 4A. Executive Officers of the Registrant.............................. 11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.................................... 14
Item 6. Selected Financial Data........................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 17
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.............................................. 32
Item 8. Financial Statements and Supplementary Data....................... 32
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 62
PART III
Item 10. Directors of the Registrant....................................... 62
Item 11. Executive Compensation............................................ 62
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 62
Item 13. Certain Relationships and Related Transactions.................... 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................... 62
Signatures................................................................. 65
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PART I
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ITEM 1 - Business
Lakeland Bancorp, Inc. (the "Company"), a New Jersey corporation, is a bank holding company registered with and supervised by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Company was organized in March of 1989 and commenced operations on May 19, 1989, upon consummation of the acquisition of all of the outstanding stock of Lakeland Bank, formerly named Lakeland State Bank ("LB" or the "Bank"). On February 20, 1998, the Company acquired Metropolitan State Bank, which became a subsidiary of the Company. On July 15, 1999, the Company completed its acquisition of The National Bank of Sussex County ("NBSC"). On January 28, 2000, the Company merged Metropolitan State Bank into LB, with LB as the survivor. The Company's primary business consists of managing and supervising LB and NBSC. The principal source of the Company's income is dividends paid by its subsidiary banks. At December 31, 2000, the Company had consolidated total assets, deposits, and stockholder's equity of approximately $906.6 million, $800.8 million, and $78.6 million, respectively.
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("Forward-Looking Statements"). Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such Forward-Looking Statements. Certain factors which could materially affect such results and the future performance of the Company are described in Exhibit 99.1 to this Annual Report on Form 10-K.
LB was organized as Lakeland State Bank on May 19, 1969. LB is a state banking association, the deposits of which are insured by the Federal Deposit Insurance Corporation ("FDIC"). LB is not a member of the Federal Reserve System. LB is a full-service commercial bank, offering a complete range of consumer, commercial, and trust services. LB's 19 branch offices are located in the following five New Jersey counties: Morris, Passaic, Sussex, Essex, and Bergen.
NBSC was organized as The Branchville National Bank in 1933, and became The National Bank of Sussex County in 1957. It is a federally chartered national banking association and a member of the Federal Reserve System, and its deposits are insured by the FDIC. NBSC is a full service commercial bank with ten branches, an operations center, and an administration center-all within Sussex County, New Jersey. Its customers primarily are individuals who reside in, and small to medium-sized businesses that are located in, northwestern New Jersey.
Commercial Bank Services
Through its bank subsidiaries, the Company offers a broad range of lending,
depository, and related financial services to individuals and small to medium
sized businesses in its northern New Jersey market area. In the lending area,
these services include short and medium term loans, lines of credit, letters of
credit, inventory and accounts receivable financing, real estate construction
loans and mortgage loans. Depository products include: demand deposits, savings
accounts, and time accounts. In addition, the Company offers collection, wire
transfer, and night depository services. In the second quarter of 2000, LB
acquired NIA National Leasing Company. Since its acquisition, this company has
operated as a division of LB under the name Lakeland Bank Equipment Leasing
Division. This acquisition provides a solution to small and medium sized
companies who wish to choose leasing over other financial alternatives.
Consumer Banking
The Company also offers a broad range of consumer banking services, including
checking accounts, savings accounts, NOW accounts, money market accounts,
certificates of deposit, secured and unsecured loans, consumer installment
loans, mortgage loans, and safe deposit services. LB and NBSC also provide
brokerage services to their customers through a third party. NBSC also provides
insurance services through a joint venture with a third party.
Trust Services
A variety of fiduciary services are available through a third party. These
include investment management, advisory services, and custodial functions for
individuals. The trust function also administers, in a fiduciary capacity,
pensions, personal trusts, and estates.
Competition
The Company operates in a highly competitive market environment within northern
New Jersey. Three major multi-bank holding companies in addition to several
large independent regional banks and several large multi-state thrift holding
companies operate within the Company's market area. These larger institutions
have substantially larger lending capacities and typically offer services which
the Company does not offer.
In recent years, the financial services industry has expanded rapidly as barriers to competition within the industry have become less significant. Within this industry, banks must compete not only with other banks and traditional financial institutions, but also with other business corporations that have begun to deliver financial services.
Concentration
The Company is not dependent for deposits or exposed by loan concentrations to a
single customer or a small group of customers the loss of any one or more of
which would have a material adverse effect upon the financial condition of the
Company.
Employees
At December 31, 2000, there were 376 persons employed by the Company.
The Holding Company Act limits the activities which may be engaged in by the Company and its subsidiaries to those of banking, the ownership and acquisition of assets and securities of banking organizations, and the management of banking organizations, and to certain non-banking activities which the Federal Reserve Board finds, by order or regulation, to be so closely related to banking or managing or controlling a bank as to be a proper incident thereto. The Federal Reserve Board is empowered to differentiate between activities by a bank holding company or a subsidiary thereof and activities commenced by acquisition of a going concern. With respect to the acquisition of banking organizations, the Company is required to obtain the prior approval of the Federal Reserve Board before it may, by merger, purchase or otherwise, directly or indirectly acquire all or substantially all of the assets of any bank or bank holding company, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank or bank holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits bank holding companies to acquire banks in states other than their home state, regardless of applicable state law. This act also authorizes banks to merge across state lines, thereby creating interstate branches. Under the act, each state had the opportunity either to "opt out" of this provision, thereby prohibiting interstate branching in such state, or to "opt in". Furthermore, a state may "opt in" with respect to de novo branching, thereby permitting a bank to open new branches in a state in which the bank does not already have a branch. Without de novo branching, an out-of-state bank can enter the state only by acquiring an existing bank. New Jersey enacted legislation to authorize interstate banking and branching and the entry into New Jersey of foreign country banks. New Jersey did not authorize de novo branching into the state. However, under federal law, federal savings banks which meet certain conditions may branch de novo into a state, regardless of state law.
With respect to non-banking activities, the Federal Reserve Board has by regulation determined that several non-banking activities are closely related to banking within the meaning of the Holding
Company Act and thus may be performed by bank holding companies. Although the Company's management periodically reviews other avenues of business opportunities that are included in that regulation, the Company has no present plans to engage in any of these activities other than providing brokerage services through a third party.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Board on any extension of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of such holding company or its subsidiaries, and on the acceptance of such stocks or securities as collateral for loans. Moreover, subsidiaries of bank holding companies are prohibited from engaging in certain tie-in arrangements (with the holding company or any of its other subsidiaries) in connection with any extension of credit or lease or sale of property or furnishing of services.
The policy of the Federal Reserve Board provides that a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy.
. allows bank holding companies meeting management, capital, and Community
Reinvestment Act standards to engage in a substantially broader range of
nonbanking activities than currently is permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies; if a bank holding company elects to become a financial
holding company, it files a certification, effective in 30 days, and
thereafter may engage in certain financial activities without further
approvals;
. allows insurers and other financial services companies to acquire banks;
. removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
. establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
The Federal Reserve Board also provided regulations on procedures which would be used against financial holding companies that have depository institutions which fall out of compliance with the management or capital criteria. Only financial holding companies can own insurance companies and engage in merchant banking.
The Office of the Comptroller of the Currency has adopted rules to allow national banks to form subsidiaries to engage in financial activities allowed for financial holding companies. Electing national banks must meet the same management and capital standards as financial holding companies, but may not engage in insurance underwriting, real estate development, or merchant banking. Sections 23A and 23B of the Federal Reserve Act apply to financial subsidiaries and the capital invested by a bank in its financial subsidiaries will be eliminated from the bank's capital in measuring all capital ratios.
The Modernization Act also modified other current financial laws, including laws related to financial privacy and community reinvestment.
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulations, a state bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the FDIC, in connection with its examination of a state non-member bank, to assess the bank's record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the bank. Under the FDIC's CRA evaluation system, the FDIC focuses on three tests: (i) a lending test, to evaluate the institution's record of making loans in its service areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution's delivery of services through its branches, ATMs and other offices.
Almost every aspect of NBSC's operations is regulated or supervised by either the Office of the Comptroller of the Currency, the Federal Reserve Board, or the FDIC. These agencies
regulate loans, investments, mergers and acquisitions, borrowings, dividends, location of branch offices, and reserves against deposits. NBSC must also comply with federal banking laws. Among other things, these laws restrict the amount that NBSC may lend a single borrower at one time.
The monetary policies of the Federal Reserve Board have had, and will likely continue to have, an important impact on the operating results of commercial banks through the Board's power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The Federal Reserve Board has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate of borrowings of banks and the reserve requirements against bank deposits. It is not possible to predict the nature and impact of future changes in monetary fiscal policies.
FIRREA and the Crime Control Act of 1990 expanded the enforcement powers available to federal banking regulators including providing greater flexibility to impose enforcement actions, expanding the persons dealing with a bank who are subject to enforcement actions, and increasing the potential civil and criminal penalties.
Under FIRREA, failure to meet capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. Furthermore, under FIRREA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. FIRREA also imposes certain independent appraisal requirements upon a bank's real estate lending activities and further imposes certain loan-to-value restrictions on a bank's real estate lending activities.
In addition, the Federal Reserve Board and the FDIC have approved leverage ratio guidelines (Tier I capital to average quarterly assets, less goodwill) for bank holding companies such as the Company. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies will be required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Company is subject to similar minimum leverage criteria. The Company's leverage ratio was 8.47% at December 31, 2000.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), federal banking agencies have established certain additional minimum levels of capital which accord with guidelines established under that act. See "FDICIA".
regulations and policies adopted by federal and state regulatory agencies. Under State law, a bank may not pay dividends unless, following the dividend payment, the capital stock of the bank would be unimpaired and either (a) the bank will have a surplus of not less than 50% of its capital stock, or, if not, (b) the payment of the dividend will not reduce the surplus of the bank.
If, in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require, after notice and hearing, that such bank cease and desist from such practice or, as a result of an unrelated practice, require the bank to limit dividends in the future. The Federal Reserve Board has similar authority with respect to bank holding companies. In addition, the Federal Reserve Board and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Regulatory pressures to reclassify and charge off loans and to establish additional loan loss reserves can have the effect of reducing current operating earnings and thus impacting an institution's ability to pay dividends. Further, as described herein, the regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in these policy statements and guidelines could limit the amount of dividends which the Company and its subsidiary banks may pay. Under FDICIA, banking institutions which are deemed to be "undercapitalized" will, in most instances, be prohibited from paying dividends. See "FDICIA". See also the "Regulatory Matters" Note of the Notes to Consolidated Financial Statements for further information regarding dividends.
Under regulations adopted under these provisions, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized it must have a total risk-based capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4% and a Tier I leverage ratio of at least 4%
(or in some cases 3%). Under the regulations, an institution will be deemed to be undercapitalized if it has a total risk-based capital ratio that is less than 8%, a Tier I risk-based capital ratio that is less than 4%, or a Tier I leverage ratio of less than 4% (or in some cases 3%). An institution will be deemed to be significantly undercapitalized if it has a total risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3% and will be deemed to be critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2%. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating or is deemed to be in an unsafe or unsound condition or to be engaging in unsafe or unsound practices. As of December 31, 2000, the Company, LB and NBSC met all regulatory requirements for classification as "well capitalized" under the regulatory framework for prompt corrective action.
In addition, FDICIA requires banking regulators to promulgate standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure.
In accordance with federal law providing for deregulation of interest on all deposits, banks and thrift organizations are now unrestricted by law or regulation from paying interest at any rate on most time deposits. It is not clear whether deregulation and other pending changes in certain aspects of the banking industry will result in further increases in the cost of funds in relation to prevailing lending rates.
ITEM 2 - Properties
The Company's principal office is located at 250 Oak Ridge Road, Oak Ridge, New
Jersey. NBSC operates an administrative center and an operations center, all in
Sussex County, New Jersey.
The Company operates 29 banking locations located in Passaic, Morris, Sussex, Bergen, and Essex Counties, New Jersey. LB's Wantage office is leased under a lease expiring October 31, 2006. LB's Rockaway office is under a lease expiring May 15, 2009. LB's Newton office is under a month-to-month lease which began on October 1, 2000. LB's Wharton Office is under a lease, expiring August 22, 2005. LB's Ringwood office is under a lease, expiring March 1, 2003. LB's Fairfield office is under a lease, expiring February 28, 2002. NBSC's Vernon office is under a lease, expiring September 2001. For information regarding all of the Company's rental obligations, see Notes to Consolidated Financial Statements.
All other offices of the Company are owned and are unencumbered.
ITEM 3 - Legal Proceedings
There are no significant pending legal proceedings involving the Company other
than those arising out of routine operations. Lakeland's management does not
anticipate that the ultimate outcome of the Company's litigation will have a
material adverse effect on the financial condition or results of operations of
the Company on a consolidated basis.
ITEM 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders of the Company
during the fourth quarter of 2000.
ITEM 4A - Executive Officers of the Registrant
The following table sets forth the name and age of each executive officer of the
Company. Each officer is appointed by the Company's Board of Directors. Unless
otherwise indicated, the persons named below have held the position indicated
for more than the past five years.
Name and Age Officer of Position with the Company, its Subsidiary
The Company Banks, and Business Experience
Since
Roger Bosma 1999 President and Chief Executive Officer
Age 58 of the Company (June, 1999 - Present);
Executive Vice President, Hudson United
Bancorp (May, 1997 - June, 1999); President
and Chief Executive Officer, Independence
Bank of New Jersey (prior years - May,
1997)
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Arthur L. Zande 1971 Vice President and Treasurer of the
Age 66 Company (June, 1999 - Present);
President and Chief Executive Officer,
LB (June, 1999 - Present); Executive
Vice President and Chief Executive
Officer of the Company and LB (prior
years - June, 1999)
Robert A. Vandenbergh 1999 Executive Vice President and Chief
Age 49 Lending Officer of the Company (October,
1999 - Present); President, NBSC
(November, 1998 - Present); Executive
Vice President, NBSC (1997 - November,
1998); Chief Lending Officer, NBSC
(prior years - 1997)
Joseph F. Hurley 1999 Executive Vice President and Chief
Age 50 Financial Officer of the Company
(November, 1999 - Present); Executive
Vice President and Chief Financial
Officer, Hudson United Bancorp (May,
1997 - November, 1999); Vice President
and Chief Accounting Officer, Prudential
Insurance Company (prior years - May,
1997)
Jeffrey J. Buonforte 1999 Executive Vice President and Chief
Age 49 Retail Officer of the Company (November,
1999 - Present); Director, Business
Development, Price Waterhouse Coopers
(September, 1998 - November, 1999); Vice
President and Senior Regional Manager,
Bank of New York (prior years -
September, 1998)
Louis E. Luddecke 1999 Executive Vice President and Chief
Age 54 Operations Officer of the Company
(October, 1999 - Present); Executive
Vice President and Chief Financial
Officer, Metropolitan State Bank (prior
years - October, 1999)
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Steven Schachtel 2000 President, Lakeland Band Equipment
Age 43 Leasing Division April 2000 - Present);
President, NIA National Leasing (prior
years - April 2000)
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PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of the common stock of Lakeland Bancorp, Inc. have been traded under the symbol LBAI on the NASDAQ National Market since February 22, 2000 and in the over the counter market prior to this date. As of December 31, 2000, there were 3,841 shareholders of record of common stock. The following table sets forth the range of the high and low daily closing prices of the common stock. Bloomberg provides the information prior to February 22, 2000. Nasdaq provides information fot periods after that date. Prices and dividends have been adjusted to reflect the 5% stock dividend paid on November 15, 2000.
Dividends
Year ended December 31, 2000 High Low Declared
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First Quarter $10.30 $8.57 $ 0.071
Second Quarter 11.43 9.76 0.071
Third Quarter 11.31 10.48 0.071
Fourth Quarter 11.38 8.63 0.076
Dividends
Year ended December 31, 1999 High Low Declared (1)
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First Quarter $19.05 $15.24 $ 0.054
Second Quarter 16.90 14.76 0.054
Third Quarter 15.71 11.12 0.071
Fourth Quarter 13.33 9.89 0.071
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(1) Adjusted to reflect the acquisition of High Point Financial Corp.
The prices listed above reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
Dividends on the Company's Common Stock are within the discretion of the Board of Directors of the Company and are dependent upon various factors, including the future earnings and financial condition of the Company, LB, NBSC and bank regulatory policies.
The Bank Holding Company Act of 1956 restricts the amount of dividends the Company can pay. Accordingly, dividends should generally only be paid out of current earnings, as defined.
The New Jersey Banking Act of 1948 restricts the amount of dividends paid on the capital stock of New Jersey chartered banks. Accordingly, no dividends shall be paid by such banks on their capital stock unless, following the payment of such dividends, the capital stock of the bank will be unimpaired and the bank will have a surplus of not less than 50% of its capital stock, or, if not, the payment of such dividend will not reduce the surplus of the bank. Under this limitation, approximately $8.0 million was available for payment of dividends from LB to the Company as of December 31, 2000.
NBSC may not declare dividends in excess of the current year's earnings, plus the retained earnings from the prior two years without prior approval from the Office of the Comptroller of the Currency. In addition, if NBSC sustains losses that exceed its aggregate retained earnings, NBSC may not pay dividends until the losses are recovered. Under these limitations approximately $3.3 million was available for the payment of dividends from NBSC to the Company as of December 31, 2000.
Capital guideline and other regulatory requirements may further limit the Company's and its bank subsidiaries' ability to pay dividends. See "Item 1 - Business - Supervision and Regulation - Dividend Restrictions."
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
2000 1999 1998 1997 1996
Year Ended December 31 (in thousands except per share data)
Interest income $58,213 $54,031 $51,871 $49,697 $45,160
Interest expense 21,720 20,241 19,876 19,250 17,545
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Net interest income 36,493 33,790 31,995 30,447 27,615
Provision for possible loan losses 2,000 1,781 698 1,026 908
Noninterest income 8,263 6,292 5,998 6,142 5,227
Gain (loss) on sale of securities (529) 32 119 46 (4)
Noninterest expenses 27,527 30,219 25,033 23,749 21,789
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Income before income taxes 14,700 8,114 12,381 11,860 10,141
Income tax provision 4,695 2,714 4,424 4,234 3,845
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Net income $10,005 $5,400 $7,957 $7,626 $6,296
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Per-Share Data
Weighted average shares outstanding:
Basic 13,250 13,295 13,270 13,162 12,687
Diluted 13,328 13,349 13,355 13,319 12,722
Earnings per share:
Basic $0.76 $0.41 $0.60 $0.58 $0.50
Diluted $0.75 $0.40 $0.60 $0.57 $0.49
Cash dividend per common share $0.29 $0.25 $0.20 $0.15 $0.13
Book value per common share $5.99 $5.44 $5.56 $5.14 $4.70
At December 31
Investment securities available for sale $187,880 $152,591 $165,282 $151,186 $136,618
Investment securities held to maturity 107,860 125,130 90,657 81,775 80,705
Loans, net of deferred fees 521,841 476,514 450,051 417,955 383,365
Total assets 906,612 830,170 803,024 741,175 674,899
Total deposits 800,762 736,739 711,811 651,901 598,564
Long-term debt 11,000 6,000 5,000 5,000 973
Total stockholders' equity 78,624 72,282 73,763 68,127 61,321
Performance ratios
Return on Average Assets 1.16% 0.65% 1.04% 1.07% 0.98%
Return on Average Equity 13.43% 7.64% 11.03% 11.73% 11.32%
Efficiency ratio 61.92% 75.25% 65.78% 63.74% 65.18%
Net Interest Margin 4.77% 4.56% 4.72% 4.78% 4.64%
Capital ratios
Tier 1 leverage ratio 8.47% 8.88% 9.35% 9.48% 9.64%
Total risk-based capital ratio 14.84% 16.66% 17.05% 17.99% 17.47%
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents a review of Lakeland Bancorp, Inc.'s consolidated results of operations and financial condition. You should read this section in conjunction with the consolidated financial data that is presented on the preceding page as well as the accompanying notes to financial statements. As used in the following discussion, the term "Company" refers to Lakeland Bancorp, Inc. The Company's wholly owned banking subsidiaries--Lakeland Bank (Lakeland) and the National Bank of Sussex County (NBSC)--are collectively referred to as "the Banks." Metropolitan State Bank (Metropolitan) was merged into Lakeland on January 28, 2000.
Statements Regarding Forward-Looking Information
The information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends and the allowance for possible loan losses), corporate objectives, and other financial and business matters. The words "anticipates", "projects", "intends", "estimates", "expects", "believes", "plans", "may", "will,", "should", "could", and other similar expressions are intended to identify such forward-looking statements. The Company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from such forward-looking statements.
In addition to the factors disclosed by the Company elsewhere in this
document, the following factors, among others, could cause the Company's actual
results to differ materially and adversely from such forward-looking statements:
pricing pressures on loan and deposit products; competition; changes in economic
conditions nationally, regionally and in the Company's markets; the extent and
timing of actions of the Federal Reserve Board; changes in levels of market
interest rates; clients' acceptance of the Company's products and services;
credit risks of lending activities and competitive factors; and the extent and
timing of legislative and regulatory actions and reforms.
The above-listed risk factors are not necessarily exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company's actual results to be materially different than those described in the Company's periodic filings with the Securities and Exchange Commission. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company is not obligated to update and does not undertake to update any of its forward-looking statements made herein.
Financial Overview
The year ended December 31, 2000 represented a year of record earnings for the Company as well as a year of growth. The year 2000 was the first full year following the integration of NBSC and Metropolitan. During 2000, the Company acquired a leasing company, acquired a branch, opened a new branch, and planned the opening of three additional branches early in 2001.
In comparing 2000 earnings with results in 1999, merger-related and restructuring charges in 1999 must be considered. Therefore, the reader should consider net income in two ways: 1) Core Earnings which exclude any one-time charges, and 2) Net Income which includes one-time charges.
Net income for 2000 was $10.0 million or $0.75 per diluted share. Return on average assets was 1.16% and return on average equity was 13.43%. In 1999, net income was $5.4 million including merger related charges or $0.40 per diluted share. Return on Average Assets was 0.65% for 1999 and Return on Average Equity was 7.64% for 1999.
Net income for 2000 was 22% higher than Core Earnings in 1999 of $8.2 million or $0.61 per diluted share. In 1999, Return on Average Assets was 0.99% and Return on Average Equity was 11.58% excluding one time charges. For 1998, net income including $324,000 in restructuring charges was $8.0 million or $0.60 per diluted share. Return on Average Assets in 1998 was 1.04% and Return on Average Equity was 11.03%.
Net interest income
Net interest income is the difference between interest income on earning assets and the interest cost of funds supporting those assets. The Company's net interest income is determined by: (i) the volume of interest-earning assets that it holds and the yields that it earns on those assets, and (ii) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities. Net interest income increases when the Company can use noninterest bearing deposits to fund or support interest-earning assets.
Net interest income for 2000 on a tax equivalent basis was $37.8 million, representing an increase of $2.7 million or 7.7% from the $35.0 million earned in 1999. Net interest income for 1998 on a tax equivalent basis was $32.9 million. Net interest income improved from 1999 to 2000 primarily because earning assets increased by $24.6 million. Similarly, the increase in net interest income in 1999 from 1998 resulted from an increase in earning assets of $71.4 million.
INTEREST INCOME AND EXPENSE VOLUME/RATE ANALYSIS
(tax equivalent basis, in thousands)
2000 vs. 1999 1999 vs. 1998
------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in: Total Due to Change in: Total
------------------------- Increase ------------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------------------------------------------------------------------------------
Interest Income
Loans $2,600 $975 $3,575 $2,565 $(1,913) $652
Taxable investment securities 553 647 1,200 1,729 (342) 1,387
Tax-exempt investment securities (77) 151 74 1,148 (174) 974
Federal funds sold (959) 318 (641) (389) (123) (512)
------------------------------------------------------------------------------
Total interest income 2,117 2,091 4,208 5,053 (2,552) 2,501
------------------------------------------------------------------------------
Interest Expense
Savings deposits 38 54 92 123 (469) (346)
Interest bearing transaction accounts 83 37 120 683 (170) 513
Time deposits 234 914 1,148 678 (512) 166
Borrowings (9) 128 119 69 (37) 32
------------------------------------------------------------------------------
Total interest expense 346 1,133 1,479 1,553 (1,188) 365
------------------------------------------------------------------------------
NET INTEREST INCOME
(TAX EQUIVALENT BASIS) $1,771 $958 $2,729 $3,500 $(1,364) $2,136
==============================================================================
|
The following table reflects the components of the Company's net interest income, setting forth for the years presented, (1) average assets, liabilities and stockholders' equity, (2) interest income earned on interest-earning assets
and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company's net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities and (5) the Company's net yield on interest-earning assets. Rates are computed on a tax equivalent basis.
CONSOLIDATED STATISTICS ON A TAX EQUIVALENT BASIS
---------------------------- ------------------------------ -------------------------------
2000 1999 1998
---------------------------- ------------------------------ -------------------------------
Average Average Average
Interest rates Interest rates Interest rates
Average Income/ earned/ Average Income/ earned/ Average Income/ earned/
Balance Expense paid Balance Expense paid Balance Expense paid
------------------------------------------------------------------ ------------------------------ -------------------------------
(dollars in thousands)
ASSETS
Interest earning assets:
Loans (A) $494,017 $40,853 8.27% $462,363 $37,278 8.06% $431,233 $36,626 8.49%
Taxable investment securities (B) 232,434 14,315 6.16% 223,223 13,115 5.88% 193,577 11,728 6.06%
Tax-exempt securities 54,590 3,637 6.66% 55,847 3,563 6.38% 37,594 2,589 6.89%
Federal funds sold 11,499 681 5.92% 26,519 1,322 4.99% 34,184 1,834 5.37%
------------------------------------------------------------------ ------------------------------ -------------------------------
Total interest earning assets 792,540 59,486 7.51% 767,952 55,278 7.20% 696,588 52,777 7.58%
Noninterest earning assets:
Allowance for possible loan losses (8,220) (8,040) (7,912)
Other assets 75,225 70,588 72,847
------------------------------------------------------------------ ------------------------------ -------------------------------
TOTAL ASSETS $859,545 $830,500 $761,523
------------------------------------------------------------------ ------------------------------ -------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings accounts $184,933 $4,278 2.31% $183,299 $4,186 2.28% $178,615 $4,532 2.54%
Interest bearing transaction
accounts 168,837 3,815 2.26% 165,146 3,695 2.24% 133,961 3,182 2.38%
Time deposits 234,478 12,643 5.39% 229,866 11,495 5.00% 213,007 11,329 5.32%
Borrowings 19,504 984 5.05% 19,700 865 4.39% 18,022 833 4.62%
------------------------------------------------------------------ ------------------------------ -------------------------------
Total interest bearing liabilities 607,752 21,720 3.57% 598,011 20,241 3.38% 543,605 19,876 3.66%
------------------------------------------------------------------ ------------------------------ -------------------------------
Noninterest bearing liabilities:
Demand deposits 170,991 156,725 140,781
Other liabilities 6,293 5,050 4,979
Stockholders' equity 74,509 70,714 72,158
------------------------------------------------------------------ ------------------------------ -------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $859,545 $830,500 $761,523
------------------------------------------------------------------ ------------------------------ -------------------------------
Net interest income (tax equivalent basis) 37,766 3.93% 35,037 3.81% 32,901 3.92%
Tax equivalent basis adjustment 1,273 1,247 906
------------------------------------------------------------------ ------------------------------ -------------------------------
NET INTEREST INCOME $36,493 $33,790 $31,995
------------------------------------------------------------------ ------------------------------ -------------------------------
Net interest margin (tax equivalent basis) (C) 4.77% 4.56% 4.72%
------------------------------------------------------------------ ------------------------------ -------------------------------
|
(A) Includes nonaccrual loans, the effect of which is to reduce the yield earned
on loans, and deferred loan fees.
(B) Includes certificates of deposits and interest-bearing cash accounts.
(C) Net interest income divided by interest earning assets.
Total interest income on a tax equivalent basis increased from $55.3 million in 1999 to $59.5 million in 2000, an increase of $4.2 million. The increase in interest income in 2000 was due to a $24.6 million increase in interest-earning assets and a 31 basis point increase in the yield on interest-earning assets. The increase in yield reflected an increase in the overall rate environment in 2000 and also reflected a more favorable mix in earning assets. The increase in interest-earning assets was due to growth in the loan and investment portfolios.
The increase in interest income from $52.8 million in 1998 to $55.3 million in 1999 resulted from a $71.4 million increase in earning assets which was partially offset by a 38 basis point decline in the yield on earning assets caused by the decline in rates which occurred in 1998 and in the first half of 1999.
Total interest expense increased from $20.2 million in 1999 to $21.7 million in 2000 as a result of a $9.7 million increase in interest-bearing liabilities and a 19 basis point increase in the Company's cost of funds. The increase in the cost of funds resulted from the increase of the overall interest rate environment in the year 2000 and from an increase in time deposits. Total interest expense increased from $19.9 million in 1998 to $20.2 million in
1999 as a result of a $54.4 million increase in interest-bearing liabilities partially offset by a 28 basis point decrease in the cost of funds.
Net Interest Margin
Net interest margin is calculated by dividing net interest income on a fully taxable equivalent basis by average interest-earning assets. The Company's net interest margin was 4.77%, 4.56% and 4.72% for 2000, 1999 and 1998, respectively. The increase in the net interest margin from 1999 to 2000 results from higher rates earned on loans and investment securities which more than offset higher rates paid on deposits. The loan yield increased 21 basis points, the yield on taxable investment securities increased 28 basis points, and the yield on the tax-exempt investment portfolio increased 28 basis points. The cost of funds increased 19 basis points. The decrease in the net interest margin from 1998 to 1999 resulted from a 18 basis point decline in yields in the taxable investment portfolio and a 43 basis point decline in the yield on the loan portfolio.
The average cost of the Company's deposits was 2.73%, 2.64% and 2.86%, for 2000, 1999 and 1998, respectively.
Provision For Possible Loan Losses
In determining the provision for possible loan losses, management considers historical loan loss experience, changes in composition and volume of the portfolio, the level and composition of non-performing loans, the adequacy of the allowance for possible loan losses, and prevailing economic conditions. The provision for possible loan losses was $2.0 million in 2000, $1.8 million in 1999, and $698,000 in 1998. The increase in the provision from 1999 to 2000 was due to management's evaluation of the loan portfolio. For more information, see Financial Condition--Risk Elements below. Net charge-offs decreased from $2.1 million in 1999 to $778,000 in 2000. Net charge-offs as a percent of average loans outstanding decreased from 0.45% in 1999 to 0.16% in 2000.
The 1999 provision for possible loan losses at $1.8 million increased from $698,000 in 1998. The increase in the 1999 provision for possible loan losses was due to an increase in net charge-offs from 1998 to 1999 and included a $440,000 provision made to conform provisioning policies among subsidiary banks. The ratio of net charge-offs to average loans outstanding was 0.23% in 1998.
Noninterest Income
Noninterest income increased $1.4 million or 22.3% to $7.7 million in 2000 from $6.3 million in 1999 and represented 17.5% of total income for 2000. Total income includes net interest income plus noninterest income. The primary source of this increase was $1.5 million in gains on sales of leases generated from the Company's leasing division which was purchased early in second quarter 2000. Also contributing to the increase in noninterest income were higher service charges collected on deposit accounts. Commissions and fees increased from $904,000 in 1999 to $1.2 million in 2000. The increase in commissions and fees resulted primarily from an increase in loan fees and in commissions and fees on investment services. Other income decreased from $1.2 million in 1999 to $820,000 in 2000 as a result of decreases in gains on sales of loans. Noninterest income increased $207,000 or 3.4% to $6.3 million in 1999 from $6.1 million in 1998 and represented 15.8% of total income for 1999. Noninterest income increased from 1998 to 1999 as a result of increased service fees collected on deposit accounts and due to fees generated by the introduction of a debit card at one of the Company's subsidiaries.
Noninterest Expense
Noninterest expenses in 2000 decreased $2.7 million or 8.9% over 1999. Included in the 1999 expense is $3.5 million in merger related and restructuring charges. Excluding merger related charges, noninterest expense increased from $26.7 million to $27.5 million, an $829,000 or 3.1% increase. Salaries and benefits, the largest component of noninterest expense, increased by $98,000 or 0.7%. Normal merit increases and costs related to the addition of the leasing division were offset by decreased medical expenses and declines in staffing related to the acquisitions of NBSC and Metropolitan as positions were consolidated. Other expense categories increased in the aggregate by $731,000 or 6.2%. Other expenses increased due to increased costs of occupancy, furniture
and equipment related to the addition of new branches, costs related to the leasing division and improvements in technology.
Noninterest expense in 1999 increased $5.2 million or 20.7% over 1998. Included in 1999 noninterest expense were $3.5 million in one-time merger related charges related to the acquisitions of NBSC and Metropolitan. Salaries and benefits increased by $1.4 million or 10.4% resulting from increased medical claim expense, normal salary increases and the addition of new people to the executive management team. Other expense categories increased in the aggregate by $594,000 or 6.2% resulting from costs related to operating and disposing of other real estate and from increases in telephone expenses and marketing expense.
The efficiency ratio is calculated by dividing total noninterest expense by total revenue. In 2000, the Company's efficiency ratio improved to 61.9% from 66.4% in 1999 (excluding merger-related charges) and 65.8% in 1998 due to cost savings following the merger of Metropolitan and NBSC.
Income Taxes
The Company's effective income tax rate was 31.9%, 33.4% and 35.7%, in the years ended December 31, 2000, 1999 and 1998, respectively. The Company's effective tax rate dropped from 33.4% in 1999 to 31.9% in 2000 due to merger related expenses recorded in 1999 which were not tax deductible.
Financial Condition
Total assets increased from $830.2 million on December 31, 1999 to $906.7 million on December 31, 2000, an increase of $76.5 million, or 9.2%, resulting from growth in the loan portfolio and investment portfolio. Total assets at year-end 1999 increased $27.2 million or 3.4% from year-end 1998.
Loans
The Banks primarily serve Bergen, Morris, Passaic, Sussex and Essex counties in Northern New Jersey and the surrounding areas. All of the Bank's borrowers are U.S. residents or entities.
Total loans increased from $476.3 million on December 31, 1999 to $521.0 million on December 31, 2000, an increase of $44.7 million or 9.4%. The increase in loans generally was in the consumer portfolio which increased from $106.9 million in 1999 to $137.8 million in 2000, an increase of $30.9 million or 28.9%. In 2000, the Company purchased approximately $20 million in consumer loan portfolios which contributed to this increase. The real estate mortgage portfolio also increased $11.5 million or 8.4%. In 1999, total loans increased $26.2 million to $476.3 million as a result of mortgage growth generated by Metropolitan which began offering mortgages for the first time.
The following table sets forth the classification of the Company's loans by major category as of December 31 for each of the last five years:
December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------
(in thousands)
Commercial $222,222 $220,779 $215,439 $209,524 $199,461
Real estate--mortgage 148,178 136,687 116,181 87,099 76,864
Real estate--contruction 12,757 11,938 12,526 14,712 9,424
Home equity and consumer installment 137,850 106,878 105,910 106,799 97,550
--------------------------------------------------------
$521,007 $476,282 $450,056 $418,134 $383,299
========================================================
|
The following table shows the percentage distributions of loans by category as of December 31 for each of the last five years.
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
Commercial 42.7% 46.4% 47.9% 50.1% 52.0%
Real estate--mortgage 28.5% 28.7% 25.8% 20.8% 20.1%
Real estate--construction 2.4% 2.5% 2.8% 3.5% 2.5%
Home equity and consumer installment 26.4% 22.4% 23.5% 25.6% 25.4%
---------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
===============================================================
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At December 31, 2000, there were no concentrations of loans exceeding 10% of total loans outstanding other than loans that are secured by real estate. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions.
The following table sets forth certain categories of loans as of December 31, 2000, in terms of contractual maturity due:
After one
Within but within After five
(in thousands) one year five years years Total
-------------- ---------------------------------------------------
Types of Loans:
Commercial $54,836 $67,991 $99,395 $ 222,222
Real Estate--construction 9,735 488 2,534 12,757
---------------------------------------------------
Total $64,571 $68,479 $101,929 $234,979
===================================================
Amount of such loans with:
Predetermined rates $22,191 $64,100 $ 87,870 $ 174,161
Floating or adjustable rates 42,380 4,379 14,059 60,818
---------------------------------------------------
Total $64,571 $68,479 $101,929 $234,979
===================================================
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Risk Elements
Commercial loans are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment in full of interest or principal is not expected, or (c) principal and interest has been in default for a period of 90 days or more unless the obligation is both well secured and in process of collection. Residential mortgage loans are placed on non-accrual status at the time when foreclosure proceedings are commenced except where there exists sufficient collateral to cover the defaulted principal and interest payments, and management's knowledge of the specific circumstances warrant continued accrual. Consumer loans are generally charged off when principal and interest payments are four months in arrears. Interest thereafter on such charged-off consumer loans is taken into income when received.
The following schedule sets forth certain information regarding the Company's non-accrual, past due and renegotiated loans and other real estate owned as of December 31, for each of the last five years:
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
(in thousands)
Non-performing loans:
Non-accrual loans (A) $2,564 $2,961 $3,281 $4,850 $5,695
Past due loans (B) 1,992 2,210 4,265 1,404 2,200
Renegotiated loans (C) --- 389 399 413 505
---------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 4,556 5,560 7,945 6,667 8,400
Other real estate owned 442 418 1,989 1,758 1,313
---------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $4,998 $5,978 $9,934 $8,425 $9,713
===============================================================
Nonperforming assets as a percent
of total assets 0.55% 0.72% 1.24% 1.14% 1.44%
===============================================================
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(A) Generally represents loans as to which the payment of interest or principal is in arrears for a period of more than ninety days. Current policy requires that interest previously accrued on these loans and not yet paid be reversed and charged against interest income during the current period.
(B) Represents loans as to which payments of interest or principal are contractually past due ninety days or more, but which are currently accruing income at the contractually stated rates. A determination is made to continue accruing income on such loans only if collection of the debt is proceeding in due course and collection efforts are reasonably expected to result in repayment of the debt or in its restoration to a current status.
(C) The loan portfolio includes loans whose terms have been renegotiated due to financial difficulties of borrowers. All such loans are reviewed quarterly to determine if they are performing in accordance with the renegotiated terms.
Non-accrual loans decreased $397,000 to $2.6 million at December 31, 2000, from $3.0 million at December 31, 1999. All of these loans are in various stages of litigation, foreclosure, or workout. Loans past due ninety days or more and still accruing decreased $218,000 to $2.0 million at December 31, 2000, from $2.2 million at December 31, 1999.
For 2000, the gross interest income that would have been recorded, had the loans classified at year-end as either non-accrual or renegotiated been performing in conformance with their original loan terms, is approximately $517,000. The amount of interest income actually recorded on those loans for 2000 was $446,000. The resultant income loss of $71,000 for 2000 compares to losses of $138,000 and gains of $13,000 for 1999 and 1998, respectively.
Loans specifically evaluated are deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreements. Loans which are in process of collection will not be classified as impaired. A loan is not impaired during the process of collection of payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate. All commercial loans identified as impaired are evaluated by an independent loan review consultant. The Company aggregates consumer loans and residential mortgages for evaluation purposes.
The Company's policy concerning non-accrual loans states that, except for loans which are considered to be fully collectible by virtue of collateral held and in the process of collection, loans are placed on a non-accrual status when payments are 90 days delinquent or more. It is possible for a loan to be on non-accrual status and not be classified as impaired if the balance of such loan is relatively small and, therefore, that loan has not been specifically reviewed for impairment.
Loans, or portions thereof, are charged off in the period that the loss is identified. Until such time, an allowance for loan loss is maintained for estimated losses. With regard to interest income recognition for payments received on impaired loans, as well as all non-accrual loans, the Company follows regulatory guidelines, which apply any payments to principal as long as there is doubt as to the collectibility of the loan balance.
As of December 31, 2000, based on the above criteria, the Company had impaired loans totaling $4.5 million (including $2.5 million in non-accrual loans). The impairment of these loans is based on the fair value of the underlying collateral for these loans. Based upon such evaluation, $839,000 has been allocated to the allowance for possible loan losses for impairment. At December 31, 2000, the Company also had $4.8 million in loans that were rated substandard that were not classified as non-performing or impaired.
There were no loans at December 31, 2000, other than those designated non-performing, impaired or substandard, where the Company was aware of any credit conditions of any borrowers that would indicate a strong possibility of the borrowers not complying with the present terms and conditions of repayment and which may result in such loans being included as non-accrual, past due or renegotiated at a future date.
The following table sets forth for each of the five years ended December 31, 2000, the historical relationships among the amount of loans outstanding, the allowance for possible loan losses, the provision for possible loan losses, the amount of loans charged off and the amount of loan recoveries:
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
(in thousands)
Balance of the allowance at the
beginning of the year $7,668 $7,984 $8,262 $7,558 $8,079
---------------------------------------------------------------
Loans charged off:
Commercial 1,046 1,670 1,134 561 1,384
Home Equity and consumer 221 182 476 202 402
Real estate--mortgage --- 571 57 15 161
---------------------------------------------------------------
Total loans charged off 1,267 2,423 1,667 778 1,947
---------------------------------------------------------------
Recoveries:
Commercial 359 228 581 262 353
Home Equity and consumer 127 88 95 157 150
Real estate--construction --- --- --- --- 13
Real estate--mortgage 3 10 15 37 2
---------------------------------------------------------------
Total Recoveries 489 326 691 456 518
---------------------------------------------------------------
Net charge-offs: 778 2,097 976 322 1,429
Provision for possible loan losses
charged to operations 2,000 1,781 698 1,026 908
---------------------------------------------------------------
Ending balance $8,890 $7,668 $7,984 $8,262 $7,558
===============================================================
Ratio of net charge-offs to average loans
oustanding 0.16% 0.45% 0.23% 0.08% 0.40%
Ratio of allowance at end of year as a
percentage of year-end total loans 1.70% 1.61% 1.77% 1.98% 1.97%
|
The ratio of the allowance for possible loan losses to loans outstanding reflects management's evaluation of the underlying credit risk inherent in the loan portfolio. The determination of the adequacy of the allowance for possible loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements is the responsibility of management. The evaluation process is undertaken on a quarterly basis.
Methodology employed for assessing the adequacy of the allowance consists of the following criteria:
. The establishment of reserve amounts for all specifically identified criticized loans that have been designated as requiring attention by the Company's external loan review program.
. The establishment of reserves for pools of homogeneous types of loans not subject to specific review, including 1 - 4 family residential mortgages, and consumer loans.
. The establishment of reserve amounts for the non-criticized loans in each portfolio based upon the historical average loss experience for these portfolios.
. An allocation for all off-balance sheet exposures.
Consideration is given to the results of ongoing credit quality monitoring processes, the adequacy and expertise of the Company's lending staff, underwriting policies, loss histories, delinquency trends, and the cyclical nature of economic and business conditions. Since many of the Company's loans depend on the sufficiency of collateral as a secondary source of repayment, any adverse trend in the real estate markets could affect underlying values available to protect the Company from loss.
Based upon the process employed and giving recognition to all accompanying factors related to the loan portfolio, management considers the allowance for possible loan losses to be adequate at December 31, 2000.
The following table shows how the allowance for possible loan losses is allocated among the various types of loans that the Company has outstanding. This allocation is based on management's specific review of the credit risk of the outstanding loans in each category as well as historical trends.
At December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
(in thousands)
Commercial $7,240 $6,227 $5,888 $6,250 $5,621
Home Equity and consumer 965 899 993 1,010 1,056
Real estate--construction 54 54 54 114 61
Real estate--mortgage 631 488 1,049 888 820
---------------------------------------------------------------
$8,890 $7,668 $7,984 $8,262 $7,558
===============================================================
|
Investment Securities
The Company has classified its investment securities into the available for sale and held to maturity categories pursuant to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
The following table sets forth the carrying value of the Company's investment securities, both available for sale and held to maturity, as of December 31 for each of the last three years. Investment securities available for sale are stated at fair value while securities held for maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts.
December 31,
--------------------------------------
2000 1999 1998
--------------------------------------
(in thousands)
U.S. Treasury and U.S. government agencies $124,599 $154,298 $139,026
Obligations of states and political subdivisions 49,187 57,568 49,096
Mortgage-backed securities 80,189 36,888 41,137
Equity securities 10,822 8,479 6,454
Other debt securities 30,943 20,488 20,226
--------------------------------------
$295,740 $277,721 $255,939
======================================
|
The following table sets forth the maturity distribution and weighted average yields (calculated on the basis of the stated yields to maturity, considering applicable premium or discount), on a fully taxable equivalent basis, of investment securities available for sale as of December 31, 2000:
over one over five
Within but within but within After ten
Available for sale one year five years ten years years Total
-------------------------------------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasury and U.S. government
agencies
Amount $11,229 $46,065 $9,179 $2,650 $69,123
Yield 5.65% 6.19% 7.24% 6.60% 6.26%
Obligations of states and political
subdivisions
Amount 360 13,180 16,272 4,543 34,355
Yield 6.40% 6.14% 6.51% 6.44% 6.35%
Mortgage-backed securities
Amount 80 --- 2,288 51,209 53,577
Yield 4.75% ---% 7.41% 7.27% 7.27%
Other debt securities
Amount 1,251 13,885 1,964 2,903 20,003
Yield 5.21% 6.69% 7.89% 7.71% 6.86%
Other equity securities
Amount 10,822 --- --- --- 10,822
Yield 4.12% ---% ---% ---% 4.12%
---------------------------------------------------------------
Total securities
Amount $23,742 $73,130 $29,703 $61,305 $187,880
Yield 4.94% 6.27% 6.89% 7.20% 6.51%
===============================================================
|
The following table sets forth the maturity distribution and weighted average yields (calculated on the basis of the stated yields to maturity, considering applicable premium or discount), on a fully taxable equivalent basis, of investment securities held to maturity as of December 31, 2000:
over one over five
Within but within but within After ten
Held to maturity one year five years ten years years Total
-------------------------------------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasury and U.S. government
agencies
Amount $17,620 $35,356 $2,500 --- $55,476
Yield 6.01% 5.82% 7.87% ---% 5.97%
Obligations of states and political
subdivisions
Amount 1,419 11,987 947 479 14,832
Yield 5.98% 6.27% 6.14% 5.25% 6.20%
Mortgage-backed securities
Amount 205 10,054 9,884 6,469 26,612
Yield 6.12% 6.23% 6.19% 6.92% 6.38%
Other debt securities
Amount 1,507 9,433 --- --- 10,940
Yield 5.82% 5.69% ---% ---% 5.71%
---------------------------------------------------------------
Total securities
Amount $20,751 $66,830 $13,331 $6,948 $107,860
Yield 5.99% 5.94% 6.50% 6.80% 6.08%
===============================================================
|
Deposits
Total deposits increased from $736.7 million on December 31, 1999 to $800.8 million on December 31, 2000, a growth of $64.1 million, or 8.7%. Total deposits in 1999 increased $24.9 million or 3.5% from December 31, 1998.
As of December 31, 2000, the aggregate amount of outstanding time deposits issued in amounts of $100,000 or more, broken down by time remaining to maturity, was as follows (in thousands):
Maturity
---------------
Within 3 months $29,009
Over 3 through 6 months 10,478
Over 6 through 12 months 15,907
Over 12 months 5,642
----------
Total $61,036
==========
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Liquidity
"Liquidity" measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary banks have the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.
. Net income.
. Deposits. The subsidiary banks can offer new products or change their rate structure in order to increase deposits. In 2000, the Company generated $64.0 million in funds in net deposit growth.
. Sales of securities and overnight funds. At year-end 2000, the Company had $187.9 million in securities designated "available for sale" and $6.6 million in overnight funds.
. Overnight credit lines. Lakeland and NBSC are members of the Federal Home Loan Bank of New York (FHLB). One membership benefit is that members can borrow overnight funds. Lakeland and NBSC have respective credit lines of $57.1 million and $29.7 million at the FHLB. Lakeland has overnight federal funds lines available for it to borrow up to $11.5 million.
Management of the subsidiary banks believe that their current level of liquidity is sufficient to meet their current and anticipated operational needs.
The Banks anticipate that they will have sufficient funds available to meet their current loan commitments and deposit maturities. At December 31, 2000, the Banks had outstanding loan origination commitments of $74.9 million. Time deposits that mature in one year or less, at December 31, 2000, totaled $218.9 million. The first sentence in this paragraph constitutes a Forward Looking Statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from anticipated results due to a variety of factors, including uncertainties relating to general economic conditions; unanticipated decreases in deposits; changes in or failure to comply with governmental regulations; and uncertainties relating to the analysis of the Company's assessment of rate sensitive assets and rate sensitive liabilities and relating to the extent to which market factors indicate that a financial institution such as Lakeland should match such assets and liabilities.
Interest Rate Risk
Closely related to the concept of liquidity is the concept of interest rate sensitivity (i.e., the extent to which assets and liabilities are sensitive to changes in interest rates). Interest rate sensitivity is often measured by the extent to which mismatches or "gaps" occur in the repricing of assets and liabilities within a given time period. Gap analysis is utilized to quantify such mismatches. A "positive" gap results when the amount of earning assets repricing within a given time period exceeds the amount of interest-bearing liabilities repricing within that time
period. A "negative" gap results when the amount of interest-bearing liabilities repricing within a given time period exceeds the amount of earning assets repricing within such time period.
In general, a financial institution with a positive gap in relevant time periods will benefit from an increase in market interest rates and will experience erosion in net interest income if such rates fall. Likewise, a financial institution with a negative gap in relevant time periods will normally benefit from a decrease in market interest rates and will be adversely affected by an increase in rates. By maintaining a balanced interest rate sensitivity position, where interest rate sensitive assets roughly equal interest sensitive liabilities in relevant time periods, interest rate risk can be limited.
As a financial institution, the Company's potential interest rate volatility is a primary component of its market risk. Fluctuations in interest rates will ultimately impact the level of income and expense recorded on a large portion of the Company's assets and liabilities, and the market value of all interest-earning assets, other than those which possess a short term to maturity. Based upon the Company's nature of operations, the Company is not subject to foreign currency exchange or commodity price risk. The Company does not own any trading assets and does not have any hedging transactions in place, such as interest rate swaps and caps.
The Company's Board of Directors has adopted an Asset/Liability Policy designed to stabilize net interest income and preserve capital over a broad range of interest rate movements. This policy outlines guidelines and ratios dealing with, among others, liquidity, volatile liability dependence, investment portfolio composition, loan portfolio composition, loan-to-deposit ratio and gap analysis ratio. The Company's performance as compared to the Asset/Liability Policy is monitored by its Board of Directors. In addition, to effectively administer the Asset/Liability Policy and to monitor exposure to fluctuations in interest rates, the Company maintains an Asset/Liability Committee, consisting of the Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, Chief Retail Officer and certain other senior officers. This committee meets monthly to review the Company's financial results and to develop strategies to implement the Asset/Liability Policy and to respond to market conditions.
The Company monitors and controls interest rate risk through a variety of techniques, including use of traditional interest rate sensitivity analysis (also known as "gap analysis") and an interest rate risk management model. With the interest rate risk management model, the Company projects future net interest income, and then estimates the effect of various changes in interest rates and balance sheet growth rates on that projected net interest income. The Company also uses the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Traditional gap analysis involves arranging the Company's interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference (or "interest rate sensitivity gap") between the assets and liabilities that are estimated to reprice during each time period and cumulatively through the end of each time period.
Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates; future cash flows and discount rates.
Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures.
The following table sets forth the estimated maturity/repricing structure of the Company's interest-earning assets and interest-bearing liabilities at December 31, 2000. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of interest-bearing demand deposits and savings deposits are assumed to be "core" deposits, or deposits that will remain at the Company regardless of market interest rates. Therefore, 80% of the interest-bearing deposits and 75% of the savings deposits are shown as maturing or repricing in the "after 1 but within 5 years" column. Lakeland has assumed that all interest-bearing demand accounts and
savings accounts will reprice or mature within five years. The table does not assume any prepayment of fixed-rate loans.
The table does not necessarily indicate the impact of general interest rate movements on the Company's net interest income because the repricing of certain categories of assets and liabilities, for example, prepayments of loans and withdrawal of deposits, is beyond the Company's control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels.
Maturing or Repricing
---------------------------------------------------------------
After 3
Within three months but After 1 but After
December 31, 2000 months within 1 year within 5 years 5 Years Total
---------------------------- ---------------------------------------------------------------
Interest-earning assets: (in thousands)
Loans $91,854 $53,383 $170,642 $205,962 $521,841
Investment securities 26,371 57,417 170,573 41,379 295,740
Federal funds sold and interest
bearing cash accounts 6,685 --- --- --- 6,685
---------------------------------------------------------------
Total earning assets 124,910 110,800 341,215 247,341 824,266
===============================================================
Interest-bearing liabilities:
Deposits:
Interest bearing demand 8,660 25,981 138,564 --- 173,205
Savings accounts 11,393 34,180 136,720 --- 182,293
Time deposits 93,099 137,108 34,746 1,671 266,624
---------------------------------------------------------------
Total interest-bearing deposits 113,152 197,269 310,030 1,671 622,122
---------------------------------------------------------------
Borrowings:
Repurchase agreements 8,216 2,434 --- --- 10,650
Long-term debt --- 1,000 10,000 --- 11,000
---------------------------------------------------------------
Total borrowings 8,216 3,434 10,000 --- 21,650
---------------------------------------------------------------
Total liabilities 121,368 200,703 320,030 1,671 643,772
---------------------------------------------------------------
Interest rate sensitivity gap 3,542 (89,903) 21,185 245,670 180,494
===============================================================
Cumulative rate sensitivity gap $3,542 ($86,361) ($65,176) $180,494
====================================================
|
Changes in estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the impact of general interest rate movements on the Company's net interest income or net portfolio value.
Because of the limitations in the gap analysis discussed above, members of the Company's Asset/Liability Management Committee believe that the interest sensitivity modeling more accurately reflects the effects and exposure to changes in interest rates. Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance sheet items.
The starting point (or "base case") for the following table is an estimate of the Company's net portfolio value at December 31, 2000 using current discount rates, and an estimate of net interest income for 2001 assuming that both interest rates and the Company's interest-sensitive assets and liabilities remain at December 31, 2000 levels. The "rate shock" information in the table shows estimates of net portfolio value at December 31, 2000 and net interest income for 2001 assuming fluctuations or "rate shocks" of plus 100 and 200 basis points and minus 100
and 200 basis points. Rate shocks assume that current interest rates change immediately. The information set forth in the following table is based on significant estimates and assumptions, and constitutes a forward looking statement within the meaning of that term set forth in Rule 173 of the Securities Act of 1933 and Rule 3-6 of the Securities Exchange Act of 1934.
-------------------------------------------------------------------------------------------------------
Net Portfolio Value at
December 31, 2000 Net interest income for 2001
-------------------------------------------------------------------------------------------------------
Rate Scenario Percent
Change Percent Change
From Base From
Amount Case Amount Base Case
-------------------------------------------------------------------------------------------------------
(dollars in thousands)
-------------------------------------------------------------------------------------------------------
+200 basis point rate shock $108,864 (12.5%) $37,918 (1.9%)
+100 basis point rate shock 117,578 (5.5%) 38,317 (0.8%)
Base Case 124,468 0.0% 38,639 0.0%
-100 basis point rate shock 128,051 2.9% 39,636 2.6%
-200 basis point rate shock 126,903 1.9% 40,428 4.6%
|
Capital Resources
Stockholders' equity increased $6.3 million to $78.6 million at December 31, 2000, from $72.3 million at December 31, 1999, reflecting net income during the year of $10.0 million, cash dividends to stockholders of $3.9 million, an unrealized securities gain, net of deferred income taxes, of $2.1 million and net proceeds from the exercise of stock options of $236,000.
Book value per share (total stockholders' equity divided by the number of shares outstanding) increased from $5.44 on December 31, 1999 to $5.99 on December 31, 2000 as a result of increased income and a reduction of the unrealized loss on securities available for sale. Book value per share was $5.56 on December 31, 1998.
The $9.3 million deficit in undivided profits contained in the December 31, 1998 consolidated financial statements is the result of a bookkeeping entry charging undivided profits $15.8 million in connection with the Company's accounting for its 2 for 1 stock split effected in the form of a 100% stock dividend distributed on October 1, 1998. In accordance with New Jersey corporate law, the Company's Board of Directors on March 10, 1999, approved the reversing of this accounting treatment of the stock dividend, thereby moving $10.8 million from the capital stock account to the undivided profits account to more accurately reflect the Company's financial condition. This reclassification was made in the first quarter of 1999.
The FDIC's risk-based capital policy statement imposes a minimum capital standard on insured banks. The minimum ratio of risk-based capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least half of the total capital is to be comprised of common stock equity and qualifying perpetual preferred stock, less goodwill ("Tier I capital"). The remainder ("Tier II capital") may consist of mandatory convertible debt securities, qualifying subordinated debt, other preferred stock and a portion of the allowance for possible loan losses. The Federal Reserve Board has adopted a similar risk-based capital guideline for the Company which is computed on a consolidated basis.
In addition, the bank regulators have adopted minimum leverage ratio guidelines (Tier I capital to average quarterly assets, less goodwill) for financial institutions. These guidelines provide for a minimum leverage ratio of 3% for financial institutions that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points.
The following table reflects capital ratios of the Company and its subsidiaries as of December 31, 2000 and 1999:
Tier 1 Capital Tier 1 Capital Total Capital
to Total Average to Risk-Weighted to Risk-Weighted
Assets Ratio Assets Ratio Assets Ratio
December 31, December 31, December 31,
Capital Ratios: 2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------
The Company 8.47% 8.88% 13.58% 15.40% 14.84% 16.66%
Lakeland Bank 8.35% 9.07% 12.66% 15.31% 13.87% 16.42%
NBSC 7.31% 7.84% 13.64% 15.23% 14.90% 16.50%
Metropolitan N/A 7.74% N/A 12.44% N/A 13.50%
"Well capitalized" institution under FDIC
Regulations 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
|
N/A - Metropolitan was merged into Lakeland on January 28, 2000.
Recent Accounting Pronouncements
In June 1998, the SFAS No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities" was amended in June, 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively SFAS No. 133). SFAS No. 133 requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. Under SFAS No. 133 an
entity may designate a derivative as a hedge of exposure to either changes in:
(a) fair value of a recognized asset or liability or firm commitment, (b) cash
flows of a recognized or forecasted transaction, or (c) foreign currencies of a
net investment in foreign operations, firm commitments, available-for-sale
securities or a forecasted transaction. Depending upon the effectiveness of the
hedge and/or the transaction being hedged, any changes in the fair value of the
derivative instrument is either recognized in earnings in the current year,
deferred to future periods, or recognized in other comprehensive income. Changes
in the fair value of all derivative instruments not recognized as hedge
accounting are recognized in current year earnings. SFAS No. 133 is required for
all fiscal quarters or fiscal years beginning after June 15, 2000. The Company
adopted SFAS No. 133 effective January 1, 2001. No adjustment was required as a
result of the change in accounting principle.
Statement of Financial Accounting Standards No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS No. 119") requires disclosures about financial instruments, which are defined as futures, forwards, swap and option contracts and other financial instruments with similar characteristics. On balance sheet receivables and payables are excluded from this definition. The Company did not hold any derivative financial instruments as defined by SFAS No. 119 at December 31, 2000, 1999 or 1998.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", which replaces SFAS No.125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for the securitizations and other transfers of financial assets and collateral. This new standard also requires certain disclosures, but carries over most of the provisions of SFAS No. 125. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. However, for recognition and reclassification of collateral and for disclosures relating to securitizations transactions and collateral this statement is effective for fiscal years ending after December 15, 2000 with earlier application not allowed and is to be applied prospectively. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial statements.
Effects of Inflation
The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks have assets which are primarily monetary in nature and which tend to move with inflation. This is especially
true for banks with a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive assets and interest rate sensitive liabilities. Lakeland attempts to structure its assets and liabilities and manage its gap to protect against substantial changes in interest rate scenarios, thus minimizing the potential effects of inflation.
ITEM 7A - Quantitative and Qualitative Disclosures About Market Risks
See "Management's Discussion and Analysis of Financial Condition and Results of Operations"
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Board of Directors and Stockholders
Lakeland Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Lakeland Bancorp, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lakeland Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP Philadelphia, Pennsylvania January 18, 2001 |
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2000 1999
----------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Cash and due from banks $43,166 $31,386
Federal funds sold 6,625 8,956
----------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 49,791 40,342
Interest-bearing deposits with banks 60 216
Investment securities available for sale 187,880 152,591
Investment securities held to maturity; fair value of $107,311
in 2000 and $122,751 in 1999 107,860 125,130
Loans, net of deferred fees 521,841 476,514
Less: allowance for possible loan losses 8,890 7,668
----------------------------------------------------------------------------------------------------------------------
Net loans 512,951 468,846
Premises and equipment - net 24,396 21,897
Accrued interest receivable 6,247 5,979
Other assets 17,427 15,169
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $906,612 $830,170
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Noninterest bearing $178,640 $165,559
Savings and interest-bearing transaction accounts 355,498 355,845
Time deposits under $100 205,588 180,287
Time deposits $100 and over 61,036 35,048
----------------------------------------------------------------------------------------------------------------------
Total deposits 800,762 736,739
Securities sold under agreements to repurchase 10,650 10,489
Long-term debt 11,000 6,000
Other liabilities 5,576 4,660
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 827,988 757,888
----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
Stockholders' equity:
Common stock, no par value; authorized shares, 40,000,000; issued shares,
13,305,875 at December 31, 2000 and 1999; outstanding shares, 13,126,594 at
December 31, 2000 and 13,301,675 at December 31, 1999 77,857 71,330
Retained Earnings 3,035 3,548
Treasury stock, at cost, 179,281 shares in 2000 and 4,200 in 1999 (1,936) (67)
Accumulated other comprehensive loss (262) (2,381)
Loan for options exercised (70) (148)
----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 78,624 72,282
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $906,612 $830,170
======================================================================================================================
|
See accompanying notes to consolidated financial statements
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31,
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
INTEREST INCOME
Loans and fees $40,853 $37,278 $36,626
Federal funds sold 681 1,322 1,834
Taxable investment securities 14,315 13,115 11,728
Tax exempt investment securities 2,364 2,316 1,683
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 58,213 54,031 51,871
----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 20,736 19,376 19,043
Securities sold under agreements to repurchase 699 563 531
Long-term debt 285 302 302
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 21,720 20,241 19,876
----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 36,493 33,790 31,995
Provision for possible loan losses 2,000 1,781 698
----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 34,493 32,009 31,297
NONINTEREST INCOME
Service charges on deposit accounts 4,784 4,214 3,991
Commissions and fees 1,192 904 912
Gain (loss) on the sales of securities (529) 32 119
Gain on sale of leases 1,467 --- ---
Other income 820 1,174 1,095
----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 7,734 6,324 6,117
----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 14,996 14,898 13,503
Net occupancy expense 2,441 2,285 2,319
Furniture and equipment 2,870 2,346 2,352
Stationary, supplies and postage 1,344 1,296 1,400
Merger and restructuring charges --- 3,521 324
Other expenses 5,876 5,873 5,135
----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 27,527 30,219 25,033
----------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 14,700 8,114 12,381
Provision for income taxes 4,695 2,714 4,424
----------------------------------------------------------------------------------------------------------------------
NET INCOME $10,005 $5,400 $7,957
======================================================================================================================
EARNINGS PER COMMON SHARE
Basic $0.76 $0.41 $0.60
----------------------------------------------------------------------------------------------------------------------
Diluted $0.75 $0.40 $0.60
----------------------------------------------------------------------------------------------------------------------
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
(in thousands)
NET INCOME $10,005 $5,400 $7,957
----------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME NET OF TAX:
Unrealized securities gains (losses) arising during period 1,788 (3,202) 358
Less: reclassification for gains included in Net Income (331) 20 71
----------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) 2,119 (3,222) 287
----------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $12,124 $2,178 $8,244
======================================================================================================================
|
See accompanying notes to consolidated financial statements
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Common stock Retained Other
---------------------------- Additional earnings Comprehensive Loan for
Number of Paid-in (Accumulated Treasury Income Options
Shares Amount Capital deficit) Stock (Loss) Exercised Total
----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
BALANCE JANUARY 1, 1998 6,305,198 $15,763 $50,657 $1,153 $ --- $554 $ --- $68,127
Net Income 1998 --- --- --- 7,957 --- --- --- 7,957
Other comprehensive income,
net of tax --- --- --- --- --- 287 --- 287
Exercise of stock options 15,000 37 (231) --- 653 --- --- 459
Stock dividends 6,328,256 15,821 --- (15,821) --- --- --- ---
Stock issuances 23,808 60 410 --- --- --- --- 470
Loan issued for options exercised --- --- --- --- --- --- (169) (169)
Cash dividend --- --- --- (2,586) --- --- --- (2,586)
Purchase of treasury stock --- --- --- --- (782) --- --- (782)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 12,672,262 31,681 50,836 (9,297) (129) 841 (169) 73,763
Net Income 1999 --- --- --- 5,400 --- --- --- 5,400
Other comprehensive (loss),
net of tax --- --- --- --- --- (3,222) --- (3,222)
Reallocate for no par value stock --- 40,077 (50,836) 10,759 --- --- --- ---
Exercise of stock options --- (428) --- --- 697 --- --- 269
Payment on loan issued for
options exercised --- --- --- --- --- --- 21 21
Cash dividend --- --- --- (3,314) --- --- --- (3,314)
Purchase of treasury stock --- --- --- --- (635) --- --- (635)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 12,672,262 71,330 --- 3,548 (67) (2,381) (148) 72,282
Net Income 2000 --- --- --- 10,005 --- --- --- 10,005
Other comprehensive income,
net of tax --- --- --- --- --- 2,119 --- 2,119
Exercise of stock options --- (139) --- --- 375 --- --- 236
Stock dividends 633,613 6,666 --- (6,666) --- --- --- ---
Payment on loan issued for
options exercised --- --- --- --- --- --- 78 78
Cash dividend --- --- --- (3,852) --- --- --- (3,852)
Purchase of treasury stock --- --- --- --- (2,244) --- --- (2,244)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000 13,305,875 $77,857 $0 $3,035 ($1,936) ($262) ($70) $78,624
==================================================================================================================================
|
See accompanying notes to consolidated financial statements
Lakeland Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (in thousands)
Net income $10,005 $5,400 $7,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization (accretion) of premiums, discounts and
deferred loan fees and costs (132) 554 1,011
Depreciation 2,161 2,343 1,758
Amortization of intangible assets 142
Provision for loan losses 2,000 1,781 698
Provision for losses on other real estate --- 200 ---
(Gain) loss on sale of securities 529 (32) (119)
Deferred income tax (1,103) 347 19
(Increase) decrease in other assets 470 (839) (963)
(Decrease) increase in other liabilities 994 341 (4)
-------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,066 10,095 10,357
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits with banks 156 (12) (102)
Proceeds from repayments on and maturity of securities:
Available for sale 22,421 27,401 57,081
Held for maturity 25,163 23,423 26,982
Proceeds from sales of securities available for sale 29,756 12,755 23,891
Purchase of securities:
Available for sale (85,324) (57,817) (105,296)
Held for maturity (7,576) (33,468) (26,181)
Net increase in loans (46,336) (37,174) (39,139)
Sales of loans and participation interest in loan 834 8,852 5,962
Purchase of leasing company (3,100) --- ---
Proceeds from dispositions of premises and equipment 14 --- 9
Capital expenditures (4,854) (3,574) (5,849)
Net (increase) decrease in other real estate owned (95) 1,429 258
-------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (68,941) (58,185) (62,384)
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 64,023 24,928 59,910
Increase (decrease) in securities sold under agreements
to repurchase 161 2,379 (3,627)
Proceeds from long-term repurchase agreements 10,000 1,000 ---
Repayments of long-term debt principal (5,000) --- ---
Proceeds from common stock issuances --- --- 470
Purchase of treasury stock (2,244) (635) (782)
Exercise of stock options 236 269 290
Dividends paid (3,852) (3,314) (2,586)
-------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,324 24,627 53,675
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,449 (23,463) 1,648
Cash and cash equivalents, beginning of year 40,342 63,805 62,157
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $49,791 $40,342 $63,805
=======================================================================================================
|
See accompanying notes to consolidated financial statements
Lakeland Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Lakeland Bancorp, Inc. (the Company) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiaries, Lakeland Bank (Lakeland) and The National Bank of Sussex County (NBSC) (collectively, the Banks). Metropolitan State Bank (Metropolitan) was fully merged into Lakeland on January 28, 2000. The Banks combine to generate commercial, mortgage and consumer loans and to receive deposits from customers located primarily in Northern New Jersey. The Banks also provide securities brokerage services, including mutual funds and variable annuities. Lakeland operates under a state bank charter and provides full banking services and, as a state bank, is subject to regulation by the New Jersey Department of Banking and Insurance. NBSC is a federally chartered national banking association and a member of the Federal Reserve System.
The Banks operate as commercial banks offering a wide variety of commercial loans and, to a lesser degree, consumer credits. Their primary future strategic aim is to establish a reputation and market presence as the "small and middle market business bank" in their principal markets. The Banks fund their loans primarily by offering time, savings and money market, and demand deposit accounts to both commercial enterprises and individuals. Additionally, the Banks originate residential mortgage loans, and service such loans which are owned by other investors. Lakeland also has a leasing division which provides equipment lease financing to small and medium sized business clients.
The Company and the Banks are subject to regulations of certain state and federal agencies and, accordingly, they are periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Banks' business is particularly susceptible to being affected by state and federal legislation and regulations.
Basis of Financial Statement Presentation
The accounting and reporting policies of the Company and the Banks conform with accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland, NBSC, Lakeland Investment Corp., NBSC Investment Company, and, prior to January 28, 2000, Metropolitan. All intercompany balances and transactions have been eliminated. As described in Note 2, the Company's acquisitions of NBSC in 1999, and Metropolitan in 1998, were accounted for under the pooling of interests method of accounting. Accordingly, all prior period amounts have been restated to reflect the acquisitions.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates implicit in these financial statements are as follows.
The principal estimates that are particularly susceptible to significant change in the near term relate to the allowance for possible loan losses and other real estate owned.
The evaluation of the adequacy of the allowance for possible loan losses includes, among other factors, an analysis of historical loss rates, by category, applied to current loan totals. However, actual losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from estimated loss percentages, which are established based upon a limited number of potential loss classifications.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. The statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The statement also requires that public enterprises report a measure of segment profit or loss, certain specific revenue and expense items and segment assets. It also requires that information be reported about revenues derived from the enterprises' products or services, or about the countries in which the enterprises earn revenues and hold assets, and about major customers, regardless of whether that information is used in making operating decisions.
The Company has one reportable segment, "Community Banking." All of the Company's activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.
Investment Securities
The Company accounts for its investment securities in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
This standard requires investments in securities to be classified in one of
three categories: held to maturity, trading, or available for sale.
Investments in debt and equity securities, for which management has both the
ability and intent to hold to maturity, are carried at cost, adjusted for
the amortization of premiums and accretion of discounts computed by the
interest method. Investments in debt and equity securities, which management
believes may be sold prior to maturity due to changes in interest rates,
prepayment risk and equity, liquidity requirements, or other factors, are
classified as available for sale. Net unrealized gains and losses for such
securities, net of tax effect, are reported as other comprehensive income
(loss) and excluded from the determination of net income. The Company does
not engage in security trading. Gains or losses on disposition of investment
securities are based on the net proceeds and the adjusted carrying amount of
the securities sold using the specific identification method.
Loans and Allowance for Possible Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for possible loan losses. The allowance for possible loan losses is established through a provision for possible loan losses charged to expense. Loan principal considered to be uncollectible by management is charged against the allowance for possible loan losses. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based upon an evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the loan portfolio, overall portfolio quality, specific problem loans, and current and future economic conditions which may affect the borrowers' ability to pay. The evaluation also details historical losses by loan category, the resulting loss rates for which are projected at current loan total amounts. Loss estimates for specified problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. When a loan is placed on such non-accrual status, all accumulated accrued interest receivable applicable to periods prior to the current year is charged
off to the allowance for possible loan losses. Interest which had accrued in the current year is reversed out of current period income. Loans 90 days or more past due and still accruing interest must have both principal and accruing interest adequately secured and must be in the process of collection.
The Company accounts for impaired loans in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". This standard requires that a creditor measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral-dependent. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.
Bank Premises and Equipment
Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the terms of the related leases.
Other Real Estate Owned
Other real estate owned (OREO), representing property acquired through foreclosure, is carried at the lower of the principal balance of the secured loan or fair value less estimated disposal costs of the acquired property. Costs relating to holding the assets are charged to expense. An allowance for OREO has been established, through charges to OREO expense, to maintain properties at the lower of cost or fair value less estimated cost to sell. Operating results of OREO, including rental income, operating expenses and gains and losses realized from the sale of properties owned, are included in other expenses.
Mortgage Servicing
The Company performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for these services. At December 31, 2000 and 1999, the Banks were servicing approximately $36.1 million and $39.7 million, respectively, of loans for others.
The Company follows SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," as amended by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125," which provides accounting guidance on transfers of financial assets, servicing of financial assets and extinguishments of liabilities. The Company originates mortgages under a definitive plan to sell or securitize those loans and service the loans owned by the investor. Upon the transfer of the mortgage loans in a sale or a securitization, the Company records the servicing assets retained in accordance with SFAS No. 125. The Company records mortgage servicing rights and the loans based on relative fair values at the date of origination. In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", was issued and replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for the securitizations and other transfers of financial assets and collateral. This new standard also requires certain disclosures, but carries over most of the provisions of SFAS No. 125. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial statements.
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans are also accounted for in accordance with SFAS No. 134, "Accounting for Mortgage Securities Retained after the securitizations of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise". This new statement requires that an entity engaged in mortgage banking activities classify the retained mortgage-backed security or other interest, which resulted from the securitizations of a mortgage loan held for sale, based upon its ability and intent to sell or hold these investments.
Long-lived Assets
The Company accounts for long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 provides guidance on when to recognize and how to measure impairment losses of long-lived assets and certain identifiable intangibles and how to value long-lived assets to be disposed of.
Restrictions On Cash And Due From Banks
The Banks are required to maintain reserves against customer demand deposits by keeping cash on hand or balances with the Federal Reserve Bank of New York in a non-interest bearing account. The amounts of those reserves and cash balances at December 31, 2000 and 1999 were approximately $300,000 each year.
Earnings Per Common Share
The Company follows the provisions of SFAS No. 128, "Earnings Per Share," which eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. All weighted average, actual shares or per share information in the financial statements have been adjusted retroactively for the effect of stock dividends.
Employee Benefit Plans
The Banks have certain employee benefit plans covering substantially all employees. The Banks accrue such costs as incurred.
The Company follows the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, the standard permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. The Company's stock option plans are accounted for under APB Opinion No. 25.
Statement Of Cash Flows
Cash and cash equivalents are defined as cash on hand, cash items in the process of collection, amounts due from banks and federal funds sold with an original maturity of three months or less. Cash paid for income taxes was $4.2 million, $2.8 million and $4.2 million in 2000, 1999 and 1998, respectively. Cash paid for interest was $20.8 million, $20.3 million and $19.8 million in 2000, 1999 and 1998, respectively.
2000 1999 1998
-------------------------------------
(in thousands)
Supplemental schedule of noncash investing and
financing activities:
Transfer of securities available for sale to securities held
to maturity $--- $25,396 $10,121
Transfer of loans receivable to other real estate owned 326 457 772
Loans to facilitate the sale of other real estate owned --- 475 565
Transfer of premises to other real estate owned --- --- 272
|
Comprehensive Income
The Company follows the disclosure provisions of SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
December 31, 2000
----------------------------------------------
(in thousands)
Tax Net of
Before tax (expense) tax
amount benefit amount
---------- ------------- ------------
Unrealized gains (losses) on investment securities
Unrealized holding gains arising during the period $2,891 ($1,103) $1,788
Less: reclassification adjustment for losses
realized in net income (529) 198 (331)
------ ------- ------
Other comprehensive income, net $3,420 ($1,301) $2,119
====== ======= ======
December 31, 1999
----------------------------------------------
(in thousands)
Tax Net of
Before tax (expense) tax
amount benefit amount
---------- ------------- ------------
Unrealized gains (losses) on investment securities
Unrealized holding losses arising during the period ($5,132) $1,930 ($3,202)
Less: reclassification adjustment for gains
realized in net income 32 (12) 20
------- ------ -------
Other comprehensive losses, net ($5,164) $1,942 ($3,222)
======= ====== =======
December 31, 1998
----------------------------------------------
(in thousands)
Tax Net of
Before tax (expense) tax
amount benefit amount
---------- ------------- ------------
Unrealized gains on investment securities
Unrealized holding gains arising during the period $597 ($239) $358
Less: reclassification adjustment for gains
realized in net income 119 (48) 71
------- ------ -------
Other comprehensive income, net $ 478 ($191) $ 287
======= ====== =======
|
Other Information
In June 1998, the SFAS No. 133, ("SFAS No. 133") "Accounting for Derivative Instruments and Hedging Activities" was amended in June, 1999 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," (collectively SFAS No. 133). SFAS No. 133 requires that entities recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Under SFAS No. 133 an entity may designate a derivative as a hedge of exposure to either changes in: (a) fair value of a recognized asset or liability or firm commitment, (b) cash flows of a recognized or forecasted transaction, or (c) foreign currencies of a net investment in foreign operations, firm commitments, available-for-sale securities or a forecasted transaction. Depending upon the effectiveness of the hedge and/or the transaction being hedged, any changes in the fair value of the derivative instrument is either recognized in earnings in the current year, deferred to future periods, or recognized in other comprehensive income. Changes in the fair value of all derivative instruments not recognized as hedge accounting are recognized in current year earnings. SFAS No. 133 is required for all fiscal quarters or fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 effective January 1, 2001. No adjustment was required
as a result of the change in accounting principle.
Statement of Financial Accounting Standards No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS No. 119") requires disclosures about financial instruments, which are defined as futures, forwards, swap and option contracts and other financial instruments with similar characteristics. On balance sheet receivables and payables are excluded from this definition. The Company did not hold any derivative financial instruments as defined by SFAS No. 119 at December 31, 2000, 1999 or 1998.
Goodwill
Goodwill resulting from the acquisition of NIA leasing in 2000 is being amortized on a straight line basis over approximately 15 years and is included in other assets. The unamortized balance at December 31, 2000 was $2.5 million. Amortization expense for the year ended December 31, 2000 was $131,000.
Reclassifications
Certain reclassifications have been made to the prior period financial statements to conform to the 2000 presentation.
NOTE 2 - ACQUISITIONS
On April 4, 2000, Lakeland Bank purchased NIA National Leasing Inc. (NIA). NIA leases equipment to small to medium size businesses. The transaction was accounted for under the purchase method of accounting. Lakeland recorded $2.6 million of goodwill to be amortized over 15 years. The results of operations for the period April 4, 2000 through December 31, 2000 are included in the Company's income. NIA was merged into Lakeland Bank and is a division of Lakeland Bank.
On July 15, 1999, the Company completed a merger with High Point Financial Corp. (High Point). Under the terms of the merger, each share of High Point common stock not previously owned by the Company was converted into 1.20 shares of Company common stock, resulting in the issuance of 4,368,708 shares of the Company's common stock and The National Bank of Sussex County (NBSC) became a wholly-owned subsidiary of the Company. This merger was accounted for under the pooling of interests method of accounting.
The results of operations of previous separate companies follow:
December 31, 1999
---------------------------------------------------------------------------------------------
Net
Net Interest Income Income
---------------------------------------------------------------------------------------------
(in thousands)
---------------------------------------------------------------------------------------------
Lakeland Bancorp, Inc. $28,473 $4,352
The National Bank of Sussex County as of July 15, 1999 5,317 1,048
---------------------------------------------------------------------------------------------
$33,790 $5,400
=============================================================================================
|
On February 20, 1998, the Company completed a merger with Metropolitan State Bank (Metropolitan). Under the terms of the merger, each share of Metropolitan common stock was converted into 0.941 shares of Company common stock, resulting in the issuance of 703,466 shares of the Company's common stock and Metropolitan become a wholly-owned subsidiary of the Company. This merger was accounted for under the pooling of interests method of accounting. As of January 28, 2000, Metropolitan was merged into Lakeland. There was no impact on results of operations.
The results of operations of previous separate companies follow:
December 31, 1998
-------------------------------------------------------------------------------------------
Net
(in thousands) Net Interest Income Income
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Lakeland Bancorp, Inc. $31,314 $7,809
Metropolitan State Bank, as of February 20, 1998 681 148
-------------------------------------------------------------------------------------------
$31,995 $7,957
===========================================================================================
|
NOTE 3 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and the fair value of
the Company's available for sale and held to maturity securities are as
follows:
AVAILABLE FOR SALE December 31, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
U.S. Treasury and
U.S. government agencies $69,412 $370 $(659) $69,123 $83,693 $92 $(1,798) $81,987
Mortgage-backed securities 53,014 607 (44) 53,577 12,330 54 (378) 12,006
Obligations of states and
political subdivisions 34,421 172 (238) 34,355 42,236 23 (1,426) 40,833
Other debt securities 20,617 209 (823) 20,003 9,683 --- (397) 9,286
Equity securities 10,778 44 --- 10,822 8,467 12 --- 8,479
----------------------------------------------------------------------------------------------------------------------------------
$188,242 $1,402 $(1,764) $187,880 $156,409 $181 $(3,999) $152,591
==================================================================================================================================
|
HELD TO MATURITY December 31, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
U.S. Treasury and
U.S. government agencies $55,476 $286 $(142) $55,620 $72,311 $48 $(1,197) $71,162
Mortgage-backed securities 26,612 133 (210) 26,535 24,882 15 (522) 24,375
Obligations of states and
political subdivisions 14,832 58 (75) 14,815 16,735 12 (240) 16,507
Other debt securities 10,940 --- (599) 10,341 11,202 --- (495) 10,707
----------------------------------------------------------------------------------------------------------------------------------
$107,860 $477 $(1,026) $107,311 $125,130 $75 $(2,454) $122,751
==================================================================================================================================
|
The following table lists maturities of debt and equity securities at December 31, 2000 classified as available for sale and held to maturity:
December 31, 2000
-------------------------------------------------------------------------------------------------------
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------------------------------------------------------------------
(in thousands)
Due in one year or less $12,873 $12,840 $20,546 $20,547
Due after one year through
five years 73,824 73,130 56,776 56,252
Due after five years through ten
years 27,259 27,415 3,447 3,495
Due after ten years 10,494 10,096 479 482
-------------------------------------------------------------------------------------------------------
124,450 123,481 81,248 80,776
Mortgage-backed securities 53,014 53,577 26,612 26,535
Other investments 10,778 10,822 --- ---
-------------------------------------------------------------------------------------------------------
Total securities $188,242 $187,880 $107,860 $107,311
=======================================================================================================
|
Year ended December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Sales proceeds $29,756 $ 12,801 $ 23,891
Gross gains 54 38 143
Gross losses 582 6 24
|
Securities with a carrying value of approximately $29.5 million and $29.2 million at December 31, 2000 and 1999, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
NOTE 4 - LOANS
December 31,
2000 1999
-------------------------------------------------------------------------------------------------------
(in thousands)
Commercial $222,222 $220,779
Real estate-mortgage 148,178 136,687
Real estate-construction 12,757 11,938
Home Equity and Consumer 137,850 106,878
-------------------------------------------------------------------------------------------------------
Total loans 521,007 476,282
Less:deferred fees (costs) (834) (232)
-------------------------------------------------------------------------------------------------------
Loans net of deferred fees (costs) $521,841 $476,514
=======================================================================================================
|
Changes in the allowance for possible loan losses are as follows:
Year ended December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Balance at beginning of year $ 7,668 $ 7,984 $ 8,262
Provision for possible loan losses 2,000 1,781 698
Loans charged off (1,267) (2,423) (1,667)
Recoveries 489 326 691
--------- --------- ---------
Balance at end of year $ 8,890 $ 7,668 $ 7,984
========= ========= =========
|
The balance of impaired loans was $4.5 million and $4.3 million at December 31, 2000 and 1999, respectively. The Banks identify a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreements. The allowance for possible loan losses associated with impaired loans was $839,000, $511,000 and $638,000 at December 31, 2000, 1999 and 1998, respectively. The average recorded investment on impaired loans was $4.6 million, $4.3 million and $5.9 million during 2000, 1999 and 1998, respectively, and the income recognized, primarily on the cash basis, on impaired loans was $585,000, $325,000 and $621,000 during 2000, 1999 and 1998, respectively. Interest which would have been accrued on impaired loans during 2000, 1999 and 1998 was $517,000, $486,000 and $593,000, respectively. The Banks' policy for interest income recognition on impaired loans is to recognize income on restructured loans under the accrual method. The Banks recognize income on non-accrual loans under the cash basis when the loans are both current and the collateral on the loan is sufficient to cover the outstanding obligation to the Banks; if these factors do not exist, the Banks will not recognize income.
Non-performing loans consist of loans past due 90 days or more, non-accrual loans and renegotiated loans. Loans past due 90 days or more are those loans as to which payment of interest or principal is in arrears for a period of 90 days or more but is adequately collateralized as to interest and principal or is in the process of collection. Non-accrual loans are those on which income under the accrual method has been discontinued with subsequent interest payments credited to interest income when received, or if ultimate collectibility of principal is in doubt, applied as principal reductions. Renegotiated loans are loans whose contractual interest rates have been reduced or where other significant modifications have been made due to borrowers' financial difficulties. Interest on these loans is either accrued or credited directly to interest income. Non-performing loans were as follows:
December 31,
---------------------------------
2000 1999 1998
---------------------------------
(In thousands)
Non-performing loans:
Non-accrual loans $2,564 $2,961 $3,281
Past due loans 90 days or more 1,992 2,210 4,265
Renegotiated loans --- 389 399
---------------------------------
$4,556 $5,560 $7,945
=================================
|
The impact of the above non-performing loans on interest income is as follows:
December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Interest income if performing in accordance
with original terms $ 517 $ 486 $ 593
Interest income actually recorded 446 348 606
--------- --------- ---------
$ 71 $ 138 $ (13)
========= ========= =========
|
The Banks have entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable transactions with other borrowers. These loans at December 31, 2000, were current as to principal and interest payments, and do not involve more than normal risk of collectibility. At December 31, 2000, loans to these related parties amounted to $14.2 million. An analysis of activity in loans to related parties at December 31, 2000, resulted in new loans of $9.4 million and repayments of $11.8 million.
NOTE 5 - PREMISES AND EQUIPMENT
Estimated December 31,
useful lives 2000 1999
---------------------------------------------------------------------------------------------------
(in thousands)
Land $4,179 $4,178
Buildings and building improvements 10 to 50 years 17,507 13,795
Leasehold improvements 10 to 50 years 1,613 1,660
Furniture, fixtures and equipment 2 to 30 years 12,227 11,808
---------------------------------------------------------------------------------------------------
35,526 31,441
Less accumulated depreciation and amortization 11,130 9,544
---------------------------------------------------------------------------------------------------
$24,396 $21,897
===================================================================================================
|
NOTE 6 - DEPOSITS
At December 31, 2000, the schedule of maturities of certificates of deposit is as follows (in thousands):
Year
----
2001 $218,872
2002 32,741
2003 8,347
2004 4,268
2005 724
Thereafter 1,672
-----------
$266,624
-----------
|
NOTE 7 - DEBT
Lines of Credit
As of December 31, 2000, Lakeland and NBSC had approved but unused borrowing capacity with the Federal Home Loan Bank (FHLB), collateralized by FHLB stock, of $57.1 million and $29.7 million, respectively. Borrowings under this arrangement have an interest rate that fluctuates based on market conditions and customer demand. As of December 31, 2000 and 1999, there were no related outstanding borrowings.
Securities Sold Under Agreements to Repurchase
Borrowed money at December 31, 2000 and 1999 consisted of short-term securities sold under agreements to repurchase. Securities underlying the agreements were under NBSC's and Metropolitan's control. The table below summarizes information relating to those securities sold for 2000, 1999 and 1998. For purposes of the table, the average amount outstanding was calculated based on a daily average.
2000 1999 1998
-----------------------------------------
(in thousands)
Balance at December 31 $ 10,650 $ 10,489 $ 8,110
Interest rate at December 31 5.09% 4.02% 3.52%
Maximum amount outstanding at any month-end during the year $ 26,513 $ 18,351 $ 18,019
Average amount outstanding during the year $ 13,350 $ 13,981 $ 13,021
Weighted average interest rate during the year 4.61% 3.70% 4.05%
|
Long-Term Debt
NBSC sold $10 million in securities under an agreement to repurchase to the Federal Home Loan Bank (the FHLB) of New York. The securities bear an interest rate of 5.77% and have a maturity date of November 8, 2010, subject to the FHLB's option to convert this advance on November 6, 2002 and quarterly thereafter. If the Company chooses not to replace the funding, the Company will repay the convertible advance including any accrued interest on the optional conversion date.
Lakeland has a $1 million five year convertible advance with the FHLB of New York. The borrowing has an interest rate of 5.03% and a maturity date of April 13, 2004, subject to the FHLB's option to convert this advance on April 13, 2001 and quarterly thereafter. The FHLB may convert the advance with four business days notice for the same or less principal amount at the then current market rates. If the Company chooses not to replace the funding, the Company will repay the convertible advance including any accrued interest on the optional conversion date.
NBSC sold $5 million in securities under an agreement to repurchase to the FHLB . The securities had an interest rate of 5.98% and a maturity date of August 20, 2002, subject to the FHLB's option to convert this advance on August 20, 2000 and quarterly thereafter. The FHLB chose to convert this advance on August 20, 2000 and NBSC repaid the advance and did not replace the funding.
NOTE 8 - STOCKHOLDERS' EQUITY
In January 2001, the Company announced a stock repurchase program for the purchase of up to 250,000 shares of the Company's outstanding common stock over the next year.
In March 2000, the Company approved a stock repurchase plan of 210,000 shares of its common stock. During 2000, the Company purchased 206,781 shares of its outstanding common stock under the program at an average price of $10.78 per share for an aggregate cost of $2.2 million.
On October 11, 2000, the Company's Board of Directors authorized a 5% stock dividend, which was distributed on November 15, 2000.
On July 19, 1999, the Corporation amended its Certificate of Incorporation to increase the number of authorized common shares from 14,806,718 shares with a par value of $2.50 to 40,000,000 shares with no par value. As a result, the additional paid in capital account has been combined with the common stock account as presented in the consolidated statement of changes in stockholders' equity.
On August 26, 1998, the Company's Board of Directors authorized a 2 for 1 stock split effected in the form of a 100% stock dividend, which was distributed on October 1, 1998. The deficit in undivided profits contained in the December 31, 1998 consolidated financial statements is primarily the result of a bookkeeping entry charging undivided profits $10.8 million in connection with the Company's accounting for its 2 for 1 stock split effected in the form of a 100% stock dividend distributed October 1, 1998. In accordance with New Jersey corporate law, the Company's Board of Directors on March 10, 1999, approved the reversing of this accounting treatment of the stock dividend, thereby moving the $10.8 million from the capital stock account to the undivided profits account to more
accurately reflect the Company's financial condition. This reclassification was reflected in the Company's consolidated statement of changes in stockholders' equity as of December 31, 1999.
NOTE 9 - INCOME TAXES
The components of income taxes are as follows:
Years Ended December 31,
2000 1999 1998
---------------------------------------------------------------------------------------------------
(in thousands)
Current $5,798 $2,367 $4,345
Deferred (benefit) (1,103) 347 79
---------------------------------------------------------------------------------------------------
Total provision for income taxes $4,695 $2,714 $4,424
===================================================================================================
|
The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate is as follows:
Years Ended December 31,
2000 1999 1998
Amount Amount Amount
-----------------------------------------------------------------------------------------------
(in thousands)
Federal income tax, at statutory rates $4,998 $2,757 $4,209
Increase (deduction) in taxes resulting from:
Change in valuation allowance -- -- (214)
Non-taxable interest income (848) (797) (497)
State income tax, net of federal
income tax effect 272 243 566
Other-net 273 511 360
-----------------------------------------------------------------------------------------------
Provision for income taxes $4,695 $2,714 $4,424
===============================================================================================
|
The net deferred tax asset consisted of the following:
December 31,
2000 1999
--------------------------------------------------------------------------------------------
(in thousands)
Allowance for possible loan losses $3,526 $2,170
Valuation reserves for land held for sale and other
real estate 660 660
Non-accrued interest 405 398
Depreciation 212 61
Deferred compensation 756 658
Other, net 35 48
Unrealized losses on securities available for sale 100 1,437
-------- --------
Deferred tax asset 5,694 5,432
-------- --------
Deferred tax liabilities
Other 867 371
-------- --------
Deferred tax liabilities 867 371
-------- --------
Net deferred tax assets, included in other assets $4,827 $5,061
======== ========
|
NOTE 10 - EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS No. 128 is as follows:
Year ended December 31, 2000
--------------------------------------------
(in thousands except per share amounts)
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ----------
Basic earnings per share
Net income available to common shareholders $10,005 13,250 $0.76
Effect of dilutive securities
Stock options --- 78 (0.01)
------- ------ -----
Diluted earnings per share
Net income available to common shareholders
plus assumed conversions $10,005 13,328 $0.75
======= ====== =====
Year ended December 31, 1999
--------------------------------------------
(in thousands except per share amounts)
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ----------
Basic earnings per share
Net income available to common shareholders $5,400 13,295 $0.41
Effect of dilutive securities
Stock options --- 54 (0.01)
------ ------ -----
Diluted earnings per share
Net income available to common shareholders
plus assumed conversions $5,400 13,349 $0.40
====== ====== =====
Year ended December 31, 1998
--------------------------------------------
(in thousands except per share amounts)
Income Shares Per share
(numerator) (denominator) amount
----------- ------------- ----------
Basic earnings per share
Net income available to common shareholders $ 7,957 13,270 $ 0.60
Effect of dilutive securities
Stock options --- 85 ---
--------- ------ ------
Diluted earnings per share
Net income available to common shareholders
plus assumed conversions $ 7,957 13,355 $ 0.60
========= ====== ======
|
NOTE 11 - EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
Lakeland has a profit sharing plan for all its eligible employees. Lakeland's annual contribution to the plan is determined by Lakeland's Board of Directors. Annual contributions are allocated to participants on a point basis with accumulated benefits payable at retirement, or, at the discretion of the plan committee, upon termination of employment. Contributions made by the Company were approximately $250,000 for each of the years ended December 31, 2000 and 1999, and $200,000 for the year ended December 31, 1998.
Salary Continuation Agreements
NBSC entered into a salary continuation agreement during 1996 with its Chief Executive Officer and its President which entitle them to certain payments upon their retirement. As part of the merger, Lakeland placed in trusts amounts equal to the present value of the amounts that would be owed to them in their retirement. These amounts would be $722,000 for the Chief Executive Officer and $381,000 for the President. Lakeland has no further obligation to pay additional amounts pursuant to these agreements.
Former CEO Retirement Benefits
Metropolitan entered into an agreement in January 1997 with its former Chief Executive Officer (CEO), which provides for an annual retirement benefit of $35,000 for a 15-year period. In February 1999, the Company entered into an additional agreement with this CEO. Such agreement provides for an additional retirement benefit of $35,000 per annum for a fifteen year period as well as certain retiree medical benefits. The present value of this obligation was charged to operations. During 2000, 1999 and 1998, $35,000, $179,000 and $154,000, respectively, was charged to operations related to these obligations.
Retirement Savings Plans (401K plans)
NBSC has a retirement savings plan (commonly known as a "401(k)") covering qualified employees. NBSC's contributions to the 401(k) totaled $83,000 in 2000, $86,000 in 1999 and $76,000 in 1998.
Prior to its merger into Lakeland, Metropolitan had a 401(k) plan covering substantially all employees. Beginning January 1, 1998, Metropolitan matched 50% of employee contributions for all participants, not to exceed 5% of their total salary. Contributions made by Metropolitan were $26,000 and $27,000, respectively, for the years ended December 31, 1999 and 1998.
Employee Stock Ownership Plan
NBSC has an Employee Stock Ownership Plan ("ESOP"). NBSC's contributions to the ESOP totaled $200,000 each year ended December 31, 1999 and 1998. No contributions were made in the year ended December 31, 2000.
Postretirement Health Care Benefits
In 2000, the Company instituted postretirement health care benefits and life insurance coverage to its employees who meet certain predefined criteria. The expected cost of these benefits is charged to expense during the years that eligible employees render service. Prior to 2000, NBSC provided post retirement benefits to its eligible employees. All information prior to 2000 is for NBSC only.
The accumulated postretirement benefit obligations (APBO's) as of December 31, 2000 and 1999 were as follows:
in thousands) 2000 1999 -------------------------------------------------------------------------------------------- Accumulated post retirement benefit obligation, January 1 $375 $184 Service cost 28 12 Interest Cost 31 15 Actuarial gain (loss) (40) 40 Estimated benefit payments (26) (9) -------------------------------------------------------------------------------------------- Total accumulated post retirement benefit obligation 368 242 Unrecognized net gain (loss) due to past experience different from that assumed and effects of changes in assumptions made 26 133 Unamortized transition obligation (70) (111) -------------------------------------------------------------------------------------------- Accrued accumulated post retirement benefit obligation $324 $264 ============================================================================================ |
Because the Company's postretirement benefit plan reduced the number of employees eligible for postretirement benefits and reduced the time period for which they would be eligible, a curtailment gain is being recognized in 2000.
The components of net periodic post retirement benefit cost are as follows:
(in thousands) 2000 1999 1998 ------------------------------------------------------------------------------------------------------- Service cost, benefits attributed to employee service during the year $28 $12 $8 Interest cost on APBO 31 15 12 Recognition of curtailment gain (24) --- --- Amortization of prior service cost 47 --- --- Amortization of transition obligation 6 8 8 Amortization of gains (15) (13) (18) ------------------------------------------------------------------------------------------------------- Net periodic postretirement cost $73 $22 $10 ======================================================================================================= |
The discount rate used to determine the Company's APBO for 2000 was 7.75%, for 1999 was 7.25% and for 1998 was 6.75%. The rate of increase projected for future compensation levels was 4.0%. The Company projected that the cost of medical benefits would increase at the following rates: 8.0% in 2001 grading down to 5.0% in 2006 and each year thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
Increase Decrease
-------- --------
Effect on total of service and interest cost components 29.4% (24.4%)
Effect on the postretirement benefit obligation 29.2% (24.6%)
|
Deferred Compensation Arrangements
High Point had established deferred compensation arrangements for certain directors and executives of High Point and NBSC. The deferred compensation plans differ, but generally provide for annual payments for ten to fifteen years following retirement. The Company's liabilities under these arrangements are being accrued from the commencement of the plans over the participants' remaining periods of service. The Company intends to fund its obligations under the deferred compensation arrangements with the proceeds of life insurance policies that it has purchased on the respective participants. The deferred compensation plans do not hold any assets.
NOTE 12 - DIRECTORS RETIREMENT PLAN
The Company provides a plan that any director who completes ten years of service may retire and continue to be paid for a period of ten years at a rate of $5,000, $7,500, $10,000 or $12,500 per annum, depending upon years of credited service. This plan is unfunded. The following tables present the status of the plan and the components of net periodic plan cost for the years then ended.
December 31,
-------------------------------
2000 1999
------------ ------------
(in thousands)
Actuarial present value of benefit obligation
Vested $ 355 $ 276
Nonvested 7 4
------------ ------------
$ 362 $ 280
============ ============
Projected benefit obligation $ 416 $ 316
Unrecognized net gain (loss) 38 (23)
Unrecognized prior service cost being amortized over fifteen years (288) (178)
------------ ------------
Accrued plan cost included in other liabilities $ 166 $ 115
============ ============
|
Year ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ -----------
(in thousands)
Net periodic plan cost included the following components:
Service cost $ 3 $ 1 $ 1
Interest cost 29 21 19
Amortization of prior service cost 29 16 16
------------ ------------ -----------
$ 61 $ 38 $ 36
============ ============ ===========
|
A discount rate of 7% was assumed in the plan valuation. As the benefit amount is not dependent upon compensation levels, a rate of increase in compensation assumption was not utilized in the plan valuation.
NOTE 13 - STOCK OPTION PLANS
Employee Incentive Stock Option Plans
In February 2000, the Company established the 2000 Equity Compensation Program which authorizes the granting of incentive stock options and supplemental stock options to employees of the Company which includes those employees serving as officers and directors of the Company. The program also provides for the automatic grant of stock options to independent directors of the Company. The plan covers options to purchase up to 997,500 shares of common stock of the Company.
During 2000, the Company granted supplemental options to purchase 288,750 shares of common stock to the non-employee directors of Lakeland Bancorp. These are exercisable in five equal installments beginning on the date of grant and continuing on the next four anniversaries of the date of grant.
During 2000, the Company granted options to purchase 202,105 shares of
common stock to key employees. The shares are exercisable in four equal
installments on the first, second, third and fourth anniversary of the date
of grant.
In addition to the 2000 Equity Compensation program, the Company has assumed the outstanding options granted under three employee stock option plans established by High Point (the High Point Plans). The 1997 plan covers options to purchase up to 170,000 shares; the 1990 plan covers options to purchase up to 63,000 shares; and the 1987 plan covers options to purchase up to 63,068 shares. As of December 31, 2000, 68,980 options are outstanding under the High Point Plans.
Non-employee Director Stock Option Plan
The Company has assumed outstanding options granted under the 1996 Non-employee Director Stock Option Plan established by High Point. Options granted under this plan were at fair market value as of the date of grant. These options vest at a rate of 20% a year for five years. As of December 31, 2000, 20,680 options under the 1996 Director Stock Option Plan were outstanding.
Had compensation cost for the plans been determined based on the fair value of the options at the grant dates consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below.
2000 1999 1998
------- ------- -------
(in thousands, except per share data)
Net income As reported $10,005 $ 5,400 $ 7,957
Pro forma 9,891 5,335 7,924
Net income per common share - basic As reported $ 0.76 $ 0.41 $ 0.60
Pro forma 0.75 0.40 0.60
Net income per common share - diluted As reported $0.75 $ 0.40 $ 0.60
Pro forma 0.74 0.40 0.59
|
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to grants before 1995.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2000: dividend rate of 3%, expected volatility of 28%, risk-free interest rate of 5.50%, and expected lives of 7 years. There were no options granted in 1998 or 1999.
A summary of the status of the Company's option plans as of December 31, 2000, 1999 and 1998 and the changes during the years ending on those dates is represented below:
2000 1999 1998
-------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
Number of exercise Number of exercise Number of exercise
shares price shares price shares price
-------------------------------------------------------------------------
Outstanding beginning of year 86,730 $5.50 137,340 $5.53 224,280 $5.50
Granted 490,855 9.26 --- --- --- ---
Exercised (33,500) 7.04 (49,350) 5.48 (85,680) 5.36
Forfeited (4,200) 8.93 (1,260) 10.02 (1,260) 10.02
-------------------------------------------------------------------------
Outstanding end of year 539,885 $8.80 86,730 $5.50 137,340 $5.53
Options exercisable at year end 110,980 86,730 137,340
========== ========== ==========
Weighted average fair value of
options granted during the
year $ 2.90 $ --- $ ---
========== ========= =========
|
The following table summarizes information about options outstanding at December 31, 2000:
Options outstanding Options exercisable
------------------------------------------------------------------------- --------------------------------
Weighted
Number average Weighted Number Weighted
outstanding at remaining average outstanding at average
Range of December 31, contractual exercise December 31, exercise
exercise prices 2000 life (years) price 2000 price
------------------- ------------------ ---------------- -------------- ------------------ ------------
$ 5.50 66,460 6.67 $5.50 66,460 $5.50
8.93-10.25 473,425 9.33 9.27 44,520 8.99
------- ------
539,885 110,980
|
NOTE 14 - RELATED PARTY TRANSACTIONS
In 1988, NBSC sold certain banking and other premises to FMI, Inc. The banking premises were leased back to the Company (as the successor of High Point) for periods ranging from 10 to 15 years. The Company (as the successor of High Point) realized a gain on this transaction, which was deferred and was amortized into income over the applicable lease terms. As of December 31, 1997, the unamortized deferred gain was approximately $216,000. In July 1998, NBSC repurchased those branches and other premises sold to FMI, Inc. for $3.2 million, the fair market value at the time of the transaction. The unamortized deferred gain of $150,000 was used to reduce the cost basis of the property. FMI, Inc. is a wholly owned subsidiary of Franklin Mutual Insurance Co. The president of FMI, Inc. was a member of High Point's Board of Directors and is currently a member of the Company's Board of Directors.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
Rentals under long-term operating leases amounted to approximately $342,000, $325,000 and $511,000 for the years ended December 31, 2000, 1999 and 1998, respectively, including rent expense to related parties of $33,000 in 2000, $58,000 in 1999, and $335,000 in 1998. At December 31, 2000, the minimum commitments, which include rental, real estate tax and other related amounts, under all noncancellable leases with remaining terms of more than one year and expiring through 2008 are as follows(in thousands):
December 31,
------------
2001 $465
2002 477
2003 444
2004 461
2005 474
Thereafter 2,393
------
$4,714
------
Litigation
|
From time to time, the Company and its subsidiaries are defendants in legal proceedings relating to their respective businesses. Management does not believe that the outcome of any legal proceeding that was pending as of December 31, 2000, or any other contingent liability or commitment, will materially affect the Company's consolidated financial position or results of operations.
NOTE 16 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Banks are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Banks have in particular classes of financial instruments.
The Banks' exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.
Unless noted otherwise, the Banks do not require collateral or other security to support financial instruments with credit risk. The approximate contract amounts are as follows:
December 31,
---------------------------
2000 1999
---------------------------
(in thousands)
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit $ 74,920 $ 72,269
Standby letters of credit and financial guarantees written 5,191 3,855
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Banks hold residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31, 2000 and 1999 varies up to 100%.
The Banks grant loans primarily to customers in their immediately adjacent suburban counties which include Bergen, Morris, Passaic, Sussex and Essex counties in Northern New Jersey and surrounding areas. Although the Banks have diversified loan portfolios, a large portion of their loans are secured by commercial or residential real property. The Banks do not generally engage in non-recourse lending and typically will require the principals of any commercial borrower to obligate themselves personally on the loan. Although the Banks have diversified loan portfolios, a substantial portion of their debtors' ability to honor their contracts is dependent upon the economic sector. Commercial and standby letters of credit were granted primarily to commercial borrowers.
NOTE 17 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the
Company, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in SFAS No.
107. However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange
transaction. Also, it is the Company's general practice and intent to hold
its financial instruments to maturity and not to engage in trading or sales
activities, except for certain loans. Therefore, the Company had to use
significant estimations and present value calculations to prepare this
disclosure.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2000 and 1999 are outlined below.
For cash and cash equivalents and interest bearing deposits with banks, the recorded book values approximate fair values. The estimated fair values of investment securities are based on quoted market prices, if available. Estimated fair values are based on quoted market prices of comparable instruments if quoted market prices are not available.
The net loan portfolio at December 31, 2000 and 1999 has been valued using a present value discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The carrying value of accrued interest approximates fair value.
The estimated fair values of demand deposits (i.e. interest (checking) and non-interest bearing demand accounts, savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The carrying amounts of variable rate accounts approximate their fair values at the reporting date. For fixed maturity certificates of deposit, fair value was estimated using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
The fair value of securities sold under agreements to repurchase and long-term debt are based upon discounted value of contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date.
The carrying values and estimated fair values of the Company's financial instruments are as follows:
December 31,
-----------------------------------------------------------
2000 1999
-----------------------------------------------------------
Carrying Estimated Carrying Estimated
Value fair value value fair value
--------------------------------------------------------------------------------------------------------------------
(in thousands)
Financial Assets:
Cash and cash equivalents $49,791 $49,791 $40,342 $40,342
Interest bearing deposits with banks 60 60 216 216
Investment securities available for sale 187,880 187,880 152,591 152,591
Investment securities held to maturity 107,860 107,311 125,130 122,751
Loans 521,007 521,654 476,282 470,384
Financial Liabilities:
Deposits $800,762 $800,296 $736,739 $737,353
Securities sold under agreements to repurchase 10,650 10,647 10,489 10,489
Long-term debt 11,000 11,200 6,000 6,000
Commitments:
Standby letters of credit -- 6 -- 15
|
NOTE 18 - REGULATORY MATTERS
The Bank Holding Company Act of 1956 restricts the amount of dividends the Company can pay. Accordingly, dividends should generally only be paid out of current earnings, as defined.
The New Jersey Banking Act of 1948 restricts the amount of dividends paid on the capital stock of New Jersey chartered banks. Accordingly, no dividends shall be paid by such banks on their capital stock unless, following the payment of such dividends, the capital stock of the banks will be unimpaired, and (1) the banks will have a surplus, as defined, of not less than 50% of their capital, or, if not, (2) the payment of such dividend will not reduce the surplus, as defined, of the banks. Under these limitations, approximately $8.0 million was available for payment of dividends from Lakeland to the Company as of December 31, 2000.
NBSC may not declare dividends in excess of the current year's earnings, plus the retained earnings from the prior two years, without prior approval from the Office of the Comptroller of the Currency. In addition, if NBSC sustains losses that exceed its aggregate retained earnings, NBSC may not pay dividends until the losses are recovered. Under these limitations approximately $3.3 million was available for the payment of dividends from NBSC to the Company as of December 31, 2000.
The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Banks' consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's and the Banks' assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2000, that the Company and the Banks met all capital adequacy requirements to which they are subject.
As of December 31, 2000, the Company and the Banks met all regulatory requirements for classification as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Banks must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions' category.
As of December 31, 2000 and 1999, the Company and the Banks have the following capital ratios:
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
-------------- ------------------------------------------ -------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- --------------------- ------------------- --------------------- --------------------
(dollars in thousands)
As of December 31, 2000
Total capital
(to risk-weighted
assets)
Company $82,395 14.84% (greater than$44,426 (greater than8.00% (greater than N/A (greater than N/A
Lakeland 54,288 13.87 or equal to)31,303 or equal to)8.00 or equal to)$39,129 or equal to)10.00%
NBSC 24,736 14.90 13,277 8.00 16,596 10.00
Tier I capital
(to risk-weighted
assets)
Company $75,430 13.58% (greater than$22,213 (greater than4.00% (greater than N/A (greater than N/A
Lakeland 49,555 12.66 or equal to)15,652 or equal to)4.00 or equal to)$23,478 or equal to) 6.00%
NBSC 22,636 13.64 6,639 4.00 9,958 6.00
Tier I capital
(to average assets)
Company $75,430 8.47% (greater than$35,617 (greater than4.00% (greater than N/A (greater than N/A
Lakeland 49,555 8.32 or equal to)23,824 or equal to)4.00 or equal to)$29,780 or equal to)5.00%
NBSC 22,636 7.31 12,382 4.00 15,478 5.00
|
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
-------------- ------------------------------------------ -------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- --------------------- ------------------- --------------------- --------------------
(dollars in thousands)
As of December 31, 1999
Total capital
(to risk-weighted
assets)
Company $80,738 16.66% (greater than$38,773 (greater than8.00% (greater than N/A (greater than N/A
Lakeland 43,691 16.42 or equal to)21,286 or equat to)8.00 or equal to)$26,608 or equal to)10.00%
NBSC 23,769 16.50 11,525 8.00 14,407 10.00
Metropolitan 9,576 13.50 5,677 8.00 7,095 10.00
Tier I capital
(to risk-weighted
assets)
Company $74,663 15.40% (greater than$19,386 (greater than4.00% (greater than N/A (greater than N/A
Lakeland 40,734 15.31 or equal to)10,643 or equal to)4.00 or equal to)$15,965 or equal to) 6.00
Metropolitan 8,825 12.44 2,838 4.00 4,257 6.00
Tier I capital
(to average assets)
Company $74,663 8.88% (greater than$33,643 (greater than4.00% (greater than N/A (greater than N/A
Lakeland 40,734 9.07 or equal to)17,964 or equal to)4.00 or equal to)$22,455 or equal to)5.00%
NBSC 21,941 7.84 11,197 4.00 13,992 5.00
Metropolitan 8,825 7.74 4,560 4.00 5,701 5.00
|
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Company, which in the opinion of management reflected all adjustments, consisting only of nonrecurring adjustments, necessary for a fair presentation of the Company's results of operations.
Quarter ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
----------------------------------------------------
(In Thousands, Except Per Share Amounts)
Total interest income $13,865 $14,023 $14,684 $15,641
Total interest expense 4,944 5,088 5,569 6,119
----------------------------------------------------
Net interest income 8,921 8,935 9,115 9,522
Provision for possible loan losses 500 500 500 500
Non-interest income 1,627 2,166 2,289 2,181
Loss on sale of securities (42) --- (21) (466)
Non-interest expense 6,366 6,991 7,172 6,998
----------------------------------------------------
Income before taxes 3,640 3,610 3,711 3,739
Income taxes 1,236 1,176 1,189 1,094
----------------------------------------------------
Net income $2,404 $2,434 $2,522 $2,645
====================================================
Earnings per share
Basic $0.18 $0.18 $0.19 $0.21
Diluted $0.18 $0.18 $0.19 $0.20
|
Quarter ended
----------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------------------------------------------------
(In Thousands, Except Per Share Amounts)
Total interest income $13,015 $13,424 $13,804 $13,788
Total interest expense 5,092 5,102 5,041 5,006
----------------------------------------------------
Net interest income 7,923 8,322 8,763 8,782
Provision for possible loan losses 105 160 140 1,376
Non-interest income 1,489 1,629 1,495 1,679
Gain on sale of securities 25 5 --- 2
Merger related expenses --- --- 2,431 1,090
Non-interest expense 6,625 6,428 6,641 7,004
----------------------------------------------------
Income before taxes 2,707 3,368 1,046 993
Income taxes 867 1,090 671 86
----------------------------------------------------
Net income $1,840 $2,278 $375 $907
====================================================
Earnings per share
Basic $0.14 $0.16 $0.03 $0.08
Diluted $0.14 $0.16 $0.03 $0.07
|
NOTE 20 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY:
BALANCE SHEETS
December 31,
ASSETS 2000 1999
-------------------------------------------------------------------
(in thousands)
Cash and due from banks $418 $130
Investment securities available for sale 443 18
Investment in bank subsidiary 75,359 69,111
Land held for sale 1,860 1,935
Other assets 759 1,303
-------------------------------------------------------------------
TOTAL ASSETS $78,839 $72,497
===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
Other liabilities $215 $215
Stockholders' equity 78,624 72,282
-------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $78,839 $72,497
===================================================================
|
INCOME STATEMENTS
Years Ended December 31,
INCOME 2000 1999 1998
-------------------------------------------------------------------------------------------------------
(in thousands)
Dividends from subsidiary $6,221 $5,010 $2,650
Other income 3 41 11
-------------------------------------------------------------------------------------------------------
TOTAL INCOME 6,224 5,051 2,661
-------------------------------------------------------------------------------------------------------
EXPENSE
Noninterest expenses 502 1,662 396
-------------------------------------------------------------------------------------------------------
TOTAL EXPENSE 502 1,662 396
-------------------------------------------------------------------------------------------------------
Income before benefit for income taxes 5,722 3,389 2,265
Benefit for income taxes (214) (267) (120)
-------------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 5,936 3,656 2,385
Equity in undistributed income of subsidiaries 4,069 1,744 5,572
-------------------------------------------------------------------------------------------------------
NET INCOME $10,005 $5,400 $7,957
=======================================================================================================
|
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
-------------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $10,005 $5,400 $7,957
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
(Increase) decrease in other assets 530 (447) 44
Increase in other liabilities --- 171 199
Equity in undistributed income of subsidiaries (4,069) (1,744) (5,572)
-------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,466 3,380 2,628
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturity of investment
securities available for sale (393) --- ---
Proceeds received from option on land held for sale 75 --- ---
-------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (318) --- ---
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock --- --- 470
Cash dividends paid on common stock (3,852) (3,314) (2,586)
Purchase of treasury stock (2,244) (635) (782)
Exercise of stock options 236 269 290
-------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (5,860) (3,680) (2,608)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 288 (300) 20
Cash and cash equivalents, beginning of year 130 430 410
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $418 $130 $430
=======================================================================================================
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ITEM 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The Company changed accountants from Radics & Co., LLC to Grant Thornton LLP during the Company's two most recent fiscal years. Information concerning this change was previously filed in Amendment No. 1 to the Registrant's Registration Statement on Form S-4 filed with the SEC on June 8, 1999.
ITEM 10 - Directors and Executive Officers of the Registrant
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 2001
Annual Meeting of Shareholders.
ITEM 11 - Executive Compensation
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 2001
Annual Meeting of Shareholders.
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 2001
Annual Meeting of Shareholders.
ITEM 13 - Certain Relationships and Related Transactions
The Company responds to this Item by incorporating by reference the material
responsive to this Item in the Company's definitive proxy statement for its 2001
Annual Meeting of Shareholders.
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The following portions of the Company's consolidated financial statements are set forth in Item 8 of this Annual Report.
(i) Consolidated Balance Sheet as of December 31, 2000 and 1999.
(ii) Consolidated Statements of Income for each of the three years in the
period ended December 31, 2000, 1999 and 1998.
(iii) Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended December 31, 2000, 1999, and 1998.
(iv) Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2000, 1999 and 1998.
(v) Notes to Consolidated Financial Statements
(vi) Report of Grant Thornton LLP
(a) 2. Financial Statement Schedules
All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated financial statements or notes thereto.
(a) 3. Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended,
is incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.
3.2 By-Laws of the Registrant are incorporated herein by
reference to Exhibit 4.2 to the Registration Statement on
Form S-3 filed by the Registrant with the Commission on
March 30, 1990.
10.1 Amended and Restated Agreement and Plan of Reorganization,
dated as of January 14, 1998, by and between the Registrant
and Metropolitan State Bank is incorporated by reference to
Appendix A to the Proxy Statement -- Prospectus, dated
January 15, 1998, contained in the Registant's Registration
Statement on Form S-4 (No. 333-42851).
10.2 Lakeland Bank Directors' Deferred Compensation Plan.
10.3 Agreement and Plan of Merger, dated as of December 7, 1998,
by and between the Registrant and High Point Financial
Corp., is incorporated by reference to Annex A, the joint
proxy statement prospectus, dated June 8, 1999, contained in
the Registrant's Registration Statement on Form S-4 (No
333-79907).
10.4 Stock Option Agreement, dated as of December 7, 1998, by and
between the Registrant and High Point Financial Corp., is
incorporated by reference to Annex D, the joint proxy
statement prospectus, dated June 8, 1999, contained in the
Registrant's Registration Statement on Form S-4
(No.333-79907).
10.5 Lakeland Bancorp, Inc. 2000 Equity Compensation Program
10.6 Employment Agreement - Change in Control, Severance and
Employment Agreement for Roger Bosma, dated as of January 1,
2000, among Lakeland Bancorp, Inc., Lakeland Bank and Roger
Bosma, is incorporated by reference to exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
10.7 Amended and Restated Agreement and Plan of Merger, made as
of December 8, 1999, between LB and MSB, is incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.
10.8 Change of Control Agreement dated March 1, 2001, among
Lakeland Bancorp, Inc., Lakeland Bank and Joseph F. Hurley.
10.9 Change of Control Agreement dated March 1, 2001, among
Lakeland Bancorp, Inc., Lakeland Bank and Robert A.
Vandenbergh.
10.10 Change of Control Agreement dated March 6, 2001, among
Lakeland Bancorp, Inc., Lakeland Bank and Louis E. Luddecke.
10.11 Change of Control Agreement dated March 7, 2001, among
Lakeland Bancorp, Inc., Lakeland Bank and jeffery J.
Buonforte.
16.1 Letter re: Change in Accountant is incorporated by
reference to Exhibit 16 to the Registrant's Current Report
on Form 8-K, filed with the Commission on February 18, 1999.
63
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21.1 Subsidiaries of Registrant.
23.1 Consent of Grant Thornton LLP Independent Certified Public
Accountants.
24.1 Power of Attorney.
99.1 Forward-looking Statement Information.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company
during the fourth quarter of 2000.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LAKELAND BANCORP, INC.
Dated: March 29, 2001 By /s/ Roger Bosma
--------------- ---------------------------
Roger Bosma
President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
*
---------------------------- Director, Chief Executive
Roger Bosma Officer, and President
*
---------------------------- Director
Robert B. Nicholson
*
---------------------------- Director
John W. Fredericks
*
---------------------------- Director
Bruce G. Bohuny
*
---------------------------- Director
Mary Ann Deacon
*
---------------------------- Director
Mark J. Fredericks
*
---------------------------- Director
John Pier, Jr.
*
---------------------------- Director
Paul P. Lubertazzi
*
---------------------------- Director
Joseph P. O'Dowd
*
---------------------------- Director
Arthur L. Zande
*
---------------------------- Director
Michael A. Dickerson
*
---------------------------- Director
Charles L. Tice
*
---------------------------- Director
George H. Guptill, Jr.
*
---------------------------- Executive Vice President
Joseph F. Hurley and Chief Financial Officer
*By: /s/ Roger Bosma
-------------------------
Roger Bosma
Attorney-in-Fact
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Exhibit 10.2
APPROVED BY THE
BOARD OF DIRECTORS -- MARCH 13, 1996
AMMENDED AND APPROVED BY THE BOARD OF DIRECTORS -
October 6, 1999
Lakeland Bank
Directors' Deferred Compensation Plan
TABLE OF CONTENTS
ARTICLE I -- PURPOSE AND SCOPE 1
1.1. ESTABLISHMENT 1
1.2. PURPOSE 1
1.3. APPLICATION 1
1.4. SCOPE 1
ARTICLE II - PARTICIPATION 2
2.1. ELIGIBILITY FOR PARTICIPATION 2
2.2. DURATION OF PARTICIPATION 2
ARTICLE III - BENEFITS 3
3.1. ELIGIBILITY TO RECEIVE BENEFITS 3
3.2. AMOUNT OF BENEFIT 3
3.3. NORMAL RETIREMENT DATE 3
3.4. VESTING 4
ARTICLE IV -- PAYMENT OF BENEFITS 5
4.1. COMMENCEMENT OF BENEFITS 5
4.2. ALIENATION OF BENEFITS PROHIBITED 5
4.3. INCAPACITY 5
ARTICLE V -- GENERAL PROVISIONS 6
5.1. FUNDING 6
5.2. RIGHT TO AMEND, SUSPEND OR TERMINATE 6
5.3. EFFECT OF TERMINATION 6
5.4. RIGHTS TO BENEFITS 6
5.5. ADMINISTRATION OF THE PLAN 6
5.6. CONSTRUCTION 7
5.7. TITLES 7
5.8. IMPOSSIBILITY OF ACTION 7
5.9. SEPARABILITY 7
5.10. AUTHORIZED OFFICERS 7
5.11. CERTAIN RIGHTS AND LIMITATIONS 7
5.12 CHANGE OF CONTROl 8
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ARTICLE I -- PURPOSE AND SCOPE
1.1. ESTABLISHMENT
Lakeland Bank (hereinafter referred to as the "Bank") hereby establishes effective as of January 1, 1996, an unfunded Deferred Compensation Plan for its eligible Directors and their beneficiaries as described herein which shall be known as the "Lakeland Bank Director Deferred Compensation Plan" (hereinafter referred to as the "Plan").
1.2. PURPOSE
The purpose of this Plan is to defer compensation of the Directors of the Bank. All capitalized terms in the Plan shall have meaning ascribed to them under the Plan, as the context of the Plan may require.
1.3. APPLICATION OF THE PLAN
The terms of the Plan are applicable only to eligible Directors who are in the employ of the Bank on or after January 1, 1996. Any Director who retired or whose relationship as director with the Bank was otherwise terminated prior to such date shall not be eligible to participate in the Plan.
1.4. SCOPE
This Plan is designed to provide Directors of the bank deferred compensation. Nothing herein contained, and no action taken pursuant to the provisions of this Plan, shall create or be construed to create a fiduciary relationship between the Bank and any Director of the Bank, their surviving spouse or dependents, their estate or their beneficiaries or any other person.
Any reserves or liabilities set up on the Bank's books of account with respect to any benefits to be paid under this Plan shall continue for all purposes to be a part of the general funds or assets of the Bank. To the extent that any person acquires right to receive payments from the Bank under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Bank.
ARTICLE II -- PARTICIPATION
2.1. ELIGIBILITY FOR PARTICIPATION
Directors of the Bank who have fifteen or more years of service shall be eligible to participate in the Plan. The Board of directors of the Bank shall, in their sole and absolute discretion, determine who is eligible to participate in the Plan. Decisions of the Board of Directors shall be conclusive and binding on all persons.
2.2. DURATION OF PARTICIPATION
A Director who becomes a Participant shall continue to be a Participant until the later of termination as a Director with the Bank or the date he or she is no longer entitled to benefits under the Plan.
ARTICLE III -- DEFERRED COMPENSATION
3.1 ELIGIBILITY TO RECEIVE DEFERRED COMPENSATION
The Bank shall pay deferred compensation with respect to each:
(a) Retired Participant (including Participants who
terminated for reasons other than retirement and who
have commenced receipt of their Vested benefit in the
Deferred Compensation Plan);
(b) Surviving spouse receiving a Pre-Retirement Survivor
deferred compensation under this Plan;
(c) Spouse of a deceased Retired Participant receiving
deferred compensation under this Plan in accordance
with the form of payment in effect for such
Participant;
whose amount of deferred compensation, determined in accordance
with Section 3.2, is greater than $0. Such deferred compensation
shall be paid directly to such Participant, or to the
Participant's Surviving Spouse from the general assets of the
Bank.
3.2. AMOUNT OF DEFERRED COMPENSATION
The amount of the deferred compensation shall be as follows:
A participant entitled to payment in accordance with Section
3.1(a) shall receive his deferred compensation in monthly,
quarterly, or annual payments at the discretion of the Director,
payable for ten (10) years. Should death occur prior to ten (10)
years of payments, the balance of payments shall be payable to the
Director's spouse.
$12,500 per year for 25 or more years of service as a Director
o $10,000 per year for 20 but less than 25 years of service
as a Director.
o $ 7,500 per year for 15, but less than 20, years of service as
a Director.
o $ 5,000 per year for 10, but less than 15, years of service as
a Director.
o $ 0 for less than 10 years of service.
3.3. NORMAL RETIREMENT DATE
The Normal Retirement Date for a Director shall be the first of
the month following the date at which the director shall have
reached the age of 75 for directors as of March 13, 1996 and 72
for subsequent directors.
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3.4. VESTING
Each Director shall, upon the completion of 10 or more years of
service, be vested in deferred compensation as outlined in Section
3.2, payable beginning the month following his/her termination as
a Director. In the event of the death of a Vested Director prior
to the commencement of payment of deferred compensation, such
deferred compensation shall be payable to the Director's spouse as
if he retired on the date of his death.
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ARTICLE IV -- PAYMENT OF DEFERRED COMPENSATION
4.1. COMMENCEMENT OF PAYMENTS
The Deferred Compensation shall become payable to an eligible Director as of his Normal Retirement Date.
4.2. ALIENATION OF DEFERRED COMPENSATION PROHIBITED
No deferred compensation payable at any time under the Plan shall be subject in any manner to alienation, anticipation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind, except as required by law. Neither shall any deferred compensation payable at any time under the Plan be subject in any manner to the debts or liabilities of any person entitled to such benefit, nor shall the Bank be required to make any payments toward such debts or liabilities.
4.3. INCAPACITY
In the event that any deferred compensation hereunder is, or becomes, payable to a minor or to a person under legal disability, or to a person not judicially declared incompetent but who by reason of illness or mental or physical disability is, in the opinion of the Bank, incapable of personally receiving and giving valid receipt of such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Bank may provide for such payment or any part thereof be made to any person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for such person and a complete discharge of the liability of the Bank therefor.
ARTICLE V -- GENERAL PROVISIONS
5.1. FUNDING
The Deferred Compensation Plan is intended as an unfunded plan. The Bank intends to establish appropriate reserves on its books of account in accordance with generally accepted accounting principles. In addition, the Bank may establish a Trust to hold assets of the Bank as a reserve for the discharge of the Bank's obligation to Participants. In that event, such reserves shall be, for all purposes, part of the general funds of the Bank and no Participant, eligible spouse or other person claiming a right under the Deferred Compensation Plan shall have any interest, right or title to such reserves.
5.2. RIGHT TO AMEND, SUSPEND OR TERMINATE
The Bank reserves the right at any time and from time to time to amend, suspend or terminate the Deferred Compensation Plan by action of the Board of Directors without the consent of any Participant, eligible beneficiary or other person claiming a right under the Plan. No amendment of the Plan shall reduce the benefits of any Participant below the amount which he or she has accrued as of the date of termination.
5.3. EFFECT OF TERMINATION
In the event that the Plan is terminated, benefits accrued by eligible Participants shall vest. There shall be no further accrual of benefits after the date of Plan termination.
5.4. RIGHTS TO BENEFITS
No person shall have any right to a benefit under the Plan except as such benefit has accrued to him or her in accordance with the terms of the Plan, and then such right shall be no greater than the rights of any unsecured general creditor of the Bank. Notwithstanding any other provisions of this Plan, if a Director shall be terminated for reason of acts of fraud, dishonesty, larceny, misappropriation or embezzlement committed against the Bank, all of such Director's rights to benefits under this Deferred Compensation Plan shall be forfeited.
5.5. ADMINISTRATION OF THE DEFERRED COMPENSATION PLAN
The Bank may establish a Committee to administer the Plan. Except as otherwise specifically provided in the Plan, the Committee shall be the administrator of the Plan. The Committee shall have full authority to determine all questions arising in connection with the Plan including its interpretation, may adopt procedural rules and may employ and rely on such legal counsel, consultants, accountants and agents as it may deem advisable to assist in the administration of the Plan. Decisions of the Committee shall be conclusive and binding on all persons.
5.6. CONSTRUCTION
The provisions of the Plan shall be construed, administered and enforced according to the laws of the State of New Jersey.
5.7. TITLES
The titles of the Articles and Sections herein are included for convenience of reference only and shall not be construed as a part of the Plan, or have any effect on the meaning of the provisions hereof. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine and vice versa; and such words as "herein", "hereinafter", "hereof" and "hereunder" shall refer to this instrument as a whole and not merely to the subdivision in which such words appear.
5.8. IMPOSSIBILITY OF ACTION
In case it becomes impossible for any fiduciary to perform any act under this Plan, that act shall be performed which in the judgment of such fiduciary will most nearly carry out the intent and purposes of this Plan. All parties concerned shall be bound by any such acts performed under such conditions.
5.9. SEPARABILITY
In any term or provision of this Plan as presently in effect or an amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of the Plan, and the application of such term or provision to payments or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term or provision of the Plan shall be valid and enforced to the fullest extent permitted by law.
5.10. AUTHORIZED OFFICERS
Whenever the Bank under the terms of the Plan is permitted or required to do or to perform any act or matter or thing, it shall be done and performed by the duly authorized officer of the Bank or his designee.
5.11. CERTAIN RIGHTS AND LIMITATIONS
The establishment of the Plan shall not be construed as conferring any legal rights upon any Director or other person for a continuation of employment, nor shall it interfere with the rights of the Bank to terminate any Director and to treat him or her without regard to the effect that such treatment might have upon that Director's participation in the Plan.
5.12. CHANGE OF CONTROL
In the event of a "change of control" of the bank as defined below, the director will be paid according to the schedule in paragraph 3.2 as if the director had turned 75 on the date of change of control if he is no longer a director under the new control. If he or she remains as a director following "change of control" the deferred compensation will remain in effect and continue as if there had been no change of control.
A "Change in Control" shall mean any of the following:
(1) a reorganization, merger, consolidation or sale of all or substantially all of the assets of the Bank, or a similar transaction in which the Bank is not the resulting entity; or
(2) individuals who constitute the new Board of the Bank cease for any reason to constitute a majority thereof; or
(3) a change in control within the meaning of 12 C.F.R. ss. 225.2 (e) (1), as determined by the Board of Directors of the Bank; or
(4) an event occurs of a nature that (i) would be required to be reported in response to Item I of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or (ii) results in a change in control of the Bank within the meaning of the Rules and Regulations promulgated by the Board of Governors of the Federal Reserve System or the Office of the Comptroller of the Currency, as in effect on the date hereof; or
(5) without limitation, a change in control shall be deemed to have occurred at such time as any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act) other than the Bank is or becomes a "beneficial owner" (as defined in Rule 13-d under the Exchange Act) directly or indirectly, of securities of the Bank representing 25% or more of the Bank's outstanding securities ordinarily having the right to vote at the election of directors (excluding any securities purchased by the Bank's employee stock ownership plan and trust or any other employee benefit plan of the Bank established from time to time); or
(6) a proxy statement soliciting proxies from stockholders of the Bank is distributed by someone other than the current management of the Bank, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Bank or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged or converted into cash or property or securities not issued by the Bank; or
(7) a tender offer is made for 25% or more of the voting securities of the Bank and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Bank have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.
Exhibit 10.5
LAKELAND BANCORP, INC.
2000 EQUITY COMPENSATION PROGRAM
(AS AMENDED THROUGH FEBRUARY 15, 2001)
GENERAL PROVISIONS OF THE EQUITY COMPENSATION PROGRAM
continuous service with the Corporation or any Subsidiary at the time of such retirement, then all options exercisable on the date of retirement as well as all options that would otherwise vest within one year following the date of retirement may be exercised until 30 days after the date of retirement or, at the discretion of the Program Administrator, until 90 days after the date of retirement.
(a) the consummation of any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of Common Stock would be converted into cash, securities or other property,
other than a merger of the Corporation in which the holders of the shares of the Corporation's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(b) the consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, other than to a subsidiary or affiliate; or
(c) an approval by the shareholders of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation; or
(d) any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than any person who owns more than ten percent (10%) of the outstanding Common Stock on the date of adoption of this Program by the Board of Directors, the Corporation or any benefit plan sponsored by the Corporation or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Corporation ("Voting Securities") representing fifty-one (51%) percent or more of the combined voting power of the Corporation's then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or
(e) the individuals (A) who, as of the date on which the Program is first adopted by the Board of Directors, constitute the Board (the "Original Directors") and (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two thirds of the Original Directors then still in office (such Directors being called "Additional Original Directors") and (C) who thereafter are elected to the Board and whose election or nomination for election to the Board was approved by a vote of at least two thirds of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute a majority of the members of the Board.
the consummation of such Article 18 Event and (b) such holder's option shall terminate upon the consummation of such Article 18 Event. For purposes of this Article 18, an option shall be considered assumed if, following consummation of the applicable Article 18 Event, the option confers the right to purchase or receive, for each share of Common Stock subject to the option immediately prior to the consummation of such Article 18 Event, the consideration (whether stock, cash or other securities or property) received in such Article 18 Event by holders of Common Stock for each share of Common Stock held on the effective date of such Article 18 Event (and, if holders of Common Stock are offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in such Article 18 Event is not solely common stock of such successor, the Program Administrator may, with the consent of such successor corporation, provide for the consideration to be received in connection with such option to be solely common stock of such successor equal in fair market value to the per share consideration received by holders of Common Stock in the Article 18 Event.
PART I
INCENTIVE STOCK OPTION PLAN
The following provisions shall apply with respect to options granted by the Program Administrator pursuant to Part I of the Program:
any calendar year (under the terms of the Incentive Plan and all incentive stock option plans of the Corporation and the Subsidiaries) shall not exceed $100,000.
Maximum Percentage of
Shares Covered by
Option Which May be
During Purchased
------ -----------------------------
First 12 months after grant 0
First 24 months after grant 25%
First 36 months after grant 50%
First 48 months after grant 75%
Beyond 48 months after grant 100%
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PART II
SUPPLEMENTAL STOCK OPTION PLAN
The following provisions shall apply with respect to options granted by the Program Administrator pursuant to Part II of the Program:
Maximum Percentage of
Shares Covered by
Option Which May be
During Purchased
------ ----------------------------
First 12 months after grant 0
First 24 months after grant 25%
First 36 months after grant 50%
First 48 months after grant 75%
Beyond 48 months after grant 100%
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PART III
INDEPENDENT DIRECTOR PLAN
The following provisions shall apply with respect to options granted by the Program Administrator pursuant to Part III of the Program:
(a) "Employee" shall mean any person employed on a full-time basis by the Corporation or any present or future Subsidiary of the Corporation.
(b) "Existing Independent Director" shall mean each member of the Corporation's Board of Directors on the date the Program is first adopted by such Board of Directors who did not serve as an Employee during the preceding 12 months.
(c) "Fair Market Value" shall have the meaning set forth in Section 4 of the Incentive Plan.
(d) "Independent Director" shall mean any member of the Corporation's Board of Directors who, on the date such person is to receive a grant of an Option pursuant to the Independent Director Plan, shall not be an Employee.
(e) "New Independent Director" shall have the meaning set forth in Section 4(a) of this Independent Director Plan.
(f) "Option" shall mean the right, granted pursuant to Section 4 of this Independent Director Plan, to purchase one or more shares of Common Stock.
(g) "Subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of the Code.
Maximum Percentage of Shares Covered by
During Option Which May be Purchased
------ ---------------------------------------
First 12 months after grant 20%
First 24 months after grant 40%
First 36 months after grant 60%
First 48 months after grant 80%
Beyond 48 months after grant 100%
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Exhibit 10.8
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the "Agreement"), is made as of the 1st day of March, 2001, among Lakeland Bancorp, Inc. (the "Holding Company"), a New Jersey corporation which maintains its principal office at 1 Lakeland Plaza, Newfoundland, New Jersey, 07435, Lakeland Bank (the "Bank"), a New Jersey chartered commercial bank, with an office at 1 Lakeland Plaza, Newfoundland, New Jersey 07435 (the Holding Company and the Bank are collectively referred to herein as the "Company"), and Joseph F. Hurley (the "Executive").
BACKGROUND
WHEREAS, the Executive is employed as Executive Vice President and Chief Financial Officer of the Company; and WHEREAS, the Company believes that the future services of the Executive are of great value to the Company and that it is important for the growth and development of the Company that the Executive continue in his position; and
WHEREAS, the Board of Directors of the Holding Company (the "Board") believes it is imperative that the Company be able to rely upon the Executive to continue in his position in the event that Holding Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; and
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Company and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control, as hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding
the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
(A) the consummation of any consolidation or merger of the Holding Company in which the Holding Company is not the continuing or surviving corporation or pursuant to which shares of the Holding Company's common stock ("Common Stock") would be converted into cash, securities or other property, other than a merger of the Holding Company in which the holders of the shares of the Holding Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(B) the consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Holding Company, other than to a subsidiary or affiliate; or
(C) an approval by the shareholders of the Holding Company of any plan or proposal for the liquidation or dissolution of the Holding Company; or
(D) any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than any person who owns more than ten percent (10%) of the outstanding Common Stock on the date this Agreement is entered into, the Holding Company or any benefit plan sponsored by the Holding Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Holding Company ("Voting Securities") representing fifty-one (51%) percent or more of the combined voting power of the Holding Company's then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or
(E) the individuals (x) who, as of the date on which the
Agreement is entered into, constitute the Board (the "Original Directors") and
(y) who thereafter are elected to the Board and whose election, or nomination
for election, to the Board was approved by a vote of at least two thirds of the
Original Directors then still in office (such Directors being called "Additional
Original Directors") and (z) who thereafter are elected to the Board and whose
election or nomination for election to the Board was approved by a vote of at
least two thirds of the Original Directors and Additional Original Directors
then still in office, cease for any reason to constitute a majority of the
members of the Board.
(i) The assignment to Executive of any duties inconsistent with, or the reduction of authority, powers or responsibilities associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control (a "Change in Assignment") or any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in position, title, duties, responsibilities and status or position(s) or office(s) following a Change in Control shall constitute a Change in Assignment unless the Executive's new title, duties and responsibilities are accepted in writing by the Executive, in the sole discretion of the Executive;
(ii) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control;
(iii) A failure by the Company to continue for Executive any bonus plan in which Executive participated immediately prior to the Change in Control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control.
(iv) After a Change in Control, the Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect for Executive any employee benefit plan,program or arrangement (including, without limitation any 401(k) plan, pension plan, life insurance plan, health and accident plan, disability plan, or stock option plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans,
programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company after a Change in Control which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements, the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; or
(vi) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive upon consummation of the event giving rise to the Change in Control.
bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
payments under any disability policy which the Company may obtain for the benefit of senior officers generally.
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period.
Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
(a) The Executive hereby agrees and acknowledges that he has and has had access to or is aware of Confidential Information. The Executive hereby agrees that he shall keep strictly confidential and will not during and after his employment with the Company, without the Company's express written consent, divulge, furnish or make accessible to any person or entity, or make use of for the benefit of himself or others, any Confidential Information obtained, possessed, or known by him except as required in the regular course of performing the duties and responsibilities of his employment by the Company while in the employ of the Company, and that he will, prior to or upon the date on which his employment with the Company terminates (the "Date of Termination") deliver or return to the Company all such Confidential Information that is in written or other physical or recorded form or which has been reduced to written or other physical or recorded form, and all copies thereof, in his possession, custody or control. The foregoing covenant shall not apply to (i) any Confidential Information that becomes generally known or available to the public other than as a result of a breach of the agreements of the Executive contained herein, (ii) any disclosure of Confidential Information by the Executive that is expressly required by judicial or administrative order; provided however that the Executive shall have (x) notified the Company as promptly as possible of the existence, terms and circumstances of any notice, subpoena or other process or order issued by a court or administrative authority that may require him to disclose any Confidential Information, and (y) cooperated with the Company, at the Company's request, in taking legally available steps to resist or narrow such process or order and to obtain an order or other reliable assurance that confidential treatment will be given to such Confidential Information as is required to be disclosed.
(b) For purposes of this Agreement, "Confidential Information" means all non-public or proprietary information, data, trade secrets, "know-how", or technology
with respect to any products, designs, improvements, research, styles, techniques, suppliers, clients, markets, methods of distribution, accounting, advertising and promotion, pricing, sales, finances, costs, profits, financial condition, organization, personnel, business systems (including without limitation computer systems, software and programs), business activities, operations, budgets, plans, prospects, objectives or strategies of the Company.
(a) The Executive agrees that while he is in the employ of the Company and for a one year period after the Date of Termination (unless such termination is by the Company without Cause), he shall not, without the prior written consent of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment or retention as a consultant, any person who is, or was at any time within twelve (12) months prior to the Date of Termination, an employee of, or exclusive consultant to, the Company.
(b) If the Executive commits a breach or is about to commit a breach, of any of the provisions of Sections 11 or 12 hereof, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to them under law or in equity and shall be entitled to such damages as they can show they have sustained by reason of such breach.
(c) The parties acknowledge that the type and periods of restriction imposed in the provisions of Sections 11 and 12 hereof are fair and reasonable and are reasonably required for the protection of the Company and the goodwill associated with
the business of the Company; and that the provisions of Sections 11 and 12 have been specifically negotiated by sophisticated parties and are given as an integral part of this Agreement.
b. If under paragraph a of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the
Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon the Company and Executive and shall be made within 20 days of a termination of employment of Executive. The Company may suspend for a period of up to 30 days after termination of employment the Lump Sum Payment and any other payments or benefits due to the Executive under Section 9 hereof until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement.
c. As a result of the uncertainty in the application of
Section 280G of the Code, it is possible that Agreement Payments may have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by the Company could
have been made ("Underpayment"), in each case, consistent with the calculation
of the Reduced Amount hereunder. In the event that the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or Executive which said Certified Public Accountant
believe has a high probability of success, determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized representatives pursuant to the authority of its Board, and the Executive has personally executed this Agreement, all as of the day and year first written above.
LAKELAND BANCORP, INC.
By: /s/ Roger Bosma
-----------------------
Roger Bosma, President
|
LAKELAND BANK
By: /s/ Roger Bosma
-----------------------
Roger Bosma, President
/s/ Joseph F. Hurley
---------------------------
Joseph F. Hurley
|
Exhibit 10.9
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the "Agreement"), is made as of the 1st day of March, 2001, among Lakeland Bancorp, Inc. (the "Holding Company"), a New Jersey corporation which maintains its principal office at 1 Lakeland Plaza, Newfoundland, New Jersey, 07435, Lakeland Bank (the "Bank"), a New Jersey chartered commercial bank, with an office at 1 Lakeland Plaza, Newfoundland, New Jersey 07435 (the Holding Company and the Bank are collectively referred to herein as the "Company"), and Robert A. Vandenbergh (the "Executive").
BACKGROUND
WHEREAS, the Executive is employed as Executive Vice President and Chief Lending Officer of the Company; and
WHEREAS, the Company believes that the future services of the Executive are of great value to the Company and that it is importantfor the growth and development of the Company that the Executive continue in his position; and
WHEREAS, the Board of Directors of the Holding Company (the "Board") believes it is imperative that the Company be able to rely upon the Executive to continue in his position in the event that Holding Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; and
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Company and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control, as hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding
the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
(A) the consummation of any consolidation or merger of the Holding Company in which the Holding Company is not the continuing or surviving corporation or pursuant to which shares of the Holding Company's common stock ("Common Stock") would be converted into cash, securities or other property, other than a merger of the Holding Company in which the holders of the shares of the Holding Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(B) the consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Holding Company, other than to a subsidiary or affiliate; or
(C) an approval by the shareholders of the Holding Company of any plan or proposal for the liquidation or dissolution of the Holding Company; or
(D) any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than any person who owns more than ten percent (10%) of the outstanding Common Stock on the date this Agreement is entered into, the Holding Company or any benefit plan sponsored by the Holding Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Holding Company ("Voting Securities") representing fifty-one (51%) percent or more of the combined voting power of the Holding Company's then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or
(E) the individuals (x) who, as of the date on which the Agreement is entered into, constitute the Board (the "Original Directors") and (y) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two thirds of the Original Directors then still in office (such Directors being called "Additional Original Directors") and (z) who thereafter are elected to the Board and whose election or nomination for election to the Board was approved by a vote of at least two thirds of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute a majority of the members of the Board.
(i) The assignment to Executive of any duties inconsistent with, or the reduction of authority, powers or responsibilities associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control (a "Change in Assignment") or any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in position, title, duties, responsibilities and status or position(s) or office(s) following a Change in Control shall constitute a Change in Assignment unless the Executive's new title, duties and responsibilities are accepted in writing by the Executive, in the sole discretion of the Executive;
(ii) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control;
(iii) A failure by the Company to continue for Executive any bonus plan in which Executive participated immediately prior to the Change in Control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control.
(iv) After a Change in Control, the Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect for Executive any employee benefit plan, program or arrangement (including, without limitation any 401(k) plan, pension plan, life insurance plan, health and accident plan, disability plan, or stock option plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans,
programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company after a Change in Control which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements, the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; or
(vi) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive upon consummation of the event giving rise to the Change in Control.
bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
payments under any disability policy which the Company may obtain for the benefit of senior officers generally.
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period.
Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
In consideration of the covenants of the Company herein, the Executive agrees as follows:
(a) The Executive hereby agrees and acknowledges that he has and has had access to or is aware of Confidential Information. The Executive hereby agrees that he shall keep strictly confidential and will not during and after his employment with the Company, without the Company's express written consent, divulge, furnish or make accessible to any person or entity, or make use of for the benefit of himself or others, any Confidential Information obtained, possessed, or known by him except as required in the regular course of performing the duties and responsibilities of his employment by the Company while in the employ of the Company, and that he will, prior to or upon the date on which his employment with the Company terminates (the "Date of Termination") deliver or return to the Company all such Confidential Information that is in written or other physical or recorded form or which has been reduced to written or other physical or recorded form, and all copies thereof, in his possession, custody or control. The foregoing covenant shall not apply to (i) any Confidential Information that becomes generally known or available to the public other than as a result of a breach of the agreements of the Executive contained herein, (ii) any disclosure of Confidential Information by the Executive that is expressly required by judicial or administrative order; provided however that the Executive shall have (x) notified the Company as promptly as possible of the existence, terms and circumstances of any notice, subpoena or other process or order issued by a court or administrative authority that may require him to disclose any Confidential Information, and (y) cooperated with the Company, at the Company's request, in taking legally available steps to resist or narrow such process or order and to obtain an order or other reliable assurance that confidential treatment will be given to such Confidential Information as is required to be disclosed.
(b) For purposes of this Agreement, "Confidential Information" means all non-public or proprietary information, data, trade secrets, "know-how", or technology
with respect to any products, designs, improvements, research, styles, techniques, suppliers, clients, markets, methods of distribution, accounting, advertising and promotion, pricing, sales, finances, costs, profits, financial condition, organization, personnel, business systems (including without limitation computer systems, software and programs), business activities, operations, budgets, plans, prospects, objectives or strategies of the Company.
In consideration of the covenants of the Company herein, the Executive agrees as follows:
(a) The Executive agrees that while he is in the employ of the Company and for a one year period after the Date of Termination (unless such termination is by the Company without Cause), he shall not, without the prior written consent of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment or retention as a consultant, any person who is, or was at any time within twelve (12) months prior to the Date of Termination, an employee of, or exclusive consultant to, the Company.
(b) If the Executive commits a breach or is about to commit a breach, of any of the provisions of Sections 11 or 12 hereof, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to them under law or in equity and shall be entitled to such damages as they can show they have sustained by reason of such breach.
(c) The parties acknowledge that the type and periods of restriction imposed in the provisions of Sections 11 and 12 hereof are fair and reasonable and are reasonably required for the protection of the Company and the goodwill associated with
the business of the Company; and that the provisions of Sections 11 and 12 have been specifically negotiated by sophisticated parties and are given as an integral part of this Agreement.
a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any compensation or benefits payable under Section 9 hereof, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants") shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code.
b. If under paragraph a of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of detailed calculation thereof and of the
Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon the Company and Executive and shall be made within 20 days of a termination of employment of Executive. The Company may suspend for a period of up to 30 days after termination of employment the Lump Sum Payment and any other payments or benefits due to the Executive under Section 9 hereof until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement.
c. As a result of the uncertainty in the application of
Section 280G of the Code, it is possible that Agreement Payments may have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by the Company could
have been made ("Underpayment"), in each case, consistent with the calculation
of the Reduced Amount hereunder. In the event that the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or Executive which said Certified Public Accountant
believe has a high probability of success, determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
Exhibit 10.10
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the "Agreement"), is made as of the 6th day of March, 2001, among Lakeland Bancorp, Inc. (the "Holding Company"), a New Jersey corporation which maintains its principal office at 1 Lakeland Plaza, Newfoundland, New Jersey, 07435, Lakeland Bank (the "Bank"), a New Jersey chartered commercial bank, with an office at 1 Lakeland Plaza, Newfoundland, New Jersey 07435 (the Holding Company and the Bank are collectively referred to herein as the "Company"), and Louis E. Luddecke (the "Executive").
BACKGROUND
WHEREAS, the Executive is employed as Executive Vice President and Chief Operations Officer of the Company; and
WHEREAS, the Company believes that the future services of the Executive are of great value to the Company and that it is important for the growth and development of the Company that the Executive continue in his position; and
WHEREAS, the Board of Directors of the Holding Company (the "Board")
believes it is imperative that the Company be able to rely upon the Executive to
continue in his position in the event that Holding Company receives any proposal
from a third person concerning a possible business combination with, or
acquisition of equities securities of, the Company, and that they be able to
receive and rely upon his advice, if they request it, as to the best interests
of the Company and its shareholders, without concern that the Executive might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, to achieve that goal, and to retain the Executive's services
prior to any such activity, the Company and the Executive have agreed to enter
into this Agreement to govern the Executive's termination benefits in the event
of a Change in Control, as hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding
the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
(A) the consummation of any consolidation or merger of the Holding Company in which the Holding Company is not the continuing or surviving corporation or pursuant to which shares of the Holding Company's common stock ("Common Stock") would be converted into cash, securities or other property, other than a merger of the Holding Company in which the holders of the shares of the Holding Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(B) the consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Holding Company, other than to a subsidiary or affiliate; or
(C) an approval by the shareholders of the Holding Company of any plan or proposal for the liquidation or dissolution of the Holding Company; or
(D) any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than any person who owns more than ten percent (10%) of the outstanding Common Stock on the date this Agreement is entered into, the Holding Company or any benefit plan sponsored by the Holding Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Holding Company ("Voting Securities") representing fifty-one (51%) percent or more of the combined voting power of the Holding Company's then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or
(E) the individuals (x) who, as of the date on which the
Agreement is entered into, constitute the Board (the "Original Directors") and
(y) who thereafter are elected to the Board and whose election, or nomination
for election, to the Board was approved by a vote of at least two thirds of the
Original Directors then still in office (such Directors being called "Additional
Original Directors") and (z) who thereafter are elected to the Board and whose
election or nomination for election to the Board was approved by a vote of at
least two thirds of the Original Directors and Additional Original Directors
then still in office, cease for any reason to constitute a majority of the
members of the Board.
(i) The assignment to Executive of any duties inconsistent with, or the reduction of authority, powers or responsibilities associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control (a "Change in Assignment") or any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in position, title, duties, responsibilities and status or position(s) or office(s) following a Change in Control shall constitute a Change in Assignment unless the Executive's new title, duties and responsibilities are accepted in writing by the Executive, in the sole discretion of the Executive;
(ii) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control;
(iii) A failure by the Company to continue for Executive any bonus plan in which Executive participated immediately prior to the Change in Control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control.
(iv) After a Change in Control, the Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect for Executive any employee benefit plan, program or arrangement (including, without limitation any 401(k) plan, pension plan, life insurance plan, health and accident plan, disability plan, or stock option plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company after a Change in Control which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans,
programs or arrangements, the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; or
(vi) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive upon consummation of the event giving rise to the Change in Control.
bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
payments under any disability policy which the Company may obtain for the benefit of senior officers generally.
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period.
Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
In consideration of the covenants of the Company herein, the Executive agrees as follows:
(a) The Executive hereby agrees and acknowledges that he has and has had access to or is aware of Confidential Information. The Executive hereby agrees that he shall keep strictly confidential and will not during and after his employment with the Company, without the Company's express written consent, divulge, furnish or make accessible to any person or entity, or make use of for the benefit of himself or others, any Confidential Information obtained, possessed, or known by him except as required in the regular course of performing the duties and responsibilities of his employment by the Company while in the employ of the Company, and that he will, prior to or upon the date on which his employment with the Company terminates (the "Date of Termination") deliver or return to the Company all such Confidential Information that is in written or other physical or recorded form or which has been reduced to written or other physical or recorded form, and all copies thereof, in his possession, custody or control. The foregoing covenant shall not apply to (i) any Confidential Information that becomes generally known or available to the public other than as a result of a breach of the agreements of the Executive contained herein, (ii) any disclosure of Confidential Information by the Executive that is expressly required by judicial or administrative order; provided however that the Executive shall have (x) notified the Company as promptly as possible of the existence, terms and circumstances of any notice, subpoena or other process or order issued by a court or administrative authority that may require him to disclose any Confidential Information, and (y) cooperated with the Company, at the Company's request, in taking legally available steps to resist or narrow such process or order and to obtain an order or other reliable assurance that confidential treatment will be given to such Confidential Information as is required to be disclosed.
(b) For purposes of this Agreement, "Confidential Information" means all non-public or proprietary information, data, trade secrets, "know-how", or technology
with respect to any products, designs, improvements, research, styles, techniques, suppliers, clients, markets, methods of distribution, accounting, advertising and promotion, pricing, sales, finances, costs, profits, financial condition, organization, personnel, business systems (including without limitation computer systems, software and programs), business activities, operations, budgets, plans, prospects, objectives or strategies of the Company.
(a) The Executive agrees that while he is in the employ of the Company and for a one year period after the Date of Termination (unless such termination is by the Company without Cause), he shall not, without the prior written consent of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment or retention as a consultant, any person who is, or was at any time within twelve (12) months prior to the Date of Termination, an employee of, or exclusive consultant to, the Company.
(b) If the Executive commits a breach or is about to commit a breach, of any of the provisions of Sections 11 or 12 hereof, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to them under law or in equity and shall be entitled to such damages as they can show they have sustained by reason of such breach.
(c) The parties acknowledge that the type and periods of restriction imposed in the provisions of Sections 11 and 12 hereof are fair and reasonable and are reasonably required for the protection of the Company and the goodwill associated with
the business of the Company; and that the provisions of Sections 11 and 12 have been specifically negotiated by sophisticated parties and are given as an integral part of this Agreement.
b. If under paragraph a of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the
Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon the Company and Executive and shall be made within 20 days of a termination of employment of Executive. The Company may suspend for a period of up to 30 days after termination of employment the Lump Sum Payment and any other payments or benefits due to the Executive under Section 9 hereof until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement.
c. As a result of the uncertainty in the application of
Section 280G of the Code, it is possible that Agreement Payments may have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by the Company could
have been made ("Underpayment"), in each case, consistent with the calculation
of the Reduced Amount hereunder. In the event that the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or Executive which said Certified Public Accountant
believe has a high probability of success, determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized representatives pursuant to the authority of its Board, and the Executive has personally executed this Agreement, all as of the day and year first written above.
LAKELAND BANCORP, INC.
By: /s/ Roger Bosma
-----------------------
Roger Bosma, President
|
LAKELAND BANK
By: /s/ Roger Bosma ------------------------ Roger Bosma, President /s/ Louis E. Luddecke --------------------------- Louis E. Luddecke |
Exhibit 10.11
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the "Agreement"), is made as of the 7th day of March, 2001, among Lakeland Bancorp, Inc. (the "Holding Company"), a New Jersey corporation which maintains its principal office at 1 Lakeland Plaza, Newfoundland, New Jersey, 07435, Lakeland Bank (the "Bank"), a New Jersey chartered commercial bank, with an office at 1 Lakeland Plaza, Newfoundland, New Jersey 07435 (the Holding Company and the Bank are collectively referred to herein as the "Company"), and Jeffrey J. Buonforte (the "Executive").
BACKGROUND
WHEREAS, the Executive is employed as Executive Vice President and Chief Retail Officer of the Company; and
WHEREAS, the Company believes that the future services of the Executive are of great value to the Company and that it is important for the growth and development of the Company that the Executive continue in his position; and
WHEREAS, the Board of Directors of the Holding Company (the "Board") believes it is imperative that the Company be able to rely upon the Executive to continue in his position in the event that Holding Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; and
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Company and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control, as hereinafter defined;
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding
the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
(A) the consummation of any consolidation or merger of the Holding Company in which the Holding Company is not the continuing or surviving corporation or pursuant to which shares of the Holding Company's common stock ("Common Stock") would be converted into cash, securities or other property, other than a merger of the Holding Company in which the holders of the shares of the Holding Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; or
(B) the consummation of any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Holding Company, other than to a subsidiary or affiliate; or
(C) an approval by the shareholders of the Holding Company of any plan or proposal for the liquidation or dissolution of the Holding Company; or
(D) any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than any person who owns more than ten percent (10%) of the outstanding Common Stock on the date this Agreement is entered into, the Holding Company or any benefit plan sponsored by the Holding Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Holding Company ("Voting Securities") representing fifty-one (51%) percent or more of the combined voting power of the Holding Company's then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or
(E) the individuals (x) who, as of the date on which the Agreement is entered into, constitute the Board (the "Original Directors") and (y) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two thirds of the Original Directors then still in office (such Directors being called "Additional Original Directors") and (z) who thereafter are elected to the Board and whose election or nomination for election to the Board was approved by a vote of at least two thirds of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute a majority of the members of the Board.
(i) The assignment to Executive of any duties inconsistent with, or the reduction of authority, powers or responsibilities associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control (a "Change in Assignment") or any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in position, title, duties, responsibilities and status or position(s) or office(s) following a Change in Control shall constitute a Change in Assignment unless the Executive's new title, duties and responsibilities are accepted in writing by the Executive, in the sole discretion of the Executive;
(ii) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control;
(iii) A failure by the Company to continue for Executive any bonus plan in which Executive participated immediately prior to the Change in Control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control.
(iv) After a Change in Control, the Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect for Executive any employee benefit plan, program or arrangement (including, without limitation any 401(k) plan, pension plan, life insurance plan, health and accident plan, disability plan, or stock option plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans,
programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company after a Change in Control which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements, the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; or
(vi) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive upon consummation of the event giving rise to the Change in Control.
bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
payments under any disability policy which the Company may obtain for the benefit of senior officers generally.
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period.
Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
In consideration of the covenants of the Company herein, the Executive agrees as follows:
(a) The Executive hereby agrees and acknowledges that he has and has had access to or is aware of Confidential Information. The Executive hereby agrees that he shall keep strictly confidential and will not during and after his employment with the Company, without the Company's express written consent, divulge, furnish or make accessible to any person or entity, or make use of for the benefit of himself or others, any Confidential Information obtained, possessed, or known by him except as required in the regular course of performing the duties and responsibilities of his employment by the Company while in the employ of the Company, and that he will, prior to or upon the date on which his employment with the Company terminates (the "Date of Termination") deliver or return to the Company all such Confidential Information that is in written or other physical or recorded form or which has been reduced to written or other physical or recorded form, and all copies thereof, in his possession, custody or control. The foregoing covenant shall not apply to (i) any Confidential Information that becomes generally known or available to the public other than as a result of a breach of the agreements of the Executive contained herein, (ii) any disclosure of Confidential Information by the Executive that is expressly required by judicial or administrative order; provided however that the Executive shall have (x) notified the Company as promptly as possible of the existence, terms and circumstances of any notice, subpoena or other process or order issued by a court or administrative authority that may require him to disclose any Confidential Information, and (y) cooperated with the Company, at the Company's request, in taking legally available steps to resist or narrow such process or order and to obtain an order or other reliable assurance that confidential treatment will be given to such Confidential Information as is required to be disclosed.
(b) For purposes of this Agreement, "Confidential Information" means all non-public or proprietary information, data, trade secrets, "know-how", or technology
with respect to any products, designs, improvements, research, styles, techniques, suppliers, clients, markets, methods of distribution, accounting, advertising and promotion, pricing, sales, finances, costs, profits, financial condition, organization, personnel, business systems (including without limitation computer systems, software and programs), business activities, operations, budgets, plans, prospects, objectives or strategies of the Company.
In consideration of the covenants of the Company herein, the Executive agrees as follows:
(a) The Executive agrees that while he is in the employ of the Company and for a one year period after the Date of Termination (unless such termination is by the Company without Cause), he shall not, without the prior written consent of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company, employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment or retention as a consultant, any person who is, or was at any time within twelve (12) months prior to the Date of Termination, an employee of, or exclusive consultant to, the Company.
(b) If the Executive commits a breach or is about to commit a breach, of any of the provisions of Sections 11 or 12 hereof, the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to them under law or in equity and shall be entitled to such damages as they can show they have sustained by reason of such breach.
(c) The parties acknowledge that the type and periods of restriction imposed in the provisions of Sections 11 and 12 hereof are fair and reasonable and are reasonably required for the protection of the Company and the goodwill associated with
the business of the Company; and that the provisions of Sections 11 and 12 have been specifically negotiated by sophisticated parties and are given as an integral part of this Agreement.
a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any compensation or benefits payable under Section 9 hereof, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants") shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code.
b. If under paragraph a of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the
Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon the Company and Executive and shall be made within 20 days of a termination of employment of Executive. The Company may suspend for a period of up to 30 days after termination of employment the Lump Sum Payment and any other payments or benefits due to the Executive under Section 9 hereof until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement.
c. As a result of the uncertainty in the application of
Section 280G of the Code, it is possible that Agreement Payments may have been
made by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which will have not been made by the Company could
have been made ("Underpayment"), in each case, consistent with the calculation
of the Reduced Amount hereunder. In the event that the Certified Public
Accountants, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or Executive which said Certified Public Accountant
believe has a high probability of success, determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized representatives pursuant to the authority of its Board, and the Executive has personally executed this Agreement, all as of the day and year first written above.
LAKELAND BANCORP, INC.
By: /s/ Roger Bosma -------------------------------------- Roger Bosma, President |
LAKELAND BANK
By: /s/ Roger Bosma -------------------------------------- Roger Bosma, President /s/ Jeffrey J. Buonforte ----------------------------------------- Jeffrey J. Buonforte |
EXHIBIT 21.1
LAKELAND BANCORP, INC.
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
---- -----------------------------
Lakeland Bank New Jersey chartered bank
Lakeland Investment Corporation Delaware
The National Bank of Sussex County National Bank
|
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 18, 2001, accompanying the consolidated financial statements included in the 2000 Annual Report of Lakeland Bancorp, Inc. and Subsidiaries on Form 10-K for the year ended December 31, 2000. We hereby consent to the incorporation by reference of said report in the Registration Statements of Lakeland Bancorp, Inc. on Form S-3 (File No. 333-89051, effective October 14, 1999 and File No. 33-34099, effective October 21, 1994) and on Form S-8 (File No. 333-34296, effective April 7, 2000 and File No. 333-89723, effective October 27, 1999.)
/s/ Grant Thornton LLP Philadelphia, Pennsylvania March 28, 2001 |
Exhibit 24.1
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Lakeland Bancorp, Inc. desire to authorize John W. Fredericks, Roger Bosma and Joseph Hurley to act as their attorneys-in-fact and agents, for the purpose of executing and filing the registrant's Annual Report on Form 10-K for the year ended December 31, 2000, including all amendments and supplements thereto,
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John W. Fredericks, Roger Bosma and Joseph Hurley, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign the registrant's Annual Report on Form 10-K for the year ended December 31, 2000, including any and all amendments and supplements thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney in the following capacities as of the 27th day of March, 2001.
Signatures Title /s/ Roger Bosma Director, Chief Executive ----------------------------------- Officer and President Roger Bosma /s/ Robert B. Nicholson Director ----------------------------------- Robert B. Nicholson /s/ John W. Fredericks Director ----------------------------------- John W. Fredericks /s/ Bruce G. Bohuny Director ----------------------------------- Bruce G. Bohuny /s/ Mary Ann Deacon Director ----------------------------------- Mary Ann Deacon /s/ Mark J. Fredericks Director ----------------------------------- Mark J. Fredericks |
/s/ John Pier, Jr. Director ----------------------------------- John Pier, Jr. /s/ Paul P. Lubertazzi Director ----------------------------------- Paul P. Lubertazzi /s/ Joseph P. O'Dowd Director ----------------------------------- Joseph P. O'Dowd /s/ Arthur L. Zande Director ----------------------------------- Arthur L. Zande /s/ Michael A. Dickerson Director ----------------------------------- Michael A. Dickerson /s/ Charles L. Tice Director ----------------------------------- Charles L. Tice /s/ George H. Guptill, Jr. Director ----------------------------------- George H. Guptill, Jr. /s/ Joseph Hurley Executive Vice President ----------------------------------- and Chief Financial Officer Joseph Hurley |
EXHIBIT 99.1 LAKELAND BANCORP, INC. (the "Company")
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for "forward-looking statements" (as defined in the Act). The Annual Report on Form 10-K to which this Exhibit is attached, the Company's Annual Report to Shareholders, any Quarterly Report on Form 10-Q prepared by the Company, any Current Report on Form 8-K prepared by the Company and any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current view (as of the date that such forward-looking statement is made) with respect to future events, prospects, projections, financial performance or other matters. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from those made, implied or projected in such statements. These uncertainties and other factors include, but are not limited to, the following: uncertainties relating to general economic conditions; uncertainties relating to the determination of the Company's provision for loan losses and allowance for loan losses (as described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Provision for Possible Loan Losses" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Loans -- Risk Elements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000); uncertainties relating to the analysis of the Company's assessment of rate sensitive assets and rate sensitive liabilities and relating to the extent to which market factors indicate that a financial institution such as the Company should match such assets and liabilities (as described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Provision for Possible Loan Losses" and "Interest Rate Risk" -- "Liquidity" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000); the impact of competition among financial institutions and between financial institutions and other sources of credit; the impact of off-balance sheet obligations (as described in the Notes to the Company's consolidated Financial Statements included within the Company's Annual Report on Form 10-K for the year ended December 31, 2000); changes to the presentation of financial results and condition resulting from adoption of new accounting principles or upon the advice of the Company's independent auditors or the staff of various regulatory agencies; unanticipated demands upon the Company's liquidity; and unanticipated failure on malfunction of the Company's information systems; changes in, or failure to comply with governmental regulations; the costs and other effects of administrative and legal proceedings; the continued financial viability of the Company's borrowers; the continued financial viability of the issuers of securities within the Company's investment portfolio; labor and employment benefit costs; and other factors referenced in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, or other filings or written or
oral statements made by or on behalf of the Company. The words "believe", "expect", "anticipate", "project" and similar expressions identify "forward-looking statements", which speak only as of the date that the statement is made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.