UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
For the transition period from ____________ to _____________
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana
0-11487
35-1559596
(State or other jurisdiction
(Commission File Number)
(IRS Employer
Of incorporation)
Identification No.)
202 East Center Street, P.O. Box 1387, Warsaw, Indiana 46581-1387
(Address of principal executive offices)(Zip Code)
(574) 267-6144
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer[
]
Accelerated filer [ X ]
Non-accelerated filer [
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [
NO [ X ]
Number of shares of common stock outstanding at July 31, 2007: 12,193,898
Form 10-Q Quarterly Report
Table of Contents
PART I.
Page Number
Item 1.
Financial Statements
1
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4.
Controls and Procedures
27
PART II.
Legal Proceedings
28
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
29
Item 5.
Other Information
Item 6.
Exhibits
Form 10-Q
Signature Page
30
PART 1
ITEM 1 – FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
As of June 30, 2007 and December 31, 2006
(in thousands except for share data)
(Page 1 of 2)
June 30,
December 31,
2007
2006
(Unaudited)
ASSETS
Cash and due from banks
$
51,517
65,252
Short-term investments
6,048
54,447
Total cash and cash equivalents
57,565
119,699
Securities available for sale (carried at fair value)
297,076
296,191
Real estate mortgage loans held for sale
647
2,175
Loans, net of allowance for loan losses of $15,351 and $14,463
1,385,622
1,339,374
Land, premises and equipment, net
25,988
25,177
Bank owned life insurance
21,106
20,570
Accrued income receivable
8,585
8,720
Goodwill
4,970
Other intangible assets
722
825
Other assets
20,537
19,005
Total assets
1,822,818
1,836,706
(continued)
(Page 2 of 2)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits
240,370
258,472
Interest bearing deposits
1,168,383
1,217,293
Total deposits
1,408,753
1,475,765
Short-term borrowings
Federal funds purchased
32,000
0
Securities sold under agreements to repurchase
108,990
106,670
U.S. Treasury demand notes
884
814
Other short-term borrowings
90,000
80,000
Total short-term borrowings
231,874
187,484
Accrued expenses payable
14,125
11,959
Other liabilities
476
338
Long-term borrowings
44
45
Subordinated debentures
30,928
Total liabilities
1,686,200
1,706,519
STOCKHOLDERS' EQUITY
Common stock: 180,000,000 shares authorized, no par value
12,192,898 shares issued and 12,100,995 outstanding as of June 30, 2007
12,117,808 shares issued and 12,031,023 outstanding as of December 31, 2006
1,453
Additional paid-in capital
17,698
16,525
Retained earnings
123,307
116,516
Accumulated other comprehensive loss
(4,585
)
(3,178
Treasury stock, at cost (2007 - 91,903 shares, 2006 - 86,785 shares)
(1,255
(1,129
Total stockholders' equity
136,618
130,187
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months and Six Months Ended June 30, 2007 and 2006
(in thousands except for share and per share data)
Three Months Ended
Six Months Ended
NET INTEREST INCOME
Interest and fees on loans
Taxable
25,727
22,463
50,447
43,137
Tax exempt
74
80
132
Interest and dividends on securities
2,786
2,437
5,464
4,998
618
595
1,220
1,202
Interest on short-term investments
98
274
306
347
Total interest income
29,259
25,843
57,517
49,816
Interest on deposits
13,200
10,753
26,298
19,477
Interest on borrowings
Short-term
1,744
1,394
3,174
3,196
Long-term
634
629
1,266
1,216
Total interest expense
15,578
12,776
30,738
23,889
13,681
13,067
26,779
25,927
Provision for loan losses
906
639
1,547
1,092
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES
12,775
12,428
25,232
24,835
NONINTEREST INCOME
Wealth advisory fees
856
716
1,545
1,283
Investment brokerage fees
516
291
759
Service charges on deposit accounts
1,833
1,907
3,465
3,580
Loan, insurance and service fees
663
625
1,244
1,198
Merchant card fee income
626
568
1,248
1,148
Other income
445
507
938
1,020
Net gains on sales of real estate mortgage loans held for sale
199
178
364
330
Net securities gains (losses)
(56
36
(54
Total noninterest income
5,138
4,736
9,599
9,134
3
NONINTEREST EXPENSE
Salaries and employee benefits
5,819
5,525
11,674
11,014
Net occupancy expense
638
612
1,312
1,221
Equipment costs
468
460
913
915
Data processing fees and supplies
723
593
1,382
1,143
Credit card interchange
425
388
746
Other expense
2,153
2,276
4,259
4,565
Total noninterest expense
10,226
9,854
20,354
19,604
INCOME BEFORE INCOME TAX EXPENSE
7,687
7,310
14,477
14,365
Income tax expense
2,432
2,528
4,464
4,933
NET INCOME
5,255
4,782
10,013
9,432
Other comprehensive income/loss, net of tax:
Amortization of net actuarial loss on pension and SERP plans
Unrealized gain/(loss) on available for sale securities
(2,036
(785
(1,436
(2,280
TOTAL COMPREHENSIVE INCOME
3,249
3,997
8,607
7,152
BASIC WEIGHTED AVERAGE COMMON SHARES
12,189,997
12,065,143
12,174,966
12,039,628
BASIC EARNINGS PER COMMON SHARE
0.43
0.40
0.82
0.78
DILUTED WEIGHTED AVERAGE COMMON SHARES
12,421,178
12,365,933
12,420,834
12,353,954
DILUTED EARNINGS PER COMMON SHARE
0.42
0.39
0.81
0.76
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2007 and 2006
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation
823
835
Amortization of intangible assets
103
104
Amortization of loan servicing rights
210
228
Net change in loan servicing rights valuation allowance
(45
(58
Loans originated for sale
(23,819
(18,852
Net gain on sales of loans
(364
(330
Proceeds from sale of loans
25,517
19,193
Net (gain) loss on sale of premises and equipment
(4
Net loss on sales of securities available for sale
(36
54
Net securities amortization
353
617
Stock compensation expense
90
94
Earnings on life insurance
(408
(353
Net change:
135
(229
2,195
4,027
(539
(3,900
264
(1,453
Total adjustments
6,022
1,071
Net cash from operating activities
16,035
10,503
Cash flows from investing activities:
Proceeds from sale of securities available for sale
13,530
19,666
Proceeds from maturities, calls and principal paydowns of
securities available for sale
19,361
27,511
Purchases of securities available for sale
(36,493
(49,122
Purchase of life insurance
(128
(126
Net increase in total loans
(47,795
(77,654
Proceeds from sales of land, premises and equipment
60
48
Purchases of land, premises and equipment
(1,690
(554
Net cash from investing activities
(53,155
(80,231
(Continued)
5
Cash flows from financing activities:
Net increase (decrease) in total deposits
(67,012
141,835
Net increase (decrease) in short-term borrowings
44,390
(55,692
Payments on long-term borrowings
(1
Dividends paid
(3,222
(2,884
Proceeds from stock option exercise
957
1,272
Purchase of treasury stock
(98
Net cash from financing activities
(25,014
84,432
Net change in cash and cash equivalents
(62,134
14,704
Cash and cash equivalents at beginning of the period
82,679
Cash and cash equivalents at end of the period
97,383
Cash paid during the period for:
Interest
27,815
21,835
Income taxes
4,392
5,535
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(In thousands)
NOTE 1. BASIS OF PRESENTATION
This report is filed for Lakeland Financial Corporation (the “Company”) and its wholly-owned subsidiary, Lake City Bank (the “Bank”). All significant inter-company balances and transactions have been eliminated in consolidation. Also included is the Bank’s wholly-owned subsidiary, LCB Investments II, Inc. (“LCB Investments”). LCB Investments also owns LCB Funding, Inc. (“LCB Funding”), a real estate investment trust.
The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ending June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The 2006 Lakeland Financial Corporation Annual Report on Form 10-K should be read in conjunction with these statements.
NOTE 2. EARNINGS PER SHARE
Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements. The common shares included in Treasury Stock for 2007 and 2006 reflect the acquisition of 91,903 and 86,785 shares, respectively of Lakeland Financial Corporation common stock that have been purchased under a directors’ deferred compensation plan. Because these shares are held in trust for the participants, they are treated as outstanding when computing the weighted-average common shares outstanding for the calculation of both basic and diluted earnings per share.
7
NOTE 3. LOANS
Commercial and industrial loans
$ 896,399
$ 847,233
Commercial real estate - multifamily loans
15,395
17,351
Commercial real estate construction loans
78,940
82,183
Agri-business and agricultural loans
132,803
139,644
Residential real estate mortgage loans
118,564
109,176
Home equity loans
105,942
104,506
Installment loans and other consumer loans
52,911
53,804
Subtotal
1,400,954
1,353,897
Less: Allowance for loan losses
(15,351)
(14,463)
Net deferred loan (fees)/costs
19
(60)
Loans, net
$ 1,385,622
$ 1,339,374
Impaired loans
$ 14,807
$ 13,333
Non-performing loans
$ 15,267
$ 14,119
Allowance for loan losses to total loans
1.10%
1.07%
Changes in the allowance for loan losses are summarized as follows:
Balance at beginning of period
$ 14,463
$ 12,774
Charge-offs
(829)
(130)
Recoveries
170
56
Net loans charged-off
(659)
(74)
Balance at end of period
$ 15,351
$ 13,792
8
NOTE 4. SECURITIES
The fair values of securities available for sale were as follows:
U.S. Treasury securities
$ 1,167
$ 965
U.S. Government agencies
33,535
30,525
Mortgage-backed securities
208,361
210,000
State and municipal securities
54,013
54,701
Total
$ 297,076
$ 296,191
As of June 30, 2007, net unrealized losses on the total securities available for sale portfolio totaled $5.3 million. As of December 31, 2006, net unrealized losses on the total securities available for sale portfolio totaled $2.9 million. Management considers the unrealized losses to be market driven and no loss is expected to be realized unless the securities are sold. All of the securities are backed by the U.S. Government, government agencies, government sponsored agencies or are A rated or better, except for certain non-local municipal securities. None of the securities have call provisions (with the exception of the municipal securities) and payments as originally agreed are being received. There are no concerns of credit losses and there is nothing to indicate that full principal will not be received. The Company does not have a history of actively trading securities, but keeps the securities available for sale should liquidity or other needs develop that would warrant the sale of securities. While these securities are held in the available for sale portfolio, the current intent and ability is to hold them until a recovery in fair value or maturity.
NOTE 5. EMPLOYEE BENEFIT PLANS
Components of Net Periodic Benefit Cost
Six Months Ended June 30,
Pension Benefits
SERP Benefits
Service cost
$ 0
Interest cost
70
72
37
38
Expected return on plan assets
(86)
(84)
(46)
Recognized net actuarial loss
22
Net pension expense
$ 6
$ 10
$ 19
$ 18
9
Three Months Ended June 30,
35
18
(43)
(42)
(23)
11
14
13
$ 3
$ 5
$ 9
The Company previously disclosed in its financial statements for the year ended December 31, 2006 that it expected to contribute $35,000 to its pension plan and $59,000 to its SERP plan in 2007. As of June 30, 2007, $59,000 had been contributed to the SERP plan and $104,000 to the pension plan. The Company does not anticipate making any additional contributions to its pension plan or SERP plan during the remainder of 2007.
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, on January 1, 2007. FIN 48 requires that realization of an uncertain income tax position be “more likely than not” before it can be recognized in the financial statements. Further, FIN 48 prescribes the benefit to be recorded in the financial statements as the largest amount more likely than not to be realized assuming a review by tax authorities having all relevant information and applying current conventions. FIN 48 also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. The adoption of this standard did not have an impact on the financial statements of the Company. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such accruals in its income taxes accounts; no such accruals exist as of January 1, 2007. As of June 30, 2007 the Company had accrued $45,000 of unrecognized tax benefits. The Company and its subsidiaries file a consolidated U.S. federal income tax return and a combined unitary return in the state of Indiana. These returns are subject to examinations by taxing authorities for all years after 2002.
The Company adopted FASB Statement of Financial Accounting Standards No. 156 (SFAS No. 156), Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140, on January 1, 2007. SFAS No. 156 requires the recognition of a servicing asset or servicing liability when entering into a servicing contract to service a financial asset and requires all separately recognized servicing assets and liabilities to be initially measured at fair value. Further SFAS No. 156 permits a choice of subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities between the current amortization method and the fair value measurement method. At initial adoption, SFAS No. 156 permits a one time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided
10
the securities are identified in some manner as offsetting the exposure to changes in fair value of servicing assets or servicing liabilities that are subsequently measured at fair value. Finally, SFAS No. 156 requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. The adoption of SFAS No. 156 did not have a material impact on the Company’s financial statements.
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159 (SFAS No. 159), “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company will adopt SFAS No. 159 on January 1, 2008, and does not expect the adoption to have a material impact on the financial statements.
NOTE 7. RECLASSIFICATIONS
Certain amounts appearing in the financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassification had no effect on net income or stockholders’ equity as previously reported.
Part 1
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATIONS
OVERVIEW
Lakeland Financial Corporation is the holding company for Lake City Bank. The Company is headquartered in Warsaw, Indiana and operates 43 offices in 12 counties in northern Indiana. The Company earned $10.0 million for the first six months of 2007, versus $9.4 million in the same period of 2006, an increase of 6.2%. The increase was driven by an $852,000 increase in net interest income as well as an increase of $465,000 in noninterest income. Offsetting these positive impacts was an increase of $750,000 in noninterest expense as well as an increase of $455,000 in the provision for loan losses. Basic earnings per share for the first six months of 2007 were $0.82 per share, versus $0.78 per share for the first six months of 2006. Diluted earnings per share reflect the potential dilutive impact of stock options granted under the stock option plan. Diluted earnings per share for the first six months of 2007 were $0.81 per share, versus $0.76 for the first six months of 2006.
Net income for the second quarter of 2007 was $5.3 million, an increase of 9.9% versus $4.8 million for the comparable period of 2006. The increase was driven by a $614,000 increase in net interest income, as well as a $402,000 increase in noninterest income. Offsetting these positive impacts was an increase of $372,000 in noninterest expense as well as an increase of $267,000 in the provision for loan losses. Basic earnings per share for the second quarter of 2007 were $0.43 per share, versus $0.40 per share for the second quarter of 2006. Diluted earnings per share for the second quarter of 2007 were $0.42 per share, versus $0.39 per share for the second quarter of 2006.
Net Interest Income
For the six-month period ended June 30, 2007, net interest income totaled $26.8 million, an increase of 3.3%, or $852,000, versus the first six months of 2006. Net interest income increased in the six-month period of 2007 versus the comparable period of 2006, primarily due to a $143.0 million, or 9.3%, increase in average earning assets to $1.679 billion. For the three-month period ended June 30, 2007, net interest income totaled $13.7 million, an increase of 4.7%, or $614,000. This increase was driven by a $125.6 million, or 8.0% increase in average earning assets.
Given the Company’s mix of interest earning assets and interest bearing liabilities at June 30, 2007, the Company would generally be considered to have a slightly asset-sensitive balance sheet, although the current
interest rate environment has countered the asset-sensitive nature of the balance sheet. An asset-sensitive balance sheet structure would normally be expected to produce a stable or improving net interest margin in a rising rate environment. As the Company’s balance sheet has become more neutral in structure, management believes that future rate movements will have less impact on net interest margin than historically. In addition, the Company’s mix of deposits has shifted to more reliance on certificates of deposits, specifically public fund deposits and brokered deposits, which generally carry a higher interest rate cost than other types of interest bearing deposits.
During the first six months of 2007, total interest and dividend income increased by $7.7 million, or 15.5%, to $57.5 million, versus $49.8 million during the first six months of 2006. During the second quarter of 2007, interest and dividend income increased by $3.4 million, or 13.2%, to $29.3 million, versus $25.8 million during the same quarter of 2006. These increases were primarily the result of an increase in average earning assets, as well as general increases in interest rates. The tax equivalent yield on average earning assets increased by 36 basis points to 7.0% for the six-month period ended June 30, 2007 versus the same period of 2006. For the second quarter of 2007, the yield increased 32 basis points to 7.0%, versus 6.7% for the second quarter of 2006.
During the first six months of 2007, loan interest income increased by $7.3 million, or 16.8%, to $50.5 million, versus $43.3 million during the first six months of 2006. The increase was driven by a $140.4 million, or 11.4%, increase in average daily loan balances, as well as a 34 basis point increase in the tax equivalent yield on loans to 7.4%, versus 7.1% in the first six months of 2006. During the second quarter of 2007, loan interest income increased $3.2 million, or 14.3%, to $25.8 million, versus $22.5 million during the second quarter of 2006. The increase was driven by a $133.3 million, or 10.6%, increase in average daily loan balances as well as a 23 basis point increase in the tax equivalent yield on loans to 7.5%, versus 7.2% in the second quarter of 2006.
The average daily securities balances for the first six months of 2007 increased $5.6 million, or 1.9%, to $297.6 million, versus $292.0 million for the same period of 2006. During the same periods, income from securities increased by $484,000, or 7.8%, to $6.7 million versus $6.2 million during the first six months of 2006. The increase was primarily the result of a 23 basis point increase in the tax equivalent yield on securities, to 4.9%, versus 4.7% in the first six months of 2006. The average daily securities balances for the second quarter of 2007 increased $7.2 million, or 2.5%, to $299.5 million, versus $292.3 million for the same period of 2006. During the second quarter of 2007, income from securities was $3.4 million, an increase of $372,000, or 12.2%, versus the second quarter of 2006. The increase was primarily the result of a 39 basis point increase in the tax equivalent yield on securities to 4.9%, versus 4.5% in the second quarter of 2006.
Total interest expense increased $6.8 million, or 28.7%, to $30.7 million for the six-month period ended June 30, 2007, from $23.9 million for the comparable period in 2006. The increase was primarily the result of a 63 basis point increase in the Company’s daily cost of funds to 3.8%, versus 3.1% for the same period of 2006. Total interest expense increased $2.8 million, or 21.9%, to $15.6 million for the second quarter of 2007, versus $12.8 million for the second quarter of 2006. The increase was primarily the result of a 50 basis point increase in the Company’s daily cost of funds to 3.8%, from 3.3% for the same period of 2006. Increases in total deposits also contributed to increases in total interest expense over the six-month and three-month periods.
On an average daily basis, total deposits (including demand deposits) increased $121.3 million, or 9.1%, to $1.450 billion for the six-month period ended June 30, 2007, versus $1.329 billion during the same period in
2006. The average daily balances for the second quarter of 2007 increased $64.3 million, or 4.7%, to $1.447 billion from $1.382 billion during the second quarter of 2006. On an average daily basis, non-interest bearing demand deposits increased to $221.9 million for the six-month period ended June 30, 2007, versus $220.0 million for the same period in 2006. The average daily noninterest bearing demand deposit balances for the second quarter of 2007 were $227.3 million, versus $223.1 million for the second quarter of 2006. On an average daily basis, interest bearing transaction accounts increased $5.4 million, or 1.4%, to $383.7 million for the six-month period ended June 30, 2007, versus the same period in 2006. Average daily interest bearing transaction accounts decreased $10.0 million, or 2.5%, to $397.0 million for the second quarter of 2007, versus $407.0 million for the second quarter of 2006. When comparing the six months ended June 30, 2007 with the same period of 2006, the average daily balance of time deposits, which pay a higher rate of interest compared to demand deposit and transaction accounts, increased $115.2 million, primarily as a result of increases in public fund deposits and certificates of deposit of $100,000 or more. The rate paid on time deposit accounts increased 78 basis points to 5.1% for the six-month period ended June 30, 2007, versus the same period in 2006. During the second quarter of 2007, the average daily balance of time deposits increased $70.8 million, and the rate paid increased 65 basis points to 5.1%, versus the second quarter of 2006.
Due to strong loan growth and additional relationship opportunities, the Company continues to focus on public fund deposits as a core funding strategy. In addition, the Company has introduced brokered certificates of deposit to the funding mix as a result of loan growth. On an average daily basis, total brokered certificates of deposit increased $7.0 million to $67.5 million for the six-month period ended June 30, 2007, versus $60.5 million for the same period in 2006. During the second quarter of 2007, average daily brokered certificates of deposit were $44.5 million, versus $48.4 million during the second quarter of 2006. On an average daily basis, total public fund certificates of deposit increased $32.0 million to $285.0 million for the six-month period ended June 30, 2007, versus $253.0 million for the same period in 2006. During the second quarter of 2007, average daily public fund certificates of deposit were $278.2 million, versus $270.2 million during the second quarter of 2006.
Average daily balances of borrowings were $187.7 million during the six months ended June 30, 2007, versus $195.2 million during the same period of 2006, and the rate paid on borrowings increased 21 basis points to 4.8%. During the second quarter of 2007 the average daily balances of borrowings increased $30.5 million to $204.3 million, versus $173.8 million for the same period of 2006. The rate on borrowings was unchanged at 4.7% for the second quarters of 2007 and 2006. On an average daily basis, total deposits (including demand deposits) and purchased funds increased 7.5% and 6.1%, respectively, when comparing the six-month and three-month periods ended June 30, 2007 versus the same periods in 2006. The following tables set forth consolidated information regarding average balances and rates:
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands of dollars)
Average
Balance
Income
Yield (1)
Earning assets:
Loans:
Taxable (2)(3)
$ 1,366,763
$ 50,447
7.44
%
$ 1,223,712
$ 43,137
7.11
Tax exempt (1)
3,132
95
6.11
5,802
159
5.53
Investments: (1)
Available for sale
297,591
7,216
4.89
291,972
6,747
4.66
10,230
271
5.34
11,693
282
4.86
1,492
4.73
3,035
65
4.32
Total earning assets
1,679,208
58,064
6.97
1,536,214
50,390
6.61
Nonearning assets:
45,042
57,686
Premises and equipment
25,444
24,390
Other nonearning assets
52,483
49,768
Less allowance for loan losses
(14,779)
(13,196)
$ 1,787,398
$ 58,064
$ 1,654,862
$ 50,390
(1)
Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2007 and 2006. The tax equivalent rate for tax exempt loans and tax exempt securities included the TEFRA adjustment applicable to nondeductible interest expenses.
(2)
Loan fees, which are immaterial in relation to total taxable loan interest income for the six months ended June 30, 2007 and 2006, are included as taxable loan interest income.
(3)
Nonaccrual loans are included in the average balance of taxable loans.
15
INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
Expense
Yield
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
Savings deposits
$ 67,630
$ 70
0.21
$ 68,773
$ 72
Interest bearing checking accounts
383,678
6,521
3.43
378,311
5,187
2.76
Time deposits:
In denominations under $100,000
284,123
6,739
4.78
255,831
4,858
3.83
In denominations over $100,000
493,077
12,968
5.30
406,181
9,360
4.65
Miscellaneous short-term borrowings
156,710
4.08
164,249
3.92
30,972
8.24
30,973
7.92
Total interest bearing liabilities
1,416,190
4.38
1,304,318
3.69
Noninterest bearing liabilities
and stockholders' equity:
Demand deposits
221,930
219,994
15,180
12,838
Stockholders' equity
134,098
117,712
Total liabilities and stockholders'
equity
$ 30,738
$ 23,889
Net interest differential - yield on
average daily earning assets
$ 27,326
3.27
$ 26,501
3.47
16
$ 1,384,114
$ 25,727
7.46
$ 1,246,448
$ 22,463
7.23
2,115
6.98
6,471
89
5.52
299,455
3,673
4.92
292,305
3,301
4.53
5,423
5.33
19,973
245
2,215
4.71
2,501
1,693,322
29,535
7.00
1,567,698
26,127
6.68
46,598
58,859
25,487
24,283
52,663
51,285
(14,999)
(13,446)
$ 1,803,071
$ 29,535
$ 1,688,679
$ 26,127
Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended June 30, 2007 and 2006, are included as taxable loan interest income.
17
$ 69,049
$ 36
$ 69,652
$ 37
396,966
3,525
3.56
406,994
3,092
3.05
290,696
3,501
4.83
263,759
2,596
3.95
462,863
6,138
5.32
418,994
5,028
4.81
173,348
4.04
142,814
8.21
8.15
1,423,894
4.39
1,333,186
3.84
227,259
223,099
15,654
12,994
136,264
119,400
$ 15,578
$ 12,776
$ 13,957
3.30
$ 13,351
3.41
Provision for Loan Losses
Based on management’s review of the adequacy of the allowance for loan losses, provisions for losses on loans of $1.5 million and $906,000 were recorded during the six-month and three-month periods ended June 30, 2007, versus provisions of $1.1 million and $639,000 recorded during the same periods of 2006. Factors impacting the provision included the amount and status of classified credits, the level of charge-offs, management’s overall view on current credit quality, the amount and status of impaired loans and the amount and status of past due accruing loans (90 days or more), as discussed in more detail below in the analysis relating to the Company’s financial condition.
Noninterest Income
Noninterest income categories for the six-month and three-month periods ended June 30, 2007 and 2006 are shown in the following table:
Percent
Change
$ 1,545
$ 1,283
20.4
20.7
(3.2)
3.8
8.7
(8.0)
Net gains on sales of real estate mortgages held for sale
10.3
(54)
166.7
$ 9,599
$ 9,134
5.1
$ 856
$ 716
19.6
77.3
(3.9)
6.1
10.2
(12.2)
Net gains on sales of real estate mortgages loans held for sale
11.8
(56)
100.0
$ 5,138
$ 4,736
8.5
Noninterest income increased $465,000 and $402,000, respectively, in the six-month and three-month periods ended June 30, 2007, versus the same periods in 2006. Driving the increases were wealth advisory fees, which increased $262,000 and $140,000, respectively, in the six-month and three-month periods ended June 30, 2007, versus the same periods in 2006. Wealth advisory fees increased due to attracting new clients as well as the increased value of certain trust assets upon which many of the fees are based. Investment brokerage fees increased $130,000 and $225,000 in the six-month and three-month periods ended June 30, 2007 due to higher trading volume. Merchant card fee income increased due to higher volume activity in interchange and merchant fees. Partially offsetting these increases were decreases in service charges on deposit accounts. This decline was driven by decreases in account analysis service charges on commercial checking accounts.
Noninterest Expense
Noninterest expense categories for the six-month and three-month periods ended June 30, 2007 and 2006 are shown in the following table:
20
$ 11,674
$ 11,014
6.0
7.5
(0.2)
20.9
9.1
(6.7)
$ 20,354
$ 19,604
$ 5,819
$ 5,525
5.3
4.2
1.7
21.9
9.5
(5.4)
$ 10,226
$ 9,854
Noninterest expense increased $750,000 and $372,000, respectively, in the six-month and three-month periods ended June 30, 2007 versus the same periods of 2006. Driving these increases were salaries and employee benefits, which increased $660,000 and $294,000, respectively, in the six- month and three-month periods ended June 30, 2007. The increases were due largely to staff additions, normal salary increases, increased incentive based compensation and higher health care costs. Data processing fees and supplies increased due to higher software license and maintenance fees. In addition, net occupancy expense increased due to higher maintenance and repair costs associated with an unusually harsh winter. Offsetting these increases were decreases in other expense due to reduced advertising expense.
Income Tax Expense
Income tax expense decreased $469,000, or 9.51%, for the first six months of 2007, compared to the same period in 2006. Income tax expense for the second quarter of 2007 decreased $96,000, or 3.8%, compared to the same period of 2006. The combined state franchise tax expense and the federal income tax expense, as a
21
percentage of income before income tax expense, decreased to 30.8% during the first six months of 2007 compared to 34.3% during the same period of 2006. The combined tax expense decreased to 31.6% for the second quarter of 2007, versus 34.6% during the same period of 2006. The decreases were driven by the formation of a real estate investment trust during the fourth quarter of 2006, which provides the Company with an alternative vehicle for raising capital should the need arise. Additionally, the ownership structure of this real estate investment trust provides certain state income tax benefits which also lowered the Company’s effective tax rate.
CRITICAL ACCOUNTING POLICIES
Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Some of the facts and circumstances which could affect these judgments include changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of mortgage servicing rights. The Company’s critical accounting policies are discussed in detail in the Annual Report for the year ended December 31, 2006 (incorporated by reference as part of the Company’s 10-K filing).
FINANCIAL CONDITION
Total assets of the Company were $1.823 billion as of June 30, 2007, a decrease of $13.9 million, or 0.8%, when compared to $1.837 billion as of December 31, 2006.
Total cash and cash equivalents decreased by $62.1 million, or 51.9%, to $57.6 million at June 30, 2007 from $119.7 million at December 31, 2006.
Total securities available-for-sale increased by $885,000, or 0.3%, to $297.1 million at June 30, 2007 from $296.2 million at December 31, 2006. The increase was a result of a number of transactions in the securities portfolio. Securities purchases totaled $36.5 million. Offsetting this increase were securities paydowns totaling $18.8 million, maturities, sales and calls of securities totaling $14.0 million and the amortization of premiums, net of the accretion of discounts totaling $353,000. In addition, the fair market value of the securities portfolio decreased by $2.4 million. A rising interest rate environment during the second quarter of 2007 drove the market value decrease. The investment portfolio is managed to limit the Company’s exposure to risk by containing mostly collateralized mortgage obligations and other securities which are either directly or indirectly backed by the federal government or a local municipal government.
Real estate mortgage loans held-for-sale decreased by $1.5 million, or 70.3%, to $647,000 at June 30, 2007 from $2.2 million at December 31, 2006. The balance of this asset category is subject to a high degree of variability depending on, among other things, recent mortgage loan rates and the timing of loan sales into the secondary market. During the six months ended June 30, 2007, $23.8 million in real estate mortgages were originated for sale and $25.5 million in mortgages were sold.
Total loans, excluding real estate mortgage loans held-for-sale, increased by $47.1 million, or 3.5%, to $1.401 billion at June 30, 2007 from $1.354 billion at December 31, 2006. The mix of loan types within the Company’s portfolio consisted of 80% commercial and industrial and agri-business, 16% residential real estate and home equity and 4% consumer loans at both June 30, 2007 and December 31, 2006.
The Company has a relatively high percentage of commercial and commercial real estate loans, most of which are extended to small or medium-sized businesses. Commercial loans represent higher dollar loans to fewer customers and this concentration may lead to a higher credit risk than other types of loans. Pricing is adjusted to manage the higher credit risk associated with these types of loans. The majority of fixed rate mortgage loans, which represent increased interest rate risk, are sold in the secondary market, as well as some variable rate mortgage loans. The remainder of the variable rate mortgage loans and a small number of fixed rate mortgage loans are retained.
The regulations of the Federal Deposit Insurance Corporation require insured institutions to classify their own assets on a regular basis. The regulations provide for three categories of classified loans – substandard, doubtful and loss. The regulations also contain a special mention category. Special mention is defined as loans that do not currently expose an insured institution to a sufficient degree of risk to warrant classification, but do possess credit deficiencies or potential weaknesses deserving management’s close attention. Assets classified as substandard or doubtful require the institution to establish specific allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specified allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge off such amount. At June 30, 2007, on the basis of management’s review of the loan portfolio, the Company had loans totaling $62.0 million on the classified loan list, which declined from $69.7 million on December 31, 2006. As of June 30, 2007, the Company had $24.0 million of assets classified special mention, $37.8 million classified as substandard, $278,000 classified as doubtful and $0 classified as loss as compared to $26.9 million, $42.6 million, $100,000 and $0 at December 31, 2006.
Loans are charged against the allowance for loan losses when management believes that the uncollectability of the principal is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb probable incurred credit losses relating to specifically identified loans based on an evaluation, as well as other probable incurred losses inherent in the loan portfolio. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to repay. Management also considers trends in adversely classified loans based upon a monthly review of those credits. An appropriate level of general allowance is determined after considering the following factors: application of historical loss percentages, emerging market risk, commercial loan focus and large credit concentrations, new industry lending activity and current economic conditions.
The Company discusses this methodology with regulatory authorities to ensure compliance. Allowance estimates are considered a prudent measurement of the risk in the Company’s loan portfolio and are applied to individual loans based on loan type. In accordance with FASB Statements 5 and 114, the allowance is provided for losses that have been incurred as of the balance sheet date and is based on past events and current economic conditions, and does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.
23
The allowance for loan losses increased $888,000 from $14.5 million December 31, 2006 to $15.4 million at June 30, 2007. Pooled loan allocations increased $298,000 from $4.2 million at December 31, 2006 to $4.5 million at June 30, 2007, which was primarily a result of an increase in pooled loan balances of $54.4 million year to date. Specific loan allocations increased $800,000 from $9.7 million at December 31, 2006 to $10.5 million at June 30, 2007. This increase was primarily from increases in the specific allocations for seven commercial credits. The unallocated component of the allowance for loan losses decreased $210,000 from $638,000 at December 31, 2006 to $428,000 at June 30, 2007. Management believes the allowance for loan losses is at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions would become unfavorable certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses.
Total impaired loans increased by $1.5 million to $14.8 million at June 30, 2007 from $13.3 million at December 31, 2006. The increase in the impaired loans category resulted primarily from the addition of a single commercial credit. The long-time borrower is engaged in mobile home financing and rental activities in northern Indiana. Borrower collateral, including receivables, real estate and certain mobile home units support the credit. However, there can be no assurances that full repayment of the loans will result. The impaired loan total included $194,000 in accruing loans at June 30, 2007. A loan is impaired when full payment under the original loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, and consumer loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The following table summarizes nonperforming assets at June 30, 2007 and December 31, 2006.
NONPERFORMING ASSETS:
Nonaccrual loans
$ 15,053
$ 13,820
Loans past due over 90 days and accruing
214
299
Total nonperforming loans
15,267
14,119
Other real estate
71
Repossessions
Total nonperforming assets
$ 15,338
$ 14,225
Total impaired loans
Nonperforming loans to total loans
1.09%
1.04%
Nonperforming assets to total assets
0.84%
0.77%
24
Total nonperforming assets have increased by $1.1 million, or 7.8%, to $15.3 million since December 31, 2006. Three commercial credits represent 90.8% of total nonperforming assets. The largest exposure is a $7.3 million loan to a residential and commercial real estate developer in the Fort Wayne, Indiana market. This credit became nonperforming in the third quarter of 2006. Approximately 26% of the exposure is related to residential real estate activity and the remaining 74% is uncompleted commercial development. The Company took an $800,000 charge-off related to this credit in the fourth quarter of 2006. Borrower collateral, including real estate, and personal guarantees of its principals support this credit, although there can be no assurances that full repayment of the loans will result. It is anticipated that the collateral will be transferred to other real estate prior to the conclusion of 2007. At that time, the Company will determine if the carrying value of the real estate is commensurate with the current principal amount based upon updated appraisals and other pertinent information.
A $4.6 million loan to an industrial manufacturer based in Fort Wayne represents the second largest exposure in the nonperforming category. This credit became nonperforming in the third quarter of 2004. Borrower collateral, including real estate related directly to the loan, real estate collateral pledged by principals in the business (but not related to the business), and personal guarantees of its principals support this credit, although there can be no assurances that full repayment of the loans will result. The Company is working closely with the borrower and principals to proactively manage the situation. The Company has other exposure to this borrower in the form of a performing loan which is secured by other collateral and guarantees.
The third largest exposure in the nonperforming category is a $2.0 million loan to a borrower engaged in mobile home financing and rental activities in northern Indiana. This credit became nonperforming in the second quarter of 2007. Although payments have been received as agreed, the loan is out of compliance with certain loan covenants, and there are no guarantors. The Company took a $275,000 charge-off related to this credit in the second quarter of 2007. Borrower collateral, including receivables, real estate and certain mobile home units support this credit. However, there can be no assurances that full repayment of the loan will result.
Total deposits decreased by $67.0 million, or 4.5%, to $1.409 billion at June 30, 2007 from $1.476 billion at December 31, 2006. The decrease resulted from decreases of $47.3 million in money market transaction accounts, $18.1 million in demand deposit accounts, $12.3 million in “Investors’ Money Market” accounts and $210,000 in money market accounts. Offsetting these decreases were increases of $8.5 million in certificates of deposit and $2.4 million in savings accounts. Total short-term borrowings increased by $44.4 million, or 23.7%, to $231.9 million at June 30, 2007 from $187.5 million at December 31, 2006. The increase resulted primarily from increases of $32.0 million in federal funds purchased, $10.0 million in other borrowings, primarily short-term advances from the Federal Home Loan Bank of Indianapolis and $2.3 million in securities sold under agreements to repurchase.
Total stockholders’ equity increased by $6.4 million, or 4.9%, to $136.6 million at June 30, 2007 from $130.2 million at December 31, 2006. Net income of $10.0 million, minus the decrease in the accumulated other comprehensive income of $1.4 million, minus dividends of $3.2 million, plus $957,000 for stock issued through options exercised (including tax benefit), minus $126,000 for the cost of treasury stock purchased plus $90,000 in stock option expense, comprised most of this increase.
The FDIC’s risk based capital regulations require that all insured banking organizations maintain an 8.0% total risk based capital ratio. The FDIC has also established definitions of “well capitalized” as a 5.0%
25
Tier I leverage capital ratio, a 6.0% Tier I risk based capital ratio and a 10.0% total risk based capital ratio. All of the Company’s ratios continue to be above “well capitalized” levels. As of June 30, 2007, the Company’s Tier 1 leverage capital ratio, Tier 1 risk based capital ratio and total risk based capital ratio were 9.1%, 11.1% and 12.1%, respectively.
FORWARD-LOOKING STATEMENTS
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section included under Item 1a. of Part I of our Form 10-K. In addition to the risk factors described in that section, there are other factors that may impact any public company, including ours, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:
•
The economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks.
The costs, effects and outcomes of existing or future litigation.
Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board.
The ability of the Company to manage risks associated with the foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk represents the Company’s primary market risk exposure. The Company does not have a material exposure to foreign currency exchange risk, does not have any material amount of derivative financial instruments and does not maintain a trading portfolio. The board of directors annually reviews and approves the policy used to manage interest rate risk. The policy was last reviewed and approved in May 2007. The policy sets guidelines for balance sheet structure, which are designed to protect the Company from the impact that interest rate changes could have on net income, but does not necessarily indicate the effect on future net interest
income. The Company, through its Asset/Liability Committee, manages interest rate risk by monitoring the computer simulated earnings impact of various rate scenarios and general market conditions. The Company then modifies its long-term risk parameters by attempting to generate the type of loans, investments, and deposits that currently fit the Company’s needs, as determined by the Asset/Liability Committee. This computer simulation analysis measures the net interest income impact of various interest rate scenario changes during the next 12 months. If the change in net interest income is less than 3% of primary capital, the balance sheet structure is considered to be within acceptable risk levels. At June 30, 2007, the Company’s potential pretax exposure was within the Company’s policy limit, and not significantly different from December 31, 2006.
ITEM 4 – CONTROLS AND PROCEDURES
As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2007. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
During the quarter ended June 30, 2007, there were no changes to the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect its internal control over financial reporting.
Part II - Other Information
Item 1. Legal proceedings
There are no material pending legal proceedings to which the Company or its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Item 1a. to Part I of the Company’s 2006 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information as of June 30, 2007 with respect to shares of common stock repurchased by the Company during the quarter then ended:
Issuer Purchases of Equity Securities(a)
Maximum Number (or
Total Number of
Appropriate Dollar
Shares Purchased as
Value) of Shares that
Part of Publicly
May Yet Be Purchased
Average Price
Announced Plans or
Under the Plans or
Period
Shares Purchased
Paid per Share
Programs
April 1-30
May 1-31
571
22.32
June 1-30
$ 22.32
(a)
The shares purchased during the periods were credited to the deferred share accounts of
non-employee directors under the Company’s directors’ deferred compensation plan.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On April 10, 2007 the Company’s annual meeting of stockholders was held. At the meeting, the stockholders ratified the selection of Crowe Chizek and Company LLC as the Company’s independent registered public accounting firm for the year ended December 31, 2007, and L. Craig Fulmer, Charles E. Niemier, Donald B. Steininger and Terry L. Tucker were elected to serve as directors with terms expiring in 2010. Continuing as directors until 2008 are Robert E. Bartels, Jr., Thomas A. Hiatt, Michael L. Kubacki, Steven D. Ross and M. Scott Welch. Continuing as directors until 2009 are Allan J. Ludwig, Emily E. Pichon and Richard L. Pletcher.
Election of Directors:
For
Withheld
L. Craig Fulmer
9,068,510
278,603
Charles E. Niemier
9,086,480
260,633
Donald B. Steininger
9,086,354
260,759
Terry L. Tucker
9,065,001
282,112
Ratification of Independent Registered Public Accounting Firm:
Broker
Against
Abstain
Non-votes
Crowe Chizek and Company LLC
9,263,528
40,186
43,398
Item 5. Other Information
Item 6. Exhibits
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: August 6, 2007
/s/ Michael L. Kubacki
Michael L. Kubacki – President and Chief
Executive Officer
/s/ David M. Findlay
David M. Findlay – Executive Vice President
and Chief Financial Officer
/s/ Teresa A. Bartman
Teresa A. Bartman – Vice President
and Controller