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Lakeland Financial Reports Record Quarterly Performance

Lakeland Financial Reports Record Quarterly Performance
Lakeland Financial Reports Record Quarterly Performance

Net Income Increases 8%

WARSAW, Ind., July 25, 2019 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record quarterly net income of $21.7 million for the three months ended June 30, 2019, an increase of 8% versus $20.1 million for the second quarter of 2018. Diluted earnings per share increased 9% to $0.85 for the second quarter of 2019, versus $0.78 for the second quarter of 2018. On a linked quarter basis, net income increased $31,000 from the first quarter ended March 31, 2019, which had net income of $21.7 million and $0.84 diluted earnings per share.

The company further reported record net income of $43.4 million for the six months ended June 30, 2019 versus $38.5 million for the comparable period of 2018, an increase of 13%. Diluted net income per common share was also a record for the period and increased 13% to $1.69 for the six months ended June 30, 2019 versus $1.50 for the comparable period of 2018.

David M. Findlay, President and Chief Executive Officer, said, “Our record quarterly results were positively impacted by healthy loan and deposit growth. This balance sheet expansion reflects our continued growth throughout our Indiana footprint.”

Highlights for the quarter are noted below.

2nd Quarter 2019 versus 2nd Quarter 2018 highlights:

  • Return on average equity of 15.8%, compared to 16.9%

  • Return on average assets of 1.76%, up from 1.70%

  • Organic loan growth of $140 million, or 4%

  • Core deposit growth of $288 million, or 8%

  • Net interest income increase of $878,000, or 2%

  • Net interest margin of 3.37% compared to 3.42%

  • Noninterest income increase of $1.9 million, or 19%

  • Revenue growth of $2.7 million, or 6%

  • Provision expense of $785,000 compared to $1.7 million

  • Nonperforming assets to total assets of 0.31% versus 0.27%

  • Total equity and tangible common equity1 increase of $79 million, or 16%

2nd Quarter 2019 versus 1st Quarter 2019 highlights:

  • Return on average equity of 15.8% compared to 16.6%

  • Return on average assets of 1.76%, compared to 1.80%

  • Organic loan growth of $60 million or 2%

  • Net interest income increase of $202,000, or 1%

  • Net interest margin decrease of 8 basis points to 3.37% from 3.45%

  • Noninterest income increase of $63,000, or 1%

  • Revenue growth of $265,000, or 1%

  • Provision expense of $785,000 compared to $1.2 million

  • Nonperforming assets to total assets of 0.31% versus 0.14%

  • Total equity and tangible common equity1 increase of $22 million, or 4%

As announced on July 9, 2019, the board of directors approved a cash dividend for the second quarter of $0.30 per share, payable on August 5, 2019, to shareholders of record as of July 25, 2019. The 2019 dividend rate per share approved in July represents a 16% increase over the accumulated quarterly dividends paid in 2018.

Return on average total equity for the second quarter of 2019 was 15.76%, compared to 16.86% in the second quarter of 2018 and 16.59% in the linked first quarter of 2019. Return on average total equity for the first six months of 2019 was 16.17%, compared to 16.35% in the same period of 2018. Return on average assets for the second quarter of 2019 was 1.76%, compared to 1.70% in the second quarter of 2018 and 1.80% in the linked first quarter of 2019. Return on average assets for the first six months of 2019 was 1.78% compared to 1.64% in the same period of 2018. The company’s total capital as a percentage of risk-weighted assets was 14.49% at June 30, 2019, compared to 13.76% at June 30, 2018 and 14.38% at March 31, 2019. The company’s tangible common equity to tangible assets ratio2 was 11.30% at June 30, 2019, compared to 10.15% at June 30, 2018 and 11.04% at March 31, 2019.

Average total loans for the second quarter of 2019 were $3.96 billion, an increase of $121.9 million, or 3%, versus $3.84 billion for the second quarter 2018. On a linked quarter basis, total average loans grew $43.3 million from $3.92 billion at March 31, 2019. Total loans outstanding grew $139.9 million, or 4%, from $3.86 billion as of June 30, 2018 to $4.00 billion as of June 30, 2019.

“We are pleased to report $60 million in loan growth on a linked quarter basis. Line utilization for commercial committed lines has increased as compared to the first quarter 2019, but is still lower than our normal run rate for periods prior to 2018. Further, loan originations are outpacing loan paydowns,” commented Findlay.

Average total deposits for the second quarter of 2019 were $4.30 billion, an increase of $208.6 million, or 5%, versus $4.09 billion for the second quarter of 2018. Average total deposits increased by $210.4 million or 5% as compared to average deposits of $4.09 billion on a linked quarter basis. Total deposits grew $286.3 million, or 7%, from $3.93 billion as of June 30, 2018 to $4.22 billion as of June 30, 2019. In addition, total core deposits, which exclude brokered deposits, increased $288.3 million, or 8%, from $3.72 billion at June 30, 2018 to $4.00 billion at June 30, 2019 due to growth in commercial deposits of $230.2 million or 24%, increases in retail deposits of $29.5 million, or 2%, and increases in public fund deposits of $28.6 million or 2%. Brokered deposits were $218.0 million at June 30, 2019, a decrease of $1.9 million, or 1%, as compared to $219.9 million as of June 30, 2018.

Findlay added, “The double digit growth in commercial deposits on a year over year basis was strong and reflective of our focus on growing these relationship driven, low cost deposits. Consistent with our strategic focus on these accounts, we continue to see growth in the number of commercial checking accounts and the volume of commercial checking account balances.”

The company’s net interest margin decreased five basis points to 3.37% for the second quarter of 2019 compared to 3.42% for the second quarter of 2018. The year over year decline in net interest margin was due to a higher cost of funds and lower yields on investment securities, partially offset by a higher yield on the company’s loan portfolio. The decline in the investment securities yield was due to the combined effect of the flattening, and at times, inverted, yield curve, the corresponding increase in the fair value of the investment securities portfolio, as well as increased premium bond amortization resulting from elevated prepayment speeds.

Linked quarter net interest margin declined by eight basis points from 3.45% as of March 31, 2019 to 3.37% as of June 30, 2019 due to an increase of five basis points in the cost of funds as well as a decline of three basis points in the yield on earning assets. The decline in investment securities yields resulted primarily from a decline in yields for agency mortgage backed securities and collateralized mortgage obligations.

The company’s net interest margin increased three basis points to 3.42% for the six months ended June 30, 2019 compared to 3.39% for the six months ended June 30, 2018. The increase in net interest margin for the six month period was primarily attributable to increases in loan yields partially offset by higher cost of funds, driven by the Federal Reserve Bank increasing the target Federal Funds Rate in June, September and December of 2018. Net interest income increased by $2.9 million or 4% for the six months ended June 30, 2019 as compared to the first half of 2018 due to both net interest margin expansion and loan and deposit growth.

The company recorded a provision for loan losses of $785,000 in the second quarter of 2019, compared to $1.7 million in the second quarter of 2018 and $1.2 million in the linked first quarter of 2019. Net recoveries in the second quarter of 2019 were $217,000 versus net recoveries of $379,000 in the second quarter of 2018 and net charge offs of $91,000 during the linked first quarter of 2019. Annualized net recoveries to average loans were 0.02% for the second quarter of 2019 versus 0.04% for the second quarter of 2018. Annualized net charge offs to average loans were 0.01% for the linked first quarter of 2019. On a year to date basis, net recoveries to average loans were 0.01% compared to net charge offs to average loans of 0.23% for the first six months of 2018.

Nonperforming assets increased $2.4 million, or 19%, to $15.3 million as of June 30, 2019 versus $12.9 million as of June 30, 2018 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets were $15.3 million versus $7.0 million reported as of March 31, 2019. The increase was primarily driven by a single commercial relationship being placed in nonaccrual status, which was past due as of the first quarter of 2019. The ratio of nonperforming assets to total assets at June 30, 2019 was 0.31% compared to 0.27% at June 30, 2018 and 0.14% at March 31, 2019. Loan loss reserve to total loans was 1.26% as of June 30, 2019 as compared with 1.24% as of June 30, 2018 and unchanged from 1.26% as of March 31, 2019.

“We are proud of our asset quality performance during the first two quarters of 2019 with net recoveries year to date. While we encountered a slight shift in nonperforming loans, we don’t believe that it is reflective of any broader concerns and our watch list loan totals are stable,” commented Findlay.

The company’s noninterest income increased $1.9 million, or 19%, to $11.6 million for the second quarter of 2019, compared to $9.7 million for the second quarter of 2018. Noninterest income was positively impacted by a 23% increase over the prior year second quarter in recurring fee income for service charges on deposit accounts, primarily due to growth in treasury management fees from business accounts. In addition, investment brokerage fees increased 40% and wealth advisory fees increased by 7% compared to the second quarter 2018 due to continued growth of client relationships. Noninterest income was $11.5 million in the linked first quarter of 2019.

The company’s noninterest income increased $3.5 million, or 18%, to $23.1 million for the six months ended June 30, 2019 compared to $19.6 million in the prior year period. Noninterest income was positively impacted by $1.7 million increase in service charges on deposit accounts, as well as increases of $287,000 in loan and service fees, $247,000 in investment brokerage fees and $217,000 in wealth advisory fees.

During the second quarter, a single commercial treasury management relationship contributed $2.1 million in treasury management fees that are reported with service charges on deposit accounts. This relationship contributed $1.6 million in the first quarter of 2019, resulting in a total of $3.7 million of revenue on a year to date basis. As a result of the bank discovering potentially fraudulent activity by this client involving multiple banks, the related treasury management activity was terminated and the revenue will not recur in future periods. The bank has not incurred any loss related to this activity and we believe that an investigation is ongoing by authorities. In addition, the bank continues its review of its enterprise risk management policies and procedures.

The company’s noninterest expense increased $1.8 million, or 9%, to $22.1 million in the second quarter of 2019, compared to $20.3 million in the second quarter of 2018 and decreased by $381,000 on a linked quarter basis. Salaries and employee benefits increased on a year over year basis primarily due to higher employee health insurance expense, staffing increases in revenue producing areas and normal merit increases. Other expense increased by $672,000 or 40% to $2.3 million from $1.7 million in the second quarter 2018.

The company’s noninterest expense increased by $3.1 million, or 7%, to $44.6 million in the first six months of 2019 compared to $41.5 million in the prior year period. The increase was driven by salaries and employee benefits, which increased by 4%, or $882,000, primarily due to higher health insurance expense, staffing increases in revenue producing areas and normal merit increases. Other expense increased by $1.4 million or 44% to $4.6 million from $3.2 million in the six month period ended June 30, 2018.

The company’s efficiency ratio was 44.2% for the second quarter of 2019, compared to 42.9% for the second quarter of 2018 and 45.2% for the linked first quarter of 2019. The company’s efficiency ratio was 44.7% for the six months ended June 30, 2019 compared to 44.4% in the prior year period.

Lakeland Financial Corporation is a $5.0 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank, its single bank subsidiary, is the fifth largest bank headquartered in the state and the largest bank 100% invested in Indiana. Lake City Bank operates 50 offices in Northern and Central Indiana, delivering technology-driven and client-centric financial services solutions to individuals and businesses.

Information regarding Lakeland Financial Corporation may be accessed on the home page of its subsidiary, Lake City Bank, at lakecitybank.com. The company’s common stock is traded on the Nasdaq Global Select Market under “LKFN.” In addition to the results presented in accordance with generally accepted accounting principles in the United States, this earnings release contains certain non-GAAP financial measures. The company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company’s financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including measures based on “tangible common equity” which is “total equity” excluding intangible assets, net of deferred tax, and “tangible assets” which is “total assets” excluding intangible assets, net of deferred tax. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalents is included in the attached financial tables where the non-GAAP measures are presented.

This document contains, and future oral and written statements of the company and its management may contain, forward-looking statements within the meaning of 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,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. The company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statements made by the company. 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. Numerous factors could cause the company’s actual results to differ from those reflected in forward-looking statements, including trade policy and those identified in the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

LAKELAND FINANCIAL CORPORATION

SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

Three Months Ended

Six Months Ended

(Unaudited – Dollars in thousands, except per share data)

Jun. 30,

Mar. 31,

Jun. 30,

Jun. 30,

Jun. 30,

END OF PERIOD BALANCES

2019

2019

2018

2019

2018

Assets

$

4,975,519

$

4,891,885

$

4,760,869

$

4,975,519

$

4,760,869

Deposits

4,221,299

4,147,437

3,934,953

4,221,299

3,934,953

Brokered Deposits

217,981

140,078

219,900

217,981

219,900

Core Deposits (3)

4,003,318

4,007,359

3,715,053

4,003,318

3,715,053

Loans

3,998,618

3,939,010

3,858,713

3,998,618

3,858,713

Allowance for Loan Losses

50,564

49,562

47,706

50,564

47,706

Total Equity

565,363

543,267

486,484

565,363

486,484

Goodwill net of deferred tax assets

3,779

3,779

3,793

3,779

3,793

Tangible Common Equity (1)

561,584

539,488

482,691

561,584

482,691

AVERAGE BALANCES

Total Assets

$

4,961,453

$

4,881,572

$

4,739,163

$

4,921,733

$

4,723,034

Earning Assets

4,625,949

4,550,950

4,448,240

4,588,656

4,434,924

Investments - available for sale

601,178

587,026

560,484

594,141

553,303

Loans

3,961,322

3,918,024

3,839,441

3,939,792

3,815,813

Total Deposits

4,300,759

4,090,330

4,092,145

4,196,125

4,093,523

Interest Bearing Deposits

3,378,030

3,205,204

3,266,808

3,292,094

3,260,095

Interest Bearing Liabilities

3,444,382

3,426,250

3,409,138

3,435,366

3,388,236

Total Equity

552,536

529,989

479,291

541,325

474,670

INCOME STATEMENT DATA

Net Interest Income

$

38,411

$

38,209

$

37,533

$

76,620

$

73,756

Net Interest Income-Fully Tax Equivalent

38,923

38,708

37,973

77,631

74,604

Provision for Loan Losses

785

1,200

1,700

1,985

5,000

Noninterest Income

11,588

11,525

9,722

23,113

19,601

Noninterest Expense

22,092

22,473

20,303

44,565

41,505

Net Income

21,713

21,682

20,142

43,395

38,478

PER SHARE DATA

Basic Net Income Per Common Share

$

0.85

$

0.85

$

0.80

$

1.70

$

1.52

Diluted Net Income Per Common Share

0.85

0.84

0.78

1.69

1.50

Cash Dividends Declared Per Common Share

0.30

0.26

0.26

0.56

0.48

Dividend Payout

35.29

%

30.95

%

33.33

%

33.14

%

32.00

%

Book Value Per Common Share (equity per share issued)

22.06

21.21

19.23

22.06

19.23

Tangible Book Value Per Common Share (1)

21.92

21.06

19.08

21.92

19.08

Market Value – High

49.20

48.99

51.15

49.20

51.76

Market Value – Low

43.76

39.78

45.15

39.78

45.01

Basic Weighted Average Common Shares Outstanding

25,614,701

25,491,093

25,293,329

25,553,254

25,275,471

Diluted Weighted Average Common Shares Outstanding

25,774,002

25,665,287

25,709,216

25,721,079

25,704,505

KEY RATIOS

Return on Average Assets

1.76

%

1.80

%

1.70

%

1.78

%

1.64

%

Return on Average Total Equity

15.76

16.59

16.86

16.17

16.35

Average Equity to Average Assets

11.14

10.86

10.11

11.00

10.05

Net Interest Margin

3.37

3.45

3.42

3.42

3.39

Efficiency (Noninterest Expense / Net Interest Income plus Noninterest Income)

44.19

45.19

42.93

44.68

44.44

Tier 1 Leverage (2)

11.72

11.59

11.01

11.72

11.01

Tier 1 Risk-Based Capital (2)

13.33

13.22

12.61

13.33

12.61

Common Equity Tier 1 (CET1) (2)

12.64

12.52

11.88

12.64

11.88

Total Capital (2)

14.49

14.38

13.76

14.49

13.76

Tangible Capital (1) (2)

11.30

11.04

10.15

11.30

10.15

ASSET QUALITY

Loans Past Due 30 - 89 Days

$

2,451

$

9,694

$

1,612

$

2,451

$

1,612

Loans Past Due 90 Days or More

0

481

0

0

0

Non-accrual Loans

14,995

6,093

12,773

14,995

12,773

Nonperforming Loans (includes nonperforming TDRs)

14,995

6,574

12,773

14,995

12,773

Other Real Estate Owned

316

316

10

316

10

Other Nonperforming Assets

7

83

108

7

108

Total Nonperforming Assets

15,318

6,973

12,891

15,318

12,891

Performing Troubled Debt Restructurings

6,082

6,196

3,402

6,082

3,402

Nonperforming Troubled Debt Restructurings (included in nonperforming loans)

3,512

3,812

7,666

3,512

7,666

Total Troubled Debt Restructurings

9,594

10,008

11,068

9,594

11,068

Impaired Loans

24,271

24,501

16,931

24,271

16,931

Non-Impaired Watch List Loans

183,599

179,636

196,880

183,599

196,880

Total Impaired and Watch List Loans

207,870

204,137

213,811

207,870

213,811

Gross Charge Offs

84

284

128

368

5,105

Recoveries

301

193

507

494

690

Net Charge Offs/(Recoveries)

(217

)

91

(379

)

(126

)

4,415

Net Charge Offs/(Recoveries) to Average Loans

(0.02

)

%

0.01

%

(0.04

)

%

(0.01

)

%

0.23

%

Loan Loss Reserve to Loans

1.26

%

1.26

%

1.24

%

1.26

%

1.24

%

Loan Loss Reserve to Nonperforming Loans

337.18

%

753.91

%

373.51

%

337.18

%

373.49

%

Loan Loss Reserve to Nonperforming Loans and Performing TDRs

239.90

%

388.11

%

294.94

%

239.90

%

294.94

%

Nonperforming Loans to Loans

0.38

%

0.17

%

0.33

%

0.38

%

0.33

%

Nonperforming Assets to Assets

0.31

%

0.14

%

0.27

%

0.31

%

0.27

%

Total Impaired and Watch List Loans to Total Loans

5.20

%

5.18

%

5.54

%

5.20

%

5.54

%

OTHER DATA

Full Time Equivalent Employees

571

556

553

571

553

Offices

50

50

49

50

49

(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Financial Measures"

(2) Capital ratios for June 30, 2019 are preliminary until the Call Report is filed.

(3) Core deposits equals deposits less brokered deposits

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

June 30,

December 31,

2019

2018

(Unaudited)

ASSETS

Cash and due from banks

$

154,856

$

192,290

Short-term investments

41,514

24,632

Total cash and cash equivalents

196,370

216,922

Securities available-for-sale (carried at fair value)

609,826

585,549

Real estate mortgage loans held-for-sale

5,929

2,293

Loans, net of allowance for loan losses of $50,564 and $48,453

3,948,054

3,866,292

Land, premises and equipment, net

58,719

58,097

Bank owned life insurance

82,591

77,106

Federal Reserve and Federal Home Loan Bank stock

13,772

13,772

Accrued interest receivable

17,418

15,518

Goodwill

4,970

4,970

Other assets

37,870

34,735

Total assets

$

4,975,519

$

4,875,254

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Noninterest bearing deposits

$

946,471

$

946,838

Interest bearing deposits

3,274,828

3,097,227

Total deposits

4,221,299

4,044,065

Borrowings

Federal funds purchased

15,000

0

Securities sold under agreements to repurchase

0

75,555

Federal Home Loan Bank advances

100,000

170,000

Subordinated debentures

30,928

30,928

Total borrowings

145,928

276,483

Accrued interest payable

12,454

10,404

Other liabilities

30,475

22,598

Total liabilities

4,410,156

4,353,550

STOCKHOLDERS' EQUITY

Common stock: 90,000,000 shares authorized, no par value

25,615,216 shares issued and 25,442,300 outstanding as of June 30, 2019

25,301,732 shares issued and 25,128,773 outstanding as of December 31, 2018

112,689

112,383

Retained earnings

446,969

419,179

Accumulated other comprehensive income (loss)

9,500

(6,191

)

Treasury stock, at cost (2019 - 172,916 shares, 2018 - 172,959 shares)

(3,884

)

(3,756

)

Total stockholders' equity

565,274

521,615

Noncontrolling interest

89

89

Total equity

565,363

521,704

Total liabilities and equity

$

4,975,519

$

4,875,254

CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

NET INTEREST INCOME

Interest and fees on loans

Taxable

$

50,089

$

44,439

$

98,955

$

86,233

Tax exempt

235

202

486

419

Interest and dividends on securities

Taxable

2,250

2,492

4,747

4,926

Tax exempt

1,710

1,466

3,352

2,797

Other interest income

351

196

589

488

Total interest income

54,635

48,795

108,129

94,863

Interest on deposits

15,556

10,648

29,439

20,015

Interest on borrowings

Short-term

232

195

1,182

306

Long-term

436

419

888

786

Total interest expense

16,224

11,262

31,509

21,107

NET INTEREST INCOME

38,411

37,533

76,620

73,756

Provision for loan losses

785

1,700

1,985

5,000

NET INTEREST INCOME AFTER PROVISION FOR

LOAN LOSSES

37,626

35,833

74,635

68,756

NONINTEREST INCOME

Wealth advisory fees

1,646

1,544

3,266

3,049

Investment brokerage fees

528

377

914