Lakeland Financial Reports Quarterly Performance

WARSAW, Ind., Oct. 25, 2019 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record third quarter net income of $21.5 million for the three months ended September 30, 2019, an increase of 4% versus $20.6 million for the third quarter of 2018. Diluted earnings per share also increased 4% to $0.83 for the third quarter of 2019, versus $0.80 for the third quarter of 2018.

The company further reported record net income of $64.8 million for the nine months ended September 30, 2019 versus $59.0 million for the comparable period of 2018, an increase of 10%. Diluted net income per common share increased 10% to $2.52 for the nine months ended September 30, 2019 versus $2.30 for the comparable period of 2018 and also represents a record performance.

David M. Findlay, President and CEO, commented, "The Lake City bank team is proud of its continued growth in 2019. We experienced growth in every business unit and remain committed to our strategic growth in our Indiana markets. As the financial services sector continues to experience innovation in technology, we continue to invest in our people, infrastructure and technology to drive innovation for our customers."

Highlights for the quarter are noted below.

3rd Quarter 2019 versus 3rd Quarter 2018 highlights:

• Return on average assets unchanged at 1.72%
• Return on average equity of 14.8%, compared to 16.6%
• Organic loan growth of $180 million, or 5%
• Core deposit growth of $328 million, or 9%
• Net interest income increase of $1.6 million, or 4%
• Net interest margin of 3.38% compared to 3.42%
• Noninterest income increase of $141,000, or 1%
• Revenue growth of $1.8 million, or 4%
• Provision expense of $1.0 million compared to $1.1 million
• Nonperforming assets to total assets of 0.39% versus 0.27%
• Total equity and tangible common equity¹ increase of $86 million, or 17%

3rd Quarter 2019 versus 2nd Quarter 2019 highlights:

• Return on average assets of 1.72%, compared to 1.76%
• Return on average equity of 14.8% compared to 15.8%
• Organic loan growth of $25 million or 1%
• Net interest income increase of $1.1 million, or 3%
• Net interest margin increase to 3.38% from 3.37%
• Noninterest expense increase of $645,000, or 3%
• Revenue growth of $311,000, or 1%
• Provision expense of $1.0 million compared to $785,000
• Nonperforming assets to total assets of 0.39% versus 0.31%
• Total equity and tangible common equity¹ increase of $19 million, or 3%

As announced on October 8, 2019, the board of directors approved a cash dividend for the third quarter of $0.30 per share, payable on November 5, 2019, to shareholders of record as of October 25, 2019. Including this dividend, the total dividends per share for 2019 represent a 16% increase over the total dividends per share paid during the same period of 2018.

Return on average total equity for the third quarter of 2019 was 14.78%, compared to 16.55% in the third quarter of 2018 and 15.76% in the linked second quarter of 2019. Return on average total equity for the first nine months of 2019 was 15.68%, compared to 16.42% in the same period of 2018. Average equity increased at a faster pace than net income in 2019 due to an increase in the fair value adjustment for investment securities, net of tax, which increases equity but does not affect net income. Return on average assets for the third quarters of 2019 and 2018 was 1.72%, compared to 1.76% in the linked second quarter of 2019. Return on average assets for the first nine months of 2019 was 1.76% compared to 1.67% in the same period of 2018. The company's total capital as a percentage of risk-weighted assets was 14.78% at September 30, 2019, compared to 14.14% at September 30, 2018 and 14.49% at June 30, 2019. The company's tangible common equity to tangible assets ratio¹ was 11.74% at September 30, 2019, compared to 10.41% at September 30, 2018 and 11.30% at June 30, 2019.

Average total loans for the third quarter of 2019 were $4.02 billion, an increase of $178.2 million, or 5%, versus $3.84 billion for the third quarter 2018. On a linked quarter basis, total average loans grew $54.5 million, or 1%, from $3.96 billion at June 30, 2019. Total loans outstanding grew $180.1 million, or 5%, from $3.84 billion as of September 30, 2018 to $4.02 billion as of September 30, 2019.

Findlay noted, "Overall, we are pleased with our organic loan growth across our markets, but we continue to see elevated levels of loan payoffs related to several factors, including long term non-bank financing and the sale of companies. Clearly, our commercial borrowers are approaching capital investment conservatively as our commercial line utilization has been lower than our historical levels. We continue to expect to see loan growth driven by ongoing market share growth and organic expansion."

Average total deposits for the third quarter of 2019 were $4.27 billion, an increase of $242.3 million, or 6%, versus $4.03 billion for the third quarter of 2018. Average total deposits decreased by $33.1 million or 1% as compared to average deposits of $4.30 billion on a linked quarter basis. Total deposits grew $267.5 million, or 7%, from $4.02 billion as of September 30, 2018 to $4.28 billion as of September 30, 2019. In addition, total core deposits, which exclude brokered deposits, increased $327.7 million, or 9%, from $3.84 billion at September 30, 2018 to $4.17 billion at September 30, 2019 due primarily to growth in commercial deposits of $264.4 million or 25%, as well as increases in retail deposits of $32.4 million, or 2%, and increases in public fund deposits of $30.9 million or 2%. Brokered deposits were $116.7 million at September 30, 2019, a decrease of $60.2 million, or 34%, as compared to $176.9 million as of September 30, 2018 due to scheduled maturities of wholesale funding that was not renewed.

The company's net interest margin decreased four basis points to 3.38% for the third quarter of 2019 compared to 3.42% for the third quarter of 2018. Net interest margin for 2018 benefited from the Federal Reserve Bank increases to the Federal Funds Rate, which increased by 25 basis points in March, June and September of that year. 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 and the corresponding increase in the fair value of the investment securities portfolio.

Linked quarter net interest margin increased by one basis point from 3.37% as of June 30, 2019 to 3.38% as of September 30, 2019, due to a decrease of 12 basis points in the cost of funds partially offset by a decline of 11 basis points in the yield on earning assets.

Findlay added, "We are pleased with our net interest margin expansion this quarter despite the two federal fund rate decreases enacted by the Federal Reserve Bank. We implemented timely deposit rate reductions to offset the loan repricing effect of lower rates. In addition, our net interest margin has benefited from continued growth in our commercial checking accounts which have increased by 16% year over year. Commercial deposits now account for 31% of total deposits, up from 26% a year ago."

The company's net interest margin was 3.40% for the nine months ended September 30, 2019 and was unchanged from 2018. Net interest income increased by $4.5 million or 4% for the nine months ended September 30, 2019 as compared to the first nine months of 2018 due to loan and deposit growth.

The company recorded a provision for loan losses of $1.0 million in the third quarter of 2019, compared to $1.1 million in the third quarter of 2018 and $785,000 in the linked second quarter of 2019. Net charge-offs in the third quarter of 2019 were $936,000 versus net charge-offs of $463,000 in the third quarter of 2018 and net recoveries of $217,000 during the linked second quarter of 2019. Annualized net charge-offs to average loans were 0.09% for the third quarter of 2019 versus 0.05% for the third quarter of 2018. Annualized net recoveries to average loans were 0.02% for the linked second quarter of 2019. On a year to date basis, net charge-offs to average loans were 0.03% compared to net charge offs to average loans of 0.17% for the first nine months of 2018.

Nonperforming assets increased $6.5 million, or 51%, to $19.3 million as of September 30, 2019 versus $12.8 million as of September 30, 2018 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets increased $4.0 million, or 26%, from the $15.3 million reported as of June 30, 2019. The linked quarter increase was primarily driven by three commercial relationships being placed in nonaccrual status during the third quarter of 2019. The ratio of nonperforming assets to total assets at September 30, 2019 was 0.39% compared to 0.27% at September 30, 2018 and 0.31% at June 30, 2019. Loan loss reserve to total loans was unchanged at 1.26% as of September 30, 2019, September 30, 2018 and June 30, 2019.

The company continues to prepare and make progress on the planned adoption of the FASB's new rule related to credit losses on financial instruments ("CECL") that will be effective on January 1, 2020. The company intends to disclose a range of potential impact upon adoption of this new standard in its upcoming Form 10-Q for the quarter ended September 30, 2019, based on the company's loan portfolio composition as of September 30, 2019. 

The company's noninterest income increased $141,000, or 1%, to $10.8 million for the third quarter of 2019, compared to $10.6 million for the third quarter of 2018. Noninterest income was positively impacted by a 99% increase over the prior year third quarter in mortgage banking income, driven by higher mortgage refinance volumes. In addition, loan and serving fees increased by 8%, and wealth advisory fees increased by 7% compared to the third quarter of 2018. Offsetting the increases, was a decrease of 11% in service charges on deposit accounts driven by lower treasury management fees due to the previously disclosed discontinuance of a treasury management relationship in July 2019. Noninterest income was $11.6 million in the linked second quarter of 2019.

The company's noninterest income increased $3.7 million, or 12%, to $33.9 million for the nine months ended September 30, 2019 compared to $30.2 million in the prior year period. Noninterest income was positively impacted by $1.2 million increase in service charges on deposit accounts. Loan and service fees increased by 7% or $478,000, wealth advisory fees increased by 7% or $326,000, mortgage banking income increased by 26% or $258,000 and investment brokerage fees increased by 25% or $257,000.

The company's noninterest expense increased $537,000, or 2%, to $22.7 million in the third quarter of 2019, compared to $22.2 million in the third quarter of 2018 and increased by $645,000 on a linked quarter basis. Year over year quarter increases in professional fees resulted from higher legal expenses and costs related to CECL implementation. Data processing fees increased as a result of the company's continued investment in technology driven solutions. Net occupancy expense increased due to higher depreciation and rent expenses related to new branch locations as well as remodeling and improvements made to existing branches and other offices. Offsetting these increases was a $661,000 decrease in FDIC insurance and other regulatory fees. In the third quarter of 2019, the FDIC announced that due to the Deposit Insurance Fund reserve ratio exceeding 1.38%, banks with consolidated assets of less than $10 billion would be receiving credits against their deposit insurance assessments. The $1.1 million credit is applied as a reduction of FDIC assessments commencing with the payment of the second quarter assessment paid in July 2019 and is expected to be fully utilized by the first quarter of 2020.

The company's noninterest expense increased by $3.6 million, or 6%, to $67.3 million in the first nine months of 2019 compared to $63.7 million in the prior year period. The increase was driven by salaries and employee benefits, which increased by 3%, or $964,000, primarily due to staffing increases in revenue producing areas and normal merit increases. Other expense increased by $1.5 million or 29% to $6.9 million from $5.3 million in the nine month period ended September 30, 2018.  Offsetting these increases was a decrease in FDIC insurance and regulatory fees driven by the credits received against the bank's FDIC deposit insurance assessment.

The company's efficiency ratio was 45.2% for the third quarter of 2019, compared to 45.5% for the third quarter of 2018 and 44.2% for the linked second quarter of 2019. The company's efficiency ratio was 44.9% for the nine months ended September 30, 2019 compared to 44.8% 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.

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¹ Non-GAAP financial measure – see "Reconciliation of Non-GAAP Financial Measures."

Reconciliation of Non-GAAP Financial Measures
Tangible common equity, tangible assets, tangible book value per share and the tangible common equity to tangible assets ratio are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders' equity, net of deferred tax. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred tax. Tangible book value per share is calculated by dividing tangible common equity by the number of shares issued. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. However, management considers these measures of the company's value including only earning assets as meaningful to an understanding of the company's financial information.

A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

Contact
Lisa M. O'Neill
Executive Vice President and Chief Financial Officer
(574) 267-9125
lisa.oneill@lakecitybank.com