Lakeland Financial Reports Record Performance

WARSAW, Ind., Jan. 25, 2018 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation LKFN, parent company of Lake City Bank, today reported record net income of $61.5 million, excluding the impact of a non-cash, non-operating and non-recurring tax adjustment described below, which represents an increase of 18% compared with net income of $52.1 million for 2016.¹ Diluted earnings per share were $2.40, excluding this tax item, representing an increase of 17% compared with diluted earnings per share of $2.05 for 2016.¹ This per share performance also represents a record for the company and its shareholders. 

Results for 2017 include a non-cash, non-operating and non-recurring income tax provision of $4.1 million or $0.16 per diluted share. Including this tax item, net income for Lakeland Financial Corporation was a record $57.3 million for 2017, versus $52.1 million for 2016. Diluted net income per common share increased to $2.23 for 2017, versus $2.05 for 2016. This per share performance also represents a record for the company and its shareholders. 

David M. Findlay, President and CEO commented, "We are pleased that 2017 marks our eighth consecutive year of record income performance. We are particularly proud of our performance over a long period of time as we have reported record net income in 28 of the last 29 years. Our performance-based culture is the result of Lake City Bank's unwavering focus on serving customers in our Indiana footprint each and every day with financial services solutions that help our Indiana communities prosper." 

Excluding the effect of the non-cash, non-operating and non-recurring income tax provision, net income for the three months ended December 31, 2017 was $15.8 million representing an increase of 17% over the fourth quarter of 2016. Diluted net income per common share, excluding the effect of the tax item was $0.61 for the three months and year ended December 31, 2017, representing an increase of 15% over the fourth quarter in 2016.¹

Including the non-cash, non-operating and non-recurring tax adjustment, the company reported quarterly net income of $11.6 million for the fourth quarter of 2017, versus $13.5 million for the fourth quarter of 2016. Diluted net income per common share was $0.45 for the fourth quarter of 2017 versus $0.53 for the comparable period of 2016. Net income was $15.8 million and $0.62 per diluted common share for the third quarter 2017.

As a result of the Tax Cuts and Jobs Act that was enacted into law on December 22, 2017, the company revalued its net deferred tax asset position to reflect the reduction in its federal corporate income tax rate from 35% to 21%. This revaluation resulted in a non-cash, non-operating and non-recurring income tax expense adjustment of approximately $4.1 million, or $0.16 per diluted share, for the fourth quarter of 2017.  The company's revaluation of its net deferred asset and other relevant details remain subject to modifications as the company finalizes its financial results for the year ended December 31, 2017 and as information and analysis regarding the Act and other relevant factors emerge.

Highlights for the quarter are noted below:

4th Quarter 2017 versus 4th Quarter 2016 highlights:

• Organic average loan growth of $354 million or 10%
• Average deposit growth of $361 million or 10%
• Net interest income increase of $4.5 million or 15%
• Net interest margin increase of 15 basis points to 3.33%
• Revenue growth of $5.2 million or 13%
• Continued strong asset quality with nonperforming assets to total assets at 0.20% compared to 0.16%
• Net charge-offs of $226,000 versus $285,000 a year ago
• Tangible common equity¹ increase of $40.9 million or 10%

4th Quarter 2017 versus 3rd Quarter 2017 highlights:

• Organic average loan growth of $110 million or 3%
• Average deposit growth of $273 million or 7%
• Net interest income increase of $772,000 or 2%
• Revenue growth of $737,000 or 2%
• Continued strong asset quality with nonperforming assets to total assets at 0.20% compared to 0.24%
• Net charge-offs of $226,000 versus net recoveries of $484,000 in the prior quarter
• Tangible common equity¹ increase of $5.5 million or 1%

Findlay added, "Our double digit loan and deposit growth in 2017 was the foundation of our continued growth in profitability. We experienced loan growth in every region of the bank and it was well-distributed in both new and mature markets. Similarly, each of our regions grew deposits in 2017."

As previously announced on January 9, 2018, the board of directors approved a cash dividend for the fourth quarter of $0.22 per share, payable on February 5, 2018, to shareholders of record as of January 25, 2018. The fourth quarter dividend per share represents a 16% increase over the dividend rate paid in the last three quarters of 2016 and in the first quarter of 2017 of $0.19 per share.

Return on average total equity for the year ended December 31, 2017 was 12.72% compared to 12.52% in 2016. Return on average assets for 2017 and 2016 was 1.29%. The company's total capital as a percent of risk-weighted assets was 13.26% at December 31, 2017, compared to 13.23% at December 31, 2016 and 13.58% at September 30, 2017. The company's tangible common equity¹ to tangible assets ratio was 9.93% at December 31, 2017, compared to 9.89% at December 31, 2016 and 10.32% at September 30, 2017.

Average total loans for 2017 was $3.61 billion, an increase of $385.3 million, or 12%, versus $3.23 billion for 2016. Total loans outstanding grew $347.5 million, or 10%, from $3.47 billion as of December 31, 2016 to $3.82 billion as of December 31, 2017. On a linked quarter basis, total loans grew $183.2 million, or 5%, from $3.64 billion at September 30, 2017. Average total loans for the fourth quarter of 2017 was $3.73 billion, an increase of $354.2 million, or 10% versus $3.37 billion for the comparable period of 2016. On a linked quarter basis, average total loans increased by $110.3 million, or 3%, from $3.62 billion for the third quarter of 2017 to $3.73 billion for the fourth quarter of 2017.

Average total deposits for 2017 was $3.76 billion, an increase of $279.4 million, or 8%, versus $3.48 billion for 2016. Total deposits grew $430.7 million, or 12%, from $3.58 billion as of December 31, 2016 to $4.01 billion as of December 31, 2017. In addition, total core deposits, which exclude brokered deposits, increased $259.9 million, or 7%, from $3.48 billion at December 31, 2016 to $3.74 billion at December 31, 2017. This increase in core deposits was driven by growth of retail deposits, commercial deposits and public fund deposits, which increased by $118.1 million to $1.507 billion, $85.1 million to $969 million and $56.7 million to $1.264 billion, respectively, on a year over year basis.

The company's net interest margin increased 15 basis points to 3.33% for 2017 compared to 3.18% for 2016. The company's net interest margin was also 3.33% in the fourth quarter of 2017 versus 3.18% for the fourth quarter of 2016. The higher margin in the fourth quarter of 2017 was due to higher yields on both loans and securities, partially offset by a higher cost of funds. On a linked quarter basis, the net interest margin decreased two basis points from 3.35% in the third quarter of 2017 due to increased deposit costs which exceeded the increase in earning asset yields. Net interest income increased $17.4 million, or 15%, to $135.9 million in 2017 versus $118.5 million in 2016. Net interest income increased $4.5 million, or 15%, to $35.4 million for the fourth quarter of 2017, versus $30.9 million in the fourth quarter of 2016.

Findlay observed, "The three Federal Reserve Bank fed fund increases in 2017 positively impacted our asset sensitive balance sheet and resulted in net interest margin expansion of 15 basis points during the year. The positive impact of the rate increases enabled us to be more aggressive with deposit pricing, which clearly benefits our clients with higher earnings on their deposits with Lake City Bank."

The company recorded a provision for loan losses of $3.0 million in 2017, versus $1.2 million in 2016, primarily resulting from growth in the loan portfolio. On a linked quarter basis, provision for loan losses increased by $1.4 million from $450,000 in the third quarter 2017 to $1.9 million in the fourth quarter 2017. The company's allowance for loan losses as of December 31, 2017 was $47.1 million compared to $43.7 million as of December 31, 2016 and $45.5 million as of September 30, 2017. The allowance for loan losses represented 1.23% of total loans as of December 31, 2017 versus 1.26% at December 31, 2016 and 1.25% as of September 30, 2017.

Nonperforming assets increased $2.6 million, or 39%, to $9.5 million as of December 31, 2017 versus $6.9 million as of December 31, 2016 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets were $1.0 million lower than the $10.5 million reported as of September 30, 2017 due to a reduction in nonaccrual loans resulting primarily from loan pay downs. The ratio of nonperforming assets to total assets at December 31, 2017 increased to 0.20% from 0.16% at December 31, 2016 and decreased from 0.24% at September 30, 2017.  Net recoveries to average loans were 0.01% in 2017 compared to net charge-offs of 0.03% in 2016 and represent net recoveries of $403,000 in 2017 versus net charge-offs of $1.0 million in 2016.

Findlay noted, "We were pleased to report net recoveries for 2017. We believe that this reflects the general operating strength of our client base, as well as the overall healthy economic conditions in our Indiana markets. Our increased provision expense for the year is the direct result of our strong loan growth."

The company's noninterest income increased $3.1 million, or 10%, to $36.0 million in 2017, compared to $32.9 million in 2016. The company's noninterest income increased $726,000 or 8%, to $9.5 million for the fourth quarter of 2017 versus $8.7 million for the fourth quarter of 2016. During 2017, noninterest income was positively impacted by increases in recurring fee income for service charges on deposit accounts, primarily due to growth in fees from business accounts, and wealth advisory fees. Offsetting these increases were decreases in other income driven by lower mortgage banking income due to lower mortgage originations. Increases in noninterest income in the fourth quarter of 2017 compared to the fourth quarter of 2016 resulted from service charges on deposit accounts as well as higher wealth advisory fees, offset by lower mortgage banking income.

The company's noninterest expense increased $6.3 million, or 9%, to $79.3 million in 2017, compared to $73.0 million in 2016. The company's noninterest expense increased by $1.2 million, or 7% to $19.6 million in the fourth quarter of 2017 compared to $18.4 million in the fourth quarter of 2016. Salaries and employee benefits increased primarily due to incentive-based compensation costs, normal merit increases and staff additions related to the company's continued growth and expansion. Corporate and business development expense increased primarily due to higher community support and donation expense as well as higher advertising expenses. Equipment costs increased driven by the company's branch expansion, continued investment in technology based equipment and remodeling of existing branches and other offices. The company's efficiency ratio was 46.1% for 2017 compared to 48.2% for 2016. The company's efficiency ratio was 43.7% for the fourth quarter of 2017, compared to 46.4% for the fourth quarter of 2016 and 45.9% for the linked third quarter of 2017.

Findlay added, "During 2017, we continued to expand our presence in Indianapolis with the opening of a new office in Greenwood. In addition, we continue to prioritize investments in technology to enhance consumer banking solutions as well as to protect customer information."

Lakeland Financial Corporation is a $4.7 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank, its single bank subsidiary, is the fourth largest bank headquartered in the state, and the largest bank 100% invested in Indiana. Lake City Bank operates 49 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. Lakeland Financial 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 "common stockholders' equity" excluding intangible assets, net of deferred tax and "tangible assets" which is "assets" excluding intangible assets, net of deferred tax. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent are 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. Additional information concerning the company and its business, including factors that could materially affect the company's financial results, is included in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K.

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

(1) 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 outstanding.  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.   

Net income applicable to Lakeland Financial Corporation and earnings per diluted share, excluding the income tax expense adjustment for the deferred tax asset revaluation, are non-GAAP financial measures that the company considers useful for investors to allow better comparability of operating performance. The income tax expense adjustment consists of a $4.1 million, or $0.16 per diluted common share, revaluation of the company's net deferred tax asset as a result of the enactment of the Tax Cuts and Jobs Act in 2017.

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