Lakeland Financial Reports Record Performance

WARSAW, Ind., Jan. 27, 2020 (GLOBE NEWSWIRE) — Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported full year net income of $87.0 million, which represents an increase of $6.6 million or 8% compared with net income of $80.4 million for 2018. Diluted earnings per share also increased 8% to $3.38 compared to $3.13 for 2018. This per share performance also represents a record for the company and its shareholders.
The company further reported record quarterly net income of $22.2 million for the three months ended December 31, 2019 versus $21.4 million for the comparable period of 2018, an increase of 4%. Diluted net income per common share was also a record for the quarter and increased 4% to $0.86 for the three months ended December 31, 2019 versus $0.83 for the comparable period of 2018.David M. Findlay, President and Chief Executive Officer commented, “2019 represents the tenth consecutive year of reporting record net income and earnings per share performance. In addition, we have reported record net income in 30 of the last 31 years. We are proud of the Lake City Bank team’s ability to produce consistently strong performance over the last three decades. It’s a reflection of our unwavering commitment to our team, our communities and our clients and an affirmation of our execution-driven culture.”Highlights for the year and quarter are noted below.Full year 2019 versus 2018 highlights:Return on average assets of 1.76%, up from 1.69%Return on average equity of 15.47% compared to 16.51%Organic average loan growth of $131 millionAverage deposit growth of $149 millionNet interest income increase of $3.8 million, or 2%Net interest margin of 3.38% compared to 3.43%Noninterest income increase of $4.7 million, or 12%Revenue growth of $8.5 million, or 4%Pretax net income growth of $8.4 million, or 9%Net charge-offs to average loans of 0.03%, down from 0.13% a year agoTotal equity and tangible common equity¹ increase of $76 million,  or 15%4th Quarter 2019 versus 4th Quarter 2018 highlights:Return on average assets of 1.77%, up from 1.75%Return on average equity of 14.90% compared to 16.76%Organic loan growth of $151 million, or 4%Core deposit growth of $141 million, or 4%Noninterest income increase of $1.0 million, or 10%Noninterest expense decrease of $402,000, or 2%Net income increase of $835,000, or 4%Average total equity increase of $86 million, or 17%4th Quarter 2019 versus 3rd Quarter 2019 highlights:Return on average assets of 1.77%, compared to 1.72%Return on average equity of 14.90% compared to 14.78%Organic loan growth of $43 million or 1%Noninterest income increase of $354,000, or 3%Noninterest expense decrease of $615,000, or 3%Provision expense of $250,000 compared to $1.0 millionNonperforming assets to total assets of 0.38% versus 0.39%Total equity and tangible common equity¹ increase of $14 million,  or 2%As announced on January 14, 2020, the board of directors approved a cash dividend for the fourth quarter of $0.30 per share, payable on February 5, 2020, to shareholders of record as of January 25, 2020. Including this dividend, the total dividends per share for 2019 represent a 16% increase over the total dividends per share paid for 2018.In addition, on January 14, 2020, the board of directors reauthorized the purchase of up to $30 million worth of shares of the company’s common stock, representing approximately 2.4% of the company’s issued and outstanding shares of common stock as of December 31, 2019.Return on average assets was 1.76% in 2019 compared to 1.69% in 2018. Return on average total equity for the year ended December 31, 2019 was 15.47%, compared to 16.51% in 2018. The company’s total capital as a percent of risk-weighted assets was 14.36% at December 31, 2019, compared to 14.20% at December 31, 2018 and 14.78% at September 30, 2019. The company’s tangible common equity to tangible assets ratio¹ was 12.02% at December 31, 2019, compared to 10.63% at December 31, 2018 and 11.74% at September 30, 2019. Average equity was impacted during 2019 by the $18.3 million increase in the fair value adjustment for available-for-sale investment securities, net of tax.Findlay continued, “The strength of our capital structure provides us with foundation for continued growth. Our strong profitability metrics reflect our ability to manage our capital structure conservatively while at the same time producing healthy returns for our shareholders.”Average total loans for 2019 were $3.97 billion, an increase of $130.6 million, or 3%, versus $3.84 billion for 2018. Total loans outstanding grew $151.1 million, or 4%, from $3.91 billion as of December 31, 2018 to $4.07 billion as of December 31, 2019. On a linked quarter basis, total loans grew $42.6 million, or 1%, from $4.02 billion at September 30, 2019. Average total loans for the fourth quarter of 2019 were $4.00 billion, an increase of $96.1 million, or 2%, versus $3.91 billion for the comparable period of 2018. On a linked quarter basis, total average loans decreased by $14.1 million, from $4.02 billion for the third quarter of 2019 to $4.00 billion for the fourth quarter of 2019.Average total deposits for 2019 were $4.24 billion, an increase of $148.6 million, or 4%, versus $4.09 billion for 2018. Importantly, average core deposits increased by 5% or $201.3 million, during 2019 to $4.1 billion from $3.9 billion in 2018 due to growth in average commercial deposits of $211.5 million, or 21%, growth in average retail deposits of $104.4 million, or 7%, offset by a decline in public funds of $114.6 million, or 8%.Total deposits grew $89.8 million, or 2%, from $4.04 billion as of December 31, 2018 to $4.13 billion as of December 31, 2019. In addition, total core deposits, which exclude brokered deposits, increased $141.1 million, or 4%, from $3.88 billion at December 31, 2018 to $4.02 billion at December 31, 2019 due to growth in commercial deposits of $199.5 million, or 19%, growth in retail deposits of $30.9 million, or 2%, offset by declines in public fund deposits of $89.3 million, or 7%. Brokered deposits decreased by $51.4 million or 31% from $164.9 million at December 31, 2018 to $113.5 million at December 31, 2019 due primarily to the maturity of brokered certificates of deposit that were not renewed during the year.Findlay added, “Commercial deposit growth continues to be a highlight in our deposit gathering results. Over the two year period ended December 31, 2019, new commercial deposit accounts represent 70% of commercial checking account growth. Organic deposit growth funded our organic loan growth this year and afforded us the liquidity to redeem our $30 million of trust preferred subordinated notes at the end of the year. ”The company’s net interest margin decreased five basis points to 3.38% for 2019 compared to 3.43% for 2018. The company’s net interest margin was 3.30% in the fourth quarter of 2019 versus 3.52% for the fourth quarter of 2018 and 3.38% during the third quarter 2019. The lower year-to-date margin in 2019 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 overall decline interest rates experienced during the second half of 2019.Net interest income increased $3.8 million, or 2%, to $155.0 million in 2019, versus $151.3 million in 2018 due to growth in earning assets during the year offset by net interest margin compression. Net interest margin was negatively impacted by the Federal Reserve Bank’s reduction of the target fed funds rate in July, September and October of 2019. Net interest income decreased $708,000, or 2%, to $38.9 million in the fourth quarter of 2019, versus $39.6 million in the fourth quarter of 2018. On a linked quarter basis, net interest income decreased by $663,000 from $39.5 million, or 2%.The company recorded a provision for loan losses of $3.2 million in 2019 compared to $6.4 million in 2018. The company recorded a provision for loan losses of $250,000 in the fourth quarter of 2019, versus $300,000 in the fourth quarter of 2018 and $1.0 million in the third quarter of 2019. The company’s allowance for loan losses as of December 31, 2019 was $50.7 million compared to $48.5 million as of December 31, 2018 and $50.6 million as of September 30, 2019. The allowance for loan losses represented 1.25% of total loans as of December 31, 2019 versus 1.24% at December 31, 2018 and 1.26% as of September 30, 2019.Net charge offs were $1.0 million in 2019 versus $5.1 million in 2018. Net charge offs for the fourth quarter of 2019 were $226,000 versus net charge offs of $189,000 in the fourth quarter of 2018 and net charge offs of $936,000 during the linked third quarter 2019. Net charge offs to average loans were 0.03% in 2019 compared to 0.13% for 2018. Annualized net charge offs to average loans were 0.02% for the fourth quarters of 2019 and 2018. Annualized net charge offs to average loans were 0.09% for the linked third quarter of 2019.Nonperforming assets increased $11.5 million, or 151%, to $19.0 million as of December 31, 2019 versus $7.6 million as of December 31, 2018 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets were $250,000, or 1% lower than the $19.3 million reported as of September 30, 2019. The ratio of nonperforming assets to total assets at December 31, 2019 increased to 0.38% from 0.16% at December 31, 2018 and decreased from 0.39% at September 30, 2019.Findlay noted, “Asset quality and general economic conditions in our markets are stable. We are particularly encouraged by the $23 million decline in watch list loans as compared to the recent third quarter. Although loan demand is softer than we have historically experienced, we do not see any signs of a credit downturn in our footprint.”The company adopted the FASB’s new rule related to credit losses on financial instruments on January 1, 2020. The company intends to disclose an updated range of impact upon adoption of this new standard in its upcoming Form 10-K for the year ended December 31, 2019, based on the company’s loan portfolio composition as of December 31, 2019.The company’s noninterest income increased $4.7 million, or 12%, to $45.0 million in 2019, compared to $40.3 million in 2018. The company’s noninterest income increased by $1.0 million, or 10%, to $11.1 million for the fourth quarter of 2019, compared to $10.1 million for the fourth quarter of 2018. Noninterest income increased by $354,000, or 3% from $10.8 million during the linked third quarter of 2019 due to increased revenue from swap fees generated from commercial lending transactions, mortgage banking income and 10% growth in wealth advisory fees during the quarter. For the full year of 2019, noninterest income was positively impacted by increases in other income driven by swap fees generated from commercial lending transactions, increases in bank owned life insurance income, loan and service fees, mortgage banking income, and wealth advisory and brokerage fees due to continued growth of client relationships. Offsetting the increases was a decrease 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.The company’s noninterest expense increased $3.2 million, or 4%, to $89.4 million in 2019 compared to $86.2 million in 2018. The company’s noninterest expense decreased $402,000, or 2%, to $22.1 million in the fourth quarter of 2019, compared to $22.5 million in the fourth quarter of 2018 and was lower by $615,000, or 3%, on a linked quarter basis. Salaries and employee benefits increased during 2019 primarily due to an increase to staffing in revenue producing and risk management areas as well as normal merit increases. Professional fees increased due to higher legal expenses and increased utilization of accounting firms for outsourced services. Data processing fees also increased during 2019 primarily due to the company’s continued investment in customer focused, technology-based solutions and ongoing cybersecurity and data management enhancements. Offsetting these increases were decreases in FDIC insurance and other regulatory fees as well as decreases in corporate and business development expense. 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 receive credits against their deposit insurance assessments. The bank’s $1.1 million credit was 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 efficiency ratio was 44.7% for 2019 compared to 45.0% for 2018. The company’s efficiency ratio was 44.2% for the fourth quarter of 2019, compared to 45.4% for the fourth quarter of 2018 and 45.2% for the linked third quarter of 2019.Lakeland Financial Corporation is a $5.0 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank, its single bank subsidiary, is the sixth 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 policies 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.¹ Non-GAAP financial measure – see “Reconciliation of Non-GAAP Financial Measures.”


LAKELAND FINANCIAL CORPORATION
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(UNAUDITED)
Reconciliation of Non-GAAP Financial Measures
Contact
Lisa M. O’Neill
Executive Vice President and Chief Financial Officer
(574) 267-9125
lisa.oneill@lakecitybank.com