Lakeland Financial Reports Second Quarter Net Income of $22.5 million, and Reaches $5.0 Billion in Total Loans, Representing 5% Annual Average Loan Growth

WARSAW, Ind., July 25, 2024 (GLOBE NEWSWIRE) — Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported net income of $22.5 million for the three months ended June 30, 2024, which represents an increase of $7.9 million, or 54%, compared with net income of $14.6 million for the three months ended June 30, 2023. Diluted earnings per share were $0.87 for the second quarter of 2024 and increased 53% compared to $0.57 for the second quarter of 2023. On a linked quarter basis, net income decreased $852,000, or 4%, from first quarter 2024 net income of $23.4 million and diluted earnings per share decreased $0.04 or 4% from $0.91 at March 31, 2024.

Pretax pre-provision earnings, which is a non-GAAP measure, were $35.4 million for the three months ended June 30, 2024, an increase of $18.1 million, or 105%, compared to $17.3 million for the three months ended June 30, 2023. On a linked quarter basis, pretax pre-provision earnings increased $6.1 million, or 21%, compared to $29.3 million for the first quarter of 2024.

“We are pleased to report healthy loan and core deposit growth during the first six months of 2024. While the financial services sector continues to battle the impact of higher interest rates, we are pleased with our overall operating performance in 2024. We have experienced healthy increases in core noninterest income categories, which have contributed to annual revenue growth of 6%, or $6.9 million, for the first six months of 2024. We opened our 54^th branch and eighth location in the Indianapolis region this week and have three additional branches in the market in various stages of planning,” stated David M. Findlay, Chairman and Chief Executive Officer. “We are encouraged by the significant investments taking place throughout our footprint and are excited to play a role in the great expansion and innovation occurring throughout the state.”

The company further reported net income of $46.0 million for the six months ended June 30, 2024, versus $38.9 million for the comparable period of 2023, an increase of 18%, or $7.1 million. Diluted earnings per share also increased 18% to $1.78 for the six months ended June 30, 2024, versus $1.51 for the comparable period of 2023. Pretax pre-provision earnings were $64.7 million for the six months ended June 30, 2024, an increase of $15.0 million, or 30%, compared to $49.7 million for the six months ended June 30, 2023.

Quarterly Financial Performance

Second Quarter 2024 versus Second Quarter 2023 highlights:

• Return on average equity of 14.19%, compared to 9.70%
• Return on average assets of 1.37%, compared to 0.91%
• Tangible book value per share grew by $2.37, or 10%, to $25.34
• Average loans grew by $237.1 million, or 5%, to $5.03 billion
• Average investments declined by $92.1 million, or 8%
• Core deposit growth of $247.8 million, or 5%
• Net interest margin of 3.17% versus 3.28%
• Noninterest income growth of $8.9 million, or 78%
• Net gain on Visa shares of $9.0 million
• Revenue improves by 15% to $68.7 million
• Noninterest expense declined by $9.4 million, or 22%
• Provision expense of $8.5 million, compared to $800,000
• Net charge offs of $949,000 versus net recoveries of $43,000
• Nonperforming loans increased from $18.0 million to $57.2 million
• Watch list loans as a percentage of total loans increased to 5.31% from 3.83%
• Average equity to average assets increased 23 basis points to 9.62%
• Total risk-based capital ratio of 15.54%, compared to 14.93%
• Cash dividends per share increased by $0.02, or 4%, to $0.48 per share
• Tangible capital ratio improved to 9.91%, compared to 9.04%

Second Quarter 2024 versus First Quarter 2024 highlights:

• Return on average equity of 14.19%, compared to 14.59%
• Return on average assets of 1.37%, compared to 1.44%
• Average loans grew by $63.8 million, or 1%, to $5.03 billion
• Average investments declined by $39.7 million, or 3%
• Core deposits increased by $170.2 million, or 3%
• Net interest margin improved 2 basis points, or 1%
• Noninterest income increased by $7.8 million, or 62%
• Noninterest expense increased by $2.6 million, or 9%
• Provision expense of $8.5 million compared to $1.5 million
• Net charge offs of $949,000 compared to $312,000
• Nonperforming loans increased from $14.8 million to $57.2 million
• Watch list loans as a percentage of total loans increased to 5.31% from 3.67%
• Total risk-based capital ratio improved to 15.54% from 15.46%
• Tangible capital ratio of 9.91%, compared to 9.80%
• Tangible common equity growth of $7.6 million, or 1%

The company’s performance in the second quarter was impacted by two non-routine events. During the quarter, the bank recognized $9.0 million in net gains on Visa shares previously carried at cost basis of $0 since 2008. On April 8, 2024, Visa Inc. announced the commencement of an exchange offer for Visa Class B-1 common stock and the bank subsequently tendered its Visa Class B-1 common stock in exchange for a combination of Visa Class C common stock and Visa Class B-2 common stock. After entering the exchange, the bank redeemed two-thirds of its Visa Class C common stock and sold its remaining Visa B-2 common stock in the secondary market. As of June 30, 2024, the bank holds 1,574 shares of Visa Class C common stock valued at $1.7 million and intends to redeem these remaining shares during the third quarter of 2024 pursuant to the Visa redemption provisions. In addition, the company incurred a one-time accrual of $4.5 million related to the resolution of a legal matter during the second quarter. The lawsuit against the bank related to this resolution was dismissed by the court.

Capital Strength

The company’s total capital as a percentage of risk-weighted assets improved to 15.54% at June 30, 2024, compared to 14.93% at June 30, 2023 and 15.46% at March 31, 2024. These capital levels are well in excess of the 10.00% regulatory threshold required to be characterized as “well capitalized” and reflect a strengthening of the company’s exceptionally sound capital base.

The company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, improved to 9.91% at June 30, 2024, compared to 9.04% at June 30, 2023 and 9.80% at March 31, 2024. Unrealized losses from available-for-sale investment securities were $194.9 million at June 30, 2024, compared to $202.0 million at June 30, 2023 and $189.9 million at March 31, 2024. When excluding the impact of accumulated other comprehensive income (loss) on tangible common equity and tangible assets, the company’s ratio of adjusted tangible common equity to adjusted tangible assets, a non-GAAP financial measure, improved to 12.18% at June 30, 2024, compared to 11.45% at June 30, 2023 and 12.03% at March 31, 2024.

“Strong capital levels are critical to the bank’s ability to grow our balance sheet and result from our long and consistent track record of profitability,” commented Kristin L. Pruitt, President. “Our capital position provides stability to support our continued balance sheet growth, and also provides for our dividend growth for shareholders.”

As announced on July 9, 2024, the board of directors approved a cash dividend for the second quarter of $0.48 per share, payable on August 5, 2024, to shareholders of record as of July 25, 2024. The second quarter dividend per share represents a 4% increase from the $0.46 dividend per share paid for the second quarter of 2023.

Loan Portfolio

Average total loans of $5.03 billion in the second quarter of 2024, increased $237.1 million, or 5%, from $4.80 billion for the second quarter of 2023, and increased $63.8 million, or 1%, from $4.97 billion for the first quarter of 2024. Average total loans for the six months ended June 30, 2024, were $5.00 billion, an increase of $241.2 million, or 5%, from $4.76 billion for the six months ended June 30, 2023.

“We are pleased to have crossed the $5.0 billion milestone for loans during 2024, which has been achieved through our 152 year history of organic growth,” added Findlay. “As we look to the future, we are confident that our Indiana communities will continue the strong economic growth and vitality that we have experienced over the past several years. In fact, 40% of our footprint is projected to experience high growth in population of 10%-70% from 2015 through 2050 as measured by the Indiana Business Center and the Kelley School of Business at Indiana University.”

Total loans increased by $190.1 million, or 4%, from $4.86 billion as of June 30, 2023, to $5.05 billion as of June 30, 2024. The increase in loans occurred across much of the portfolio with increases to commercial real estate and multi-family residential loans of $127.0 million, or 5%, commercial and industrial working lines of credit loans of $79.1 million, or 13%, and total consumer 1-4 family mortgage loans of $38.5 million, or 9%. These increases were offset by decreases to commercial and industrial non-working capital loans of $22.7 million, or 3%, total agribusiness and agricultural loans of $13.9 million, or 4%, and other commercial loans of $24.3 million, or 20%. On a linked quarter basis, total loans increased by $54.8 million, or 1%, from $4.998 billion to $5.05 billion at June 30, 2024. The linked quarter increase was primarily a result of growth in commercial and industrial working lines of credit loans $51.3 million, or 8%, and growth in total commercial real estate and multi-family residential loans of $25.9 million, or 1%.

Commercial loan originations for the second quarter included approximately $369.0 million in loan originations, offset by approximately $324.0 million in commercial loan pay downs. Line of credit usage increased to 41% on June 30, 2024, compared to 40% at June 30, 2023, and 39% at March 31, 2024. Total available lines of credit contracted by $107.0 million, or 2%, as compared to a year ago, and line usage increased by $5.0 million, or less than 1%, for the same period. The company has limited exposure to commercial office space borrowers, all of which are in the bank’s Indiana markets. Loans totaling $101.2 million for this sector represented 2% of total loans at June 30, 2024, an increase of $27.6 million, or 37%, from March 31, 2024. Commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 205% of total risk-based capital at June 30, 2024.

Diversified Deposit Base

The bank’s diversified deposit base has remained stable on a year over year basis and on a linked quarter basis.

Total deposits increased $340.5 million, or 6%, from $5.42 billion as of June 30, 2023, to $5.76 billion as of June 30, 2024. The increase in total deposits was driven by an increase in core deposits (which excludes brokered deposits) of $247.8 million, or 5%. Total core deposits at June 30, 2024 were $5.60 billion and represented 97% of total deposits, as compared to $5.35 billion and 99% of total deposits at June 30, 2023. Brokered deposits were $161.0 million, or 3% of total deposits, at June 30, 2024, compared to $68.4 million, or 1% of total deposits, at June 30, 2023.

Core deposit composition remains stable with commercial deposits accounting for 37% of total deposits, public funds increasing to 30% of total deposits and retail deposits contracting to 30% of total deposits as of June 30, 2024. The change in composition of core deposits since June 30, 2023, reflects growth in commercial deposits and public funds deposits. Commercial deposits grew annually by $67.6 million to $2.15 billion, or 3%. Public funds deposits grew annually by $277.1 million to $1.73 billion, or 19%. Retail deposits contracted annually by $96.8 million, or 5%. Public fund growth was positively impacted by the addition of a new public fund customer in the Lake City Bank footprint and the addition of its operating accounts. Net retail outflows since June 30, 2023 reflect the continued utilization of deposits from peak savings levels during 2021.

“We are pleased that core deposits represent 97% of total deposits and annual core deposit growth has exceeded loan funding requirements in 2024, enabling the bank to reduce reliance on more expensive wholesale funding. Continued growth of our core deposit franchise is critical to our long-term growth,” noted Findlay. “Checking account growth is evident across all three deposit sectors despite contraction in retail deposits.”

On a linked quarter basis, total deposits increased $145.5 million, or 3%, from $5.62 billion at March 31, 2024 to $5.76 billion at June 30, 2024. Core deposits increased by $170.2 million, or 3%, while brokered deposits decreased by $24.7 million, or 13%. Linked quarter growth in core deposits resulted from expansion in public fund deposits of $182.8 million, or 12%, and commercial deposits of $32.6 million, or 2%. Retail deposits contracted by $45.2 million, or 3%.

Average total deposits were $5.82 billion for the second quarter of 2024, an increase of $268.8 million, or 5%, from $5.55 billion for the second quarter of 2023. Average interest-bearing deposits drove the increase to average total deposits, increasing $488.3 million, or 12%. Contributing to this increase were increases to average interest-bearing checking accounts of $345.2 million, or 12%, and average time deposits of $214.2 million, or 26%. Offsetting these increases was a decrease to average savings deposits of $71.1 million, or 20%. Average noninterest-bearing demand deposits decreased by $219.5 million, or 15%.

On a linked quarter basis, average total deposits increased by $189.5 million, or 3%, from $5.63 billion for the first quarter of 2024 to $5.82 billion for the second quarter of 2024. Average interest-bearing deposits drove the increase to total average deposits, increasing by $232.7 million, or 5%. Interest bearing checking accounts increased by $228.5 million, or 8%, and total average time deposits increased by $10.7 million, or 1%. Average noninterest-bearing demand deposits decreased by $43.2 million, or 3%.

Checking account trends compared to June 30, 2023, demonstrate average aggregate checking account balance growth of $221.4 million, or 17%, for aggregate public fund checking account balances and $66.4 million, or 3%, for aggregate commercial checking account balances, offset by a contraction of $33.4 million, or 4%, for aggregate retail checking account balances. The number of accounts also has grown for all three segments, with growth of 3% for commercial accounts, 2% for retail accounts and 17% for public fund accounts.

Deposits not covered by FDIC deposit insurance as a percentage of total deposits were 58% as of June 30, 2024, compared to 54% at both March 31, 2024, and June 30, 2023. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 29% of total deposits as of June 30, 2024, compared to 27% at March 31, 2024, and 28% as of June 30, 2023. As of June 30, 2024, 98% of deposit accounts had deposit balances less than $250,000.

Liquidity Overview

The bank has robust liquidity resources. These resources include secured borrowings available from the Federal Home Loan Bank and the Federal Reserve Bank Discount Window. In addition, the bank has unsecured borrowing capacity through long established relationships within the brokered deposits markets, Federal Funds lines from correspondent bank partners, and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of June 30, 2024, the company had access to an aggregate of $3.3 billion in liquidity from these sources, compared to $2.9 billion at June 30, 2023 and $3.1 billion at March 31, 2024. Utilization from these sources totaled $161.0 million at June 30, 2024, compared to $468.4 million at June 30, 2023 and $385.8 million at March 31, 2024. Core deposits have historically represented, and currently represent, the primary funding resource of the bank at 96% of total deposits and purchased funds.

Investment Portfolio Overview

Total investment securities were $1.12 billion at June 30, 2024, reflecting a decrease of $67.3 million, or 6%, as compared to $1.19 billion at June 30, 2023. On a linked quarter basis, investment securities decreased $21.0 million, or 2%, due primarily to portfolio cash flows of $15.2 million and a decline in the fair value of available-for-sale securities of $5.0 million. Investment securities represented 17% of total assets on June 30, 2024, compared to 18% on June 30, 2023, and 17% on March 31, 2024. The ratio of investment securities as a percentage of total assets remains elevated over historical levels of approximately 12% to 14%. The company expects the investment securities portfolio as a percentage of assets to continue to decrease over time as the proceeds from pay downs, sales and maturities are used to fund loan portfolio growth and for general liquidity purposes. Tax equivalent adjusted effective duration for the investment portfolio was 6.5 years at June 30, 2024, compared to 6.6 years at March 31, 2024 and June 30, 2023. Effective duration of the investment portfolio remains elevated as compared to 4.0 years at December 31, 2019 before the deployment of excess liquidity to the investment portfolio and the rise in interest rates from the recent tightening cycle by the Federal Reserve. The company anticipates receiving principal and interest cash flows of approximately $52.4 million throughout the remainder of 2024 from its investment securities portfolio.

Net Interest Margin

Net interest margin was 3.17% for the second quarter of 2024, representing an 11 basis point decrease from 3.28% for the second quarter of 2023. Earning assets yields increased by 42 basis points to 6.07% for the second quarter of 2024, up from 5.65% for the second quarter of 2023. The increase in earning asset yields was offset by an increase in the company’s funding costs of 53 basis points as interest expense as a percentage of average earning assets increased to 2.90% for the second quarter of 2024 from 2.37% for the second quarter of 2023. While earning asset yields benefited from a 25 basis point increase in the target Federal Funds Rate between June 30, 2023 and 2024, the company has experienced an offsetting increase to funding costs from increased competition for deposits throughout the industry. Notably, a deposit mix shift from noninterest bearing deposits to interest bearing deposits has further eroded net interest margin with noninterest bearing deposits as a percentage of total deposits declining to 21% at June 30, 2024, compared to 27% at June 30, 2023 and 22% at March 31, 2024.

Linked quarter net interest margin expanded by 2 basis points to 3.17% for the second quarter of 2024, compared to 3.15% for the first quarter of 2024. Average earning asset yields increased by 10 basis points from 5.97% during the first quarter of 2024 to 6.07% during the second quarter of 2024 and were offset by an 8 basis point increase in interest expense as a percentage of average earning assets. The increase in linked quarter interest expense was driven by continued upward pressure in deposit costs.

“The expansion of net interest margin on a linked quarter basis is directionally encouraging and highlights the positive impact of loan growth on earning asset yields. In addition, we have successfully tested deposit rate sensitivity for selective products and will continue to evaluate additional opportunities in the future,” stated Lisa M. O’Neill, Executive Vice President, and Chief Financial Officer. “Our reduced asset sensitivity posture positions the bank well for the anticipated Federal Reserve Bank easing that is expected to occur in the second half of 2024.”

The cumulative loan beta, which measures the sensitivity of a bank’s average loan yield to changes in short-term interest rates, is 56% for the current rate-tightening cycle, compared to 61% during the prior tightening cycle from 2016 through 2019. The cumulative deposit beta, which measures the sensitivity of a bank’s deposit cost to changes in short-term interest rates, is 54% for the current rate-tightening cycle, compared to 45% during the prior tightening cycle.

Net interest income was $48.3 million for the second quarter of 2024, representing a decrease of $228,000, or less than 1%, as compared to the second quarter of 2023. On a linked quarter basis, net interest income increased $880,000, or 2%, from $47.4 million for the first quarter of 2024. Net interest income decreased by $4.3 million, or 4%, from $100.0 million for the six months ended June 30, 2023 to $95.7 million for the six months ended June 30, 2024.

Asset Quality

The company recorded a provision for credit losses of $8.5 million in the second quarter of 2024, an increase of $7.7 million, as compared to $800,000 in the second quarter of 2023. On a linked quarter basis, the provision expense increased by $7.0 million, from $1.5 million for the first quarter of 2024. The provision expense recorded during the second quarter of 2024 was primarily attributable to an increase in the specific reserve allocation from the downgrade of a single $43.3 million commercial relationship that was placed on nonperforming status during the second quarter of 2024. The downgraded borrower is an industrial company in Northern Indiana.

The ratio of allowance for credit losses to total loans was 1.60% at June 30, 2024, up from 1.48% at June 30, 2023, and 1.46% at March 31, 2024. Net charge offs in the second quarter of 2024 were $949,000, compared to net recoveries of $43,000 in the second quarter of 2023 and net charge offs of $312,000 during the linked first quarter of 2024. Annualized net charge offs to average loans were 0.08% for the second quarter of 2024, compared to none for the second quarter of 2023 and 0.03% for the linked first quarter of 2024.

Nonperforming assets increased $39.2 million, or 213%, to $57.6 million as of June 30, 2024, versus $18.4 million as of June 30, 2023. On a linked quarter basis, nonperforming assets increased $42.4 million, or 278%, compared to $15.2 million as of March 31, 2024. The ratio of nonperforming assets to total assets at June 30, 2024 increased to 0.88% from 0.28% at June 30, 2023 and from 0.23% at March 31, 2024. These increases were driven by the nonperforming loan relationship described above.

Total individually analyzed and watch list loans increased by $82.2 million, or 44%, to $268.3 million as of June 30, 2024, versus $186.0 million as of June 30, 2023. On a linked quarter basis, total individually analyzed and watch list loans increased by $84.9 million, or 46%, from $183.3 million at March 31, 2024. Watch list loans as a percentage of total loans increased by 148 basis points to 5.31% at June 30, 2024, compared to 3.83% at June 30, 2023, and increased by 164 basis points from 3.67% at March 31, 2024. The increase in individually analyzed and watch list loans during the second quarter of 2024 was primarily driven by the downgrade of the $43.3 million commercial relationship to nonperforming status. In addition to this relationship, three other commercial relationships with an aggregate balance of $40.5 million were downgraded to the watch list during the second quarter of 2024.

“While we have not experienced any broad-based loan portfolio concerns, we are disappointed by the increase in our nonperforming loans, driven by the single industrial credit relationship. We are working closely with the borrower to improve the operating performance of the business,” stated Findlay. “Encouragingly, the second quarter Commercial Portfolio Reviews did not identify any meaningful shifts in credit quality across the bank’s diversified loan portfolio,” Findlay continued. “We continue to stress test our portfolio, particularly on the interest rate front, and have not identified any meaningful concerns. In addition, our commercial real estate portfolio continues to be a focus, and while we have identified a few downgrades in that portfolio, the portfolio is performing well overall. Finally, with an allowance for credit losses at 1.6% of total loans, we continue to approach asset quality management conservatively.”

Noninterest Income

The company’s noninterest income increased $8.9 million, or 78%, to $20.4 million for the second quarter of 2024, compared to $11.5 million for the second quarter of 2023. The increase in noninterest income was driven primarily by the net gain on Visa shares of $9.0 million. Wealth advisory fees increased $326,000, or 14%, because of new volume growth in addition to favorable market performance. Bank owned life insurance income increased $197,000, or 28%, primarily from improved market performance of the company’s variable bank owned life insurance policies. Offsetting these increases was a decrease in interest rate swap fee income of $794,000, or 100%, due to no new swap fee activity during the quarter. Adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of certain non-routine events, including the net gain on Visa shares referenced above, was $11.4 million for the second quarter of 2024, a decrease of $73,000, or 1%, compared to $11.5 million for the second quarter of 2023.

Noninterest income for the second quarter of 2024 increased by $7.8 million, or 62%, on a linked quarter basis from $12.6 million during the first quarter of 2024. The linked quarter increase was driven largely by the net gain on Visa shares of $9.0 million. Offsetting this activity was a decrease in other income of $1.5 million, or 68%. Linked first quarter other income benefited from the recognition of a $1.0 million insurance recovery related to the wire fraud loss and income from the company’s bank owned life insurance policies. Adjusted core non-interest income decreased $184,000, or 2%, from $11.6 million for the linked first quarter of 2024.

Noninterest income increased by $11.2 million, or 52%, to $33.1 million for the six months ended June 30, 2024, compared to $21.8 million for the prior year six-month period. The increase in noninterest income was driven primarily by net gain on Visa shares of $9.0 million. Additionally, other income increased $1.6 million, or 120%, wealth advisory fees increased $581,000, or 13%, bank owned life insurance income increased $542,000, or 39%, and mortgage banking income increased $209,000. Other income increased from the insurance recovery and bank owned life insurance benefit received during the first quarter of 2024. Wealth advisory fees increased from new volume growth in addition to favorable market performance. Bank owned life insurance income increased through an improvement in market valuation for the company’s variable bank owned life insurance policies, which are tied to the performance of the equity markets. Adjusted core noninterest income for the six months ended June 30, 2024, was $23.0 million, an increase of $1.2 million, or 6%, compared to $21.8 million for the six months ended June 30, 2023.

Noninterest Expense

Noninterest expense decreased $9.4 million, or 22%, to $33.3 million for the second quarter of 2024, compared to $42.7 million during the second quarter of 2023. Noninterest expense for the second quarter of 2023 included an $18.1 million wire fraud loss. During the second quarter 2024 salaries and benefits expense increased $4.8 million, or 42%, other expense increased $3.5 million, or 138%, and data processing fees and supplies expense increased $338,000, or 10%, compared to the second quarter of 2023. Salaries and employee benefits expense increased due to higher performance-based incentive compensation of $2.9 million, salaries and wages increases of $1.5 million and increased health insurance expense of $500,000. During the second quarter of 2023 performance-based incentive accruals were reversed by $1.9 million due to the wire fraud loss. Other expense increased primarily due to a $4.5 million litigation accrual. Data processing fees increased due to investments in software, digital banking, and core data processing technologies. Adjusted core noninterest expense, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, including the litigation accrual referenced above, was $28.8 million for the three months ended June 30, 2024, an increase of $2.3 million, or 9%, from $26.5 million for the three months ended June 30, 2023.

On a linked quarter basis, noninterest expense increased by $2.6 million, or 9%, from $30.7 million during the first quarter of 2024. Other expense increased by $3.9 million, or 172% due to the $4.5 million legal accrual. Offsetting this increase was a decrease in salaries and employee benefits of $675,000, or 4%, and a decrease in professional fees of $340,000, or 14%. The decrease in salaries and employee benefits was attributable to reduced variable compensation expense related to a decline in linked quarter market performance for the company’s variable bank owned life insurance policies and a reduction in employee benefits expense caused by the timing of the company’s annual HSA contributions. Professional fees decreased due primarily to a reduction in legal expense incurred during the quarter. Adjusted core noninterest expense decreased by $1.9 million, or 6%, on a linked quarter basis from $30.7 million for the first quarter of 2024.

Noninterest expense decreased by $8.1 million, or 11%, for the six months ended June 30, 2024, to $64.0 million compared to $72.2 million for the six months ended June 30, 2023. The primary driver behind the decrease was the $18.1 million wire fraud loss recorded during the second quarter of 2023. Offsetting this decrease were increases to salaries and employee benefits expense of $5.6 million, or 20%, other expense of $3.2 million or 63%, data processing fees of $725,000, or 10%, and professional fees of $416,000, or 10%. The increase to data processing fees resulted from continued investment in customer-facing and operational technology solutions. Professional fees increased due to higher costs to implement technology solutions as well as higher legal and accounting costs. Adjusted core noninterest expense was $59.5 million for the six months ended June 30, 2024, an increase of $3.5 million, or 6%, from $56.0 million recorded during the comparable period of 2023.

“We continue to invest in the disciplined growth of the bank with a focus on people and technology. Our teams have grown to support revenue generation positions, technology, data analytics, and credit support functions,” stated Findlay. “We are also thrilled to support our annual internship program with seventeen interns that are participating in numerous departments throughout the bank and support our talent generation pipeline.”

The company’s efficiency ratio was 48.5% for the second quarter of 2024, compared to 71.2% for the second quarter of 2023 and 51.2% for the linked first quarter of 2024. The company’s adjusted core efficiency ratio, a non-GAAP measure that excludes the impact of certain non-routine operating events, was 48.2% for the second quarter of 2024, compared to 44.2% for the second quarter of 2023 and 52.0% for the linked first quarter of 2024.

The company’s efficiency ratio was 49.7% for the six months ended June 30, 2024, compared to 59.2% for the comparable period in 2023. The company’s adjusted core efficiency ratio was 50.1% for the six months ended June 30, 2024 compared to 45.9% for the comparable period in 2023.

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.” Lake City Bank, a $6.6 billion bank headquartered in Warsaw, Indiana, was founded in 1872 and serves Central and Northern Indiana communities with 54 branch offices and a robust digital banking platform. Lake City Bank’s community banking model prioritizes building in-market long-term customer relationships while delivering technology-forward solutions for retail and commercial clients.

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 the effects of economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation; governmental monetary and fiscal policies; the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities; and changes in borrowers’ credit risks and payment behaviors, as well as 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 reports on Form 10-Q.

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(1)  Core deposits equals deposits less brokered deposits.
(2)  Non-GAAP financial measure – see “Reconciliation of Non-GAAP Financial Measures”.
(3)  Capital ratios for June 30, 2024 are preliminary until the Call Report is filed.

(1)  Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses. Taxable equivalent basis adjustments were $1.20 million, $1.27 million and $1.32 million in the three-month periods ended June 30, 2024, March 31, 2024 and June 30, 2023, respectively.
(2)  Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended June 30, 2024, March 31, 2024 and June 30, 2023, are included as taxable loan interest income.
(3)  Nonaccrual loans are included in the average balance of taxable loans.

Reconciliation of Non-GAAP Financial Measures

Tangible common equity, adjusted tangible common equity, tangible assets, adjusted tangible assets, tangible book value per common share, tangible common equity to tangible assets, adjusted tangible common equity to adjusted tangible assets, and pretax pre-provision earnings are non-GAAP financial measures calculated based on GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of 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. Adjusted tangible assets and adjusted tangible common equity remove the fair market value adjustment impact of the available-for-sale investment securities portfolio in accumulated other comprehensive income (loss) (“AOCI”). Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding less true treasury stock. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. 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 meaningful to understanding of the company’s financial information and performance.

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

Adjusted core noninterest income, adjusted core noninterest expense, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts. These adjusted amounts are calculated by excluding the impact of the net gain on Visa shares, legal accrual, and wire fraud loss and associated insurance and loss recoveries and adjustments to salaries and employee benefits expense for the periods presented below. Management considers these measures of financial performance to be meaningful to understanding the company’s core business performance for these periods.

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

(1)  In 2023, long-term, incentive-based compensation accruals were reduced as a result of the wire fraud loss and subsequent insurance and loss recoveries.
(2)  Core operational profitability was $3.4 million lower, $751,000 lower and $12.2 million higher than reported net income for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively. Core operational profitability was and $4.1 million lower and $12.2 million higher than reported net income for the six months ended June 30, 2024 and 2023, respectively.

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