Executive Vice President and

                                                                                                        Chief Financial Officer

                                                                                                        (574) 267-9125

                                                                                                        lisa.oneill@lakecitybank.com

Lakeland Financial Reports Record

Quarterly and Annual Net Income

Warsaw, Indiana (January 25, 2017) – Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record net income of $52.1 million for 2016, versus $46.4 million for 2015, an increase of 12%. Diluted net income per common share increased 11% to $2.05 for 2016, versus $1.84 for 2015.This per share performance also represents a record for the company and its shareholders.

The company further reported record quarterly net income of $13.5 million for the fourth quarter of 2016, an increase of 10%, versus $12.3 million for the fourth quarter of 2015. Diluted net income per common share was $0.53 for the fourth quarter of 2016, an increase of 8%, versus $0.49 for the comparable period of 2015. On a linked quarter basis net income increased by $42,000 from the third quarter ended September 30, 2016. All share and per share data presented in this press release has been adjusted for a 3-for-2 stock split paid in the form of a stock dividend on August 5, 2016.

David M. Findlay, President and CEO commented, "This strong performance is a direct result of the entire Lake City Bank team's unwavering commitment to taking care of our clients and communities every day. For the seventh consecutive year, and for 27 out of the last 28 years, we have produced record net income for our shareholders."

Highlights for the quarter are noted below:

·	Organic average loan growth of $365 million or 12%

·	Average deposit growth of $408 million or 13%

·	Net interest income increase of $3.5 million or 13%

·	Continued strong asset quality with nonperforming assets to total assets at 0.16% compared to 0.35%

·	Tangible common equity1 increase of 9%

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·	Organic average loan growth of $129 million or 4%

·	Net interest income increase of $1.2 million or 4%

·	Noninterest expense decrease of $371,000 or 2%

Findlay added, "With total loan growth in 2016 of $390 million, or 13%, our focus remained on using our balance sheet to create economic impact in our Indiana markets. We believe that our reputation as a progressive lender focused on assisting our clients grow their businesses has been a key driver of our ability to grow our loan portfolio."

As previously announced, the board of directors approved a cash dividend for the fourth quarter of $0.19 per share, payable on February 6, 2017, to shareholders of record as of January 25, 2017. The fourth quarter dividend per share represents a 16% increase over the dividend rate paid in the last three quarters of 2015 and in the first quarter of 2016 of $0.163 per share on a split adjusted basis.

"The strength of our capital structure, combined with our strong earnings performance, has allowed us to provide shareholders with this healthy dividend. Our shareholders have also clearly benefitted from our execution focused strategy as our stock price increased by 52% in 2016 compared to the SNL U.S. Bank index which increased by 23% during the year. We are very proud of the positive impact for shareholders of our strong dividend and stock price performance", continued Findlay.

Return on average total equity for 2016 was 12.52% compared to 12.26% in 2015. Return on average assets for 2016 and 2015 was 1.29%. The company's total capital as a percent of risk-weighted assets was 13.23% at December 31, 2016, compared to 13.73% at December 31, 2015 and 13.67% at September 30, 2016. The company's tangible common equity¹ to tangible assets ratio was 9.89% at December 31, 2016, compared to 10.36% at December 31, 2015 and 10.11% at September 30, 2016.

Average total loans for 2016 were $3.23 billion, an increase of $340.1 million, or 12%, versus $2.89 billion for 2015. Total loans outstanding grew $390.0 million, or 13%, from $3.08 billion as of December 31, 2015 to $3.47 billion as of December 31, 2016. On a linked quarter basis, total loans grew $190.8 million, or 6%, from $3.28 billion at September 30, 2016.  Average total loans for the fourth quarter of 2016 were $3.37 billion, an increase of $365.1 million, or 12% versus $3.01 billion for the comparable period of 2015. On a linked quarter basis, average total loans increased by $128.8 million, or 4%, from $3.24 billion for the third quarter of 2016 to $3.37 billion for the fourth quarter of 2016.

Average total deposits for 2016 were $3.48 billion, an increase of $389.2 million, or 13%, versus $3.09 billion for 2015. Total deposits grew $394.5 million, or 12%, from $3.18 billion as of December 31, 2015 to $3.58 billion as of December 31, 2016. In addition, total core deposits, which exclude brokered deposits, increased $444.4 million, or 15%, from $3.04 billion at December 31, 2015 to $3.48 billion at December 31, 2016. This increase in core deposits was driven by growth of public funds which increased by $292 million on a year over year basis.

The company's net interest margin decreased one basis point to 3.18% for 2016 compared to 3.19% for 2015. The company's net interest margin improved to 3.18% in the fourth quarter of 2016 versus 3.16% for the fourth quarter of 2015. The higher margin in the fourth quarter of 2016 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 improved from 3.08% in the third quarter of 2016 due to lower average balances in low-yielding interest bearing deposits as well as the partial month impact of the Federal Reserve Bank increase in the target Federal Funds Rate in mid-December. Net interest income increased $12.6 million, or 12%, to $118.5 million in 2016 versus $105.9 million in 2015. Net interest income increased $3.5 million, or 13%, to $30.9 million for the fourth quarter of 2016, versus $27.5 million in the fourth quarter of 2015.

 

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

The company recorded a provision for loan losses of $1.2 million in the fourth quarter of 2016.  This was the first provision recorded in four years, and was primarily driven by substantial growth in the loan portfolio. The company's allowance for loan losses as of December 31, 2016 was $43.7 million compared to $43.6 million as of December 31, 2015 and $42.9 million as of September 30, 2016. The allowance for loan losses represented 1.26% of total loans as of December 31, 2016 versus 1.42% at December 31, 2015 and 1.31% as of September 30, 2016. The allowance for loan losses as a percentage of nonperforming loans was 653% as of December 31, 2016, versus 334% as of December 31, 2015, and 590% as of September 30, 2016.

Nonperforming assets decreased $6.4 million, or 48%, to $6.9 million as of December 31, 2016 versus $13.3 million as of December 31, 2015. On a linked quarter basis, nonperforming assets were $558,000 lower than the $7.4 million reported as of September 30, 2016. The ratio of nonperforming assets to total assets at December 31, 2016 declined to 0.16% from 0.35% at December 31, 2015 and 0.18% at September 30, 2016. Net charge-offs to average loans were 0.03% in 2016 compared to 0.09% in 2015 and represent $1.0 million and $2.7 million for each year, respectively. Net charge-offs totaled $285,000 in the fourth quarter of 2016 versus net charge-offs of $1.1 million during the fourth quarter of 2015 and net charge-offs of $394,000 during the linked third quarter of 2016.

Findlay added, "Asset quality remained very strong as we continued to experience stable economic conditions throughout our Indiana footprint. With continued loan growth in the fourth quarter, we made a decision to record our first loan loss provision since the fourth quarter of 2012."

The company's noninterest income increased $1.4 million, or 4%, to $32.9 million in 2016, compared to $31.5 million in 2015. The company's noninterest income increased $667,000 or 8%, to $8.7 million for the fourth quarter of 2016 versus $8.1 million for the fourth quarter of 2015. During 2016, noninterest income was positively impacted by increases in recurring fee income for service charges on deposit accounts, mortgage banking income and wealth advisory fees. Offsetting these increases were decreases in other income driven by lower rental income on operating leases as well as a $226,000 write-down to a property formerly used as a Lake City Bank branch that was subsequently sold. In addition, investment brokerage fees declined driven by lower production volumes as well as changes to the product mix designed to provide a more consistent revenue stream. Increases in noninterest income in the fourth quarter of 2016 compared to the fourth quarter of 2015 resulted from service charges on deposit accounts as well as higher mortgage banking income.

The company's noninterest expense increased $4.8 million, or 7%, to $73.0 million in 2016, compared to $68.2 million in 2015. The company's noninterest expense increased by $1.0 million or 6% to $18.4 million in the fourth quarter of 2016 compared to $17.4 million in the fourth quarter of 2015. Salaries and employee benefits increased primarily due to higher performance incentive-based compensation costs, normal merit increases and staff additions. Data processing fees increased due to increased technology and software related expenditures with the company's core processor which are volume and product driven and represent digital solutions and forward technology for clients. Both net occupancy and equipment costs increased due to higher depreciation expense related to branch expansion and upgrades. Professional fees increased primarily due to fees related to the issuance of chip-enabled debit cards, fees paid to a third-party investment manager of the company's investment portfolio, as well as fees paid for deposit and asset/liability modeling consulting. The company's efficiency ratio was 48% for 2016 compared to 50% for 2015.  The company's efficiency ratio was 46% for the fourth quarter of 2016, compared to 49% for the fourth quarter of 2015 and was 48% for the linked third quarter of 2016.

Findlay added, "During 2016, we continued to expand out footprint with the addition of two new offices, one in downtown Fort Wayne and our fourth location in Indianapolis. Our continued investment in our market presence, as well as our ongoing commitment to our people and technology, positions us well for continued growth and the consistent delivery of great client service."

Lakeland Financial Corporation is a $4.3 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 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 www.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 of America, 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 is included in the attached financial tables where the non-GAAP measure is 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. 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.

 

 

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2016 and 2015

(in thousands, except share data)

LAKELAND FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months and Twelve Months Ended December 31, 2016 and 2015

(unaudited in thousands except for share and per share data)

LAKELAND FINANCIAL CORPORATION

AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS

(UNAUDITED)

(1) Reconciliation of Non-GAAP Financial Measures