NEWS FROM LAKELAND FINANCIAL CORPORATION

FOR IMMEDIATE RELEASE

Contact

Lisa M. O'Neill

Executive Vice President and Chief Financial Officer

(574) 267-9125

lisa.oneill@lakecitybank.com

Lakeland Financial Reports Record Performance

Second Quarter Net Income Increases 31%

Warsaw, Indiana (July 25, 2018) – Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record quarterly net income of $20.1 million for the three months ended June 30, an increase of 31% versus $15.4 million for the second quarter of 2017. Diluted earnings per share increased 30% to $0.78 for the second quarter of 2018, versus $0.60 for the second quarter of 2017, also representing a record quarter for the company and its shareholders. On a linked quarter basis, net income and diluted earnings per share both increased 10%. Net income increased $1.8 million from $18.3 million in the first quarter ended March 31, 2018 and diluted earnings per share increased from $0.71.

The company further reported record net income of $38.5 million for the six months ended June 30, 2018 versus $29.9 million for the comparable period of 2017, an increase of 29%. Diluted net income per common share was also a record for the period and increased 28% to $1.50 for the six months ended June 30, 2018 versus $1.17 for the comparable period of 2017.

David M. Findlay, President and CEO commented, "The record first half results of 2018 reflect strong core profitability with revenue growth of 13% year over year. This revenue growth was driven by our continued organic loan growth, a healthy increase in client driven noninterest income and an overall expansion of net interest margin."

Highlights for the quarter are noted below.

2nd Quarter 2018 versus 2nd Quarter 2017 highlights:

·	Return on average equity of 16.9% up from 13.8% a year ago

·	Organic average loan growth of $253 million or 7%

·	Average deposit growth of $410 million or 11%

·	Net interest income increase of $3.7 million or 11%

·	Net interest margin increase of 8 basis points to 3.42%

·	Noninterest income increase of $902,000, or 10%

·	Revenue growth of $4.6 million or 11%

·	Tangible common equity1 increase of $35 million or 8%

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

 

2nd Quarter 2018 versus 1st Quarter 2018 highlights:

·	Return on average equity of 16.9% versus 15.8%

·	Net interest income increase of $1.3 million or 4%

·	Net interest margin increase of 6 basis points to 3.42%

·	Revenue growth of $1.1 million or 2%

·	Noninterest expense decrease of $928,000, or 4%

·	Efficiency ratio of 42.9% versus 46.0%

·	Net recoveries to average loans of (0.04%) compared to net charge offs to average loans of 0.51%

·	Tangible common equity1 increase of $13 million or 3%

As announced on July 10, 2018, the board of directors approved a cash dividend for the second quarter of $0.26 per share, payable on August 6, 2018, to shareholders of record as of July 25, 2018. The second quarter dividend per share represents an 18% increase over the second quarter dividend of 2017 in the amount of $0.22 per share.

Return on average total equity for the second quarter of 2018 was 16.86%, compared to 13.84% in the second quarter of 2017 and 15.82% in the linked first quarter of 2018. Return on average total equity for the first six months of 2018 was 16.35%, compared to 13.74% in the same period of 2017. Return on average assets for the second quarter of 2018 was 1.70%, compared to 1.40% in the second quarter of 2017 and 1.58% in the linked first quarter of 2018. Return on average assets for the first six months of 2018 was 1.64% compared to 1.38% in the same period of 2017. The company's total capital as a percent of risk-weighted assets was 13.76% at June 30, 2018, compared to 13.30% at June 30, 2017 and 13.41% at March 31, 2018. The company's tangible common equity to tangible assets ratio¹ was 10.15% at June 30, 2018, compared to 10.19% at June 30, 2017 and 9.94% at March 31, 2018.

Average total loans for the second quarter of 2018 were $3.84 billion, an increase of $253.0 million, or 7%, versus $3.59 billion for the second quarter 2017. On a linked quarter basis, total average loans grew $47.5 million, or 1%, from $3.79 billion at March 31, 2018. Total loans outstanding grew $281.7 million, or 8%, from $3.58 billion as of June 30, 2017 to $3.86 billion as of June 30, 2018.

Findlay noted, "We continued to experience healthy organic loan growth in the quarter that was consistent with our pipeline expectations. At the same time, we had a significant amount of large loan repayments during the quarter in our commercial portfolio. Unanticipated factors affecting loan repayment activity during the quarter included the sale of client companies and long-term non-bank financing in the agricultural and commercial real estate portfolios. Our pipeline for the third quarter and balance of 2018 remains encouraging."

Average total deposits for the second quarter of 2018 were $4.09 billion, an increase of $409.8 million, or 11%, versus $3.68 billion for the second quarter of 2017. Total deposits grew $319.0 million, or 9%, from $3.62 billion as of June 30, 2017 to $3.93 billion as of June 30, 2018. In addition, total core deposits, which exclude brokered deposits, increased $212.4 million, or 6%, from $3.50 billion at June 30, 2017 to $3.71 billion at June 30, 2018 due to growth in commercial deposits of $128.5 million or 16%, growth in retail deposits of $83.9 million or 6% and no change in public fund deposits.

 

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

 

The company's net interest margin increased eight basis points to 3.42% for the second quarter of 2018 compared to 3.34% for the second quarter of 2017. On a linked quarter basis, the net interest margin improved by six basis points from 3.36% in the first quarter of 2018. The higher margin in the second quarter of 2018 was due to higher yields on loans, partially offset by a higher cost of funds, which was driven by the Federal Reserve Bank increasing the target Federal Funds Rate in mid-March 2018 and mid-June 2018. Net interest income increased $3.7 million, or 11%, to $37.5 million for the second quarter of 2018, versus $33.8 million in the second quarter of 2017 due to both growth in loans and deposits as well as expanding net interest margin. Net interest income increased by $7.9 million or 12% for the six months ended June 30, 2018 as compared to the first half of 2017 due to both net interest margin expansion and volume growth. The company's net interest margin for the six months ended June 30, 2018 was 3.39% compared to 3.31% in the prior year six month period.

Findlay added, "The increases in short-term interest rates contributed to a strong increase in net interest margin due to our asset sensitive balance sheet as our loans continue to reprice more quickly than deposits. The interest rate environment also provides us with the ability to continue to be aggressive on the deposit pricing front and we are pleased with our overall deposit growth."

The company recorded a provision for loan losses of $1.7 million in the second quarter of 2018 compared to $500,000 for the second quarter 2017 and down from $3.3 million during the linked first quarter of 2018. The company's allowance for loan losses as of June 30, 2018 was $47.7 million compared to $44.6 million as of June 30, 2017 and $45.6 million as of March 31, 2018. The allowance for loan losses represented 1.24% of total loans as of June 30, 2018 versus 1.25% at June 30, 2017 and 1.19% as of March 31, 2018.

Net recoveries for the quarter were $379,000 versus net recoveries of $289,000 in the second quarter of 2017 and net charge offs of $4.8 million during the linked first quarter 2018. Annualized net recoveries to average loans were 0.04% for the second quarter of 2018 compared to net recoveries of 0.03% for the second quarter of 2017 and net charge-offs of 0.51% for the first quarter of 2018. On a year-to-date basis, net charge offs to average loans were 0.23% compared to net recoveries of 0.01% for the first six months of 2017.

Nonperforming assets increased $2.8 million, or 28%, to $12.9 million as of June 30, 2018 versus $10.1 million as of June 30, 2017 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets were $1.7 million higher than the $11.2 million reported as of March 31, 2018 primarily due to placing one commercial relationship in nonaccrual status. The ratio of nonperforming assets to total assets at June 30, 2018 increased to 0.27% from 0.23% at June 30, 2017 and increased from 0.24% at March 31, 2018.

"Overall economic conditions in our Indiana communities remain favorable. As a result, our asset quality concerns remain at very manageable levels and reflect the continued operating performance of our client base. While the agricultural sector will likely continue to face challenges in 2018, we are comfortably managing that exposure," commented Findlay.

The company's noninterest income increased $902,000, or 10%, to $9.7 million for the second quarter of 2018, compared to $8.8 million for the second quarter of 2017. Wealth advisory and brokerage fees increased by 21% compared to the second quarter of 2017 due to continued growth of client relationships. In addition, noninterest income was positively impacted by a 17% increase over the prior year second quarter in fee income from service charges on deposit accounts, primarily due to growth in fees from business accounts. Loan and service fees increased by 28% over the prior year second quarter and mortgage banking income increased by 16% as well.

 

 

 

The company's noninterest income increased 15% to $19.6 million for the six months ended June 30, 2018 compared to $17.1 million in the prior year period. Noninterest income was positively impacted by an 18% increase in wealth advisory and brokerage fees, as well as a 21% increase in loan and service fees, a 16% increase in service charges on deposit accounts and a 33% improvement in mortgage banking income.

The company's noninterest expense increased $922,000, or 5%, to $20.3 million in the second quarter of 2018, compared to $19.4 million in the second quarter of 2017. Salaries and employee benefits increased primarily due to an increase to the company's minimum hiring wage and normal merit increases. Data processing fees increased primarily due to the company's continued investment in technology-based solutions. Corporate and business development expense decreased primarily due to a reduction in contributions as well as lower advertising expenses.

The company's noninterest expense increased by $2.1 million or 5% to $41.5 million in the first six months of 2018 compared to $39.4 million in the prior year period. The increase was driven by salaries and employee benefits, which increased by 5% or $1.1 million, primarily due to an increase to the company's minimum hiring wage, special bonuses paid to non-officer employees, normal merit increases and increased health insurance cost. Data processing fees increased primarily due to the company's continued investment in technology-based solutions. Corporate and business development expense decreased primarily due to a reduction in contributions as well as lower advertising expenses.

The company's efficiency ratio was 42.9% for the second quarter of 2018, compared to 45.4% for the second quarter of 2017 and 46.0% for the linked first quarter of 2018. The company's efficiency ratio was 44.4% for the six months ended June 30, 2018 down from 47.5% in the prior year period due to revenue growth outpacing expense growth.

The effective tax rate for the second quarter 2018 was 20.2%, compared to 32.5% for the second quarter 2017 and reflects the effect of the Tax Cuts and Jobs Act, which lowered the company's federal tax rate to 21% from 35% effective January 1, 2018. The effective tax rate for the six months ended June 30, 2018 was 17.9% compared with 30.2% in the prior year period.

Lakeland Financial Corporation is a $4.8 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. 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.

 

 

 

 

 

LAKELAND FINANCIAL CORPORATION

AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS

(UNAUDITED)

(1) Reconciliation of Non-GAAP Financial Measures

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