Press Release

WARSAW, Ind., July 25, 2019 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record quarterly net income of $21.7 million for the three months ended June 30, 2019, an increase of 8% versus $20.1 million for the second quarter of 2018. Diluted earnings per share increased 9% to $0.85 for the second quarter of 2019, versus $0.78 for the second quarter of 2018. On a linked quarter basis, net income increased $31,000 from the first quarter ended March 31, 2019, which had net income of $21.7 million and $0.84 diluted earnings per share.

The company further reported record net income of $43.4 million for the six months ended June 30, 2019 versus $38.5 million for the comparable period of 2018, an increase of 13%. Diluted net income per common share was also a record for the period and increased 13% to $1.69 for the six months ended June 30, 2019 versus $1.50 for the comparable period of 2018.

David M. Findlay, President and Chief Executive Officer, said, “Our record quarterly results were positively impacted by healthy loan and deposit growth. This balance sheet expansion reflects our continued growth throughout our Indiana footprint.”

Highlights for the quarter are noted below.

2nd Quarter 2019 versus 2nd Quarter 2018 highlights:

• Return on average equity of 15.8%, compared to 16.9%
• Return on average assets of 1.76%, up from 1.70%
• Organic loan growth of $140 million, or 4%
• Core deposit growth of $288 million, or 8%
• Net interest income increase of $878,000, or 2%
• Net interest margin of 3.37% compared to 3.42%
• Noninterest income increase of $1.9 million, or 19%
• Revenue growth of $2.7 million, or 6%
• Provision expense of $785,000 compared to $1.7 million
• Nonperforming assets to total assets of 0.31% versus 0.27%
• Total equity and tangible common equity¹ increase of $79 million, or 16%

2nd Quarter 2019 versus 1st Quarter 2019 highlights:

• Return on average equity of 15.8% compared to 16.6%
• Return on average assets of 1.76%, compared to 1.80%
• Organic loan growth of $60 million or 2%
• Net interest income increase of $202,000, or 1%
• Net interest margin decrease of 8 basis points to 3.37% from 3.45%
• Noninterest income increase of $63,000, or 1%
• Revenue growth of $265,000, or 1%
• Provision expense of $785,000 compared to $1.2 million
• Nonperforming assets to total assets of 0.31% versus 0.14%
• Total equity and tangible common equity¹ increase of $22 million,  or 4%

As announced on July 9, 2019, the board of directors approved a cash dividend for the second quarter of $0.30 per share, payable on August 5, 2019, to shareholders of record as of July 25, 2019. The 2019 dividend rate per share approved in July represents a 16% increase over the accumulated quarterly dividends paid in 2018.

Return on average total equity for the second quarter of 2019 was 15.76%, compared to 16.86% in the second quarter of 2018 and 16.59% in the linked first quarter of 2019. Return on average total equity for the first six months of 2019 was 16.17%, compared to 16.35% in the same period of 2018. Return on average assets for the second quarter of 2019 was 1.76%, compared to 1.70% in the second quarter of 2018 and 1.80% in the linked first quarter of 2019. Return on average assets for the first six months of 2019 was 1.78% compared to 1.64% in the same period of 2018. The company’s total capital as a percentage of risk-weighted assets was 14.49% at June 30, 2019, compared to 13.76% at June 30, 2018 and 14.38% at March 31, 2019. The company’s tangible common equity to tangible assets ratio² was 11.30% at June 30, 2019, compared to 10.15% at June 30, 2018 and 11.04% at March 31, 2019.

Average total loans for the second quarter of 2019 were $3.96 billion, an increase of $121.9 million, or 3%, versus $3.84 billion for the second quarter 2018. On a linked quarter basis, total average loans grew $43.3 million from $3.92 billion at March 31, 2019. Total loans outstanding grew $139.9 million, or 4%, from $3.86 billion as of June 30, 2018 to $4.00 billion as of June 30, 2019.

“We are pleased to report $60 million in loan growth on a linked quarter basis. Line utilization for commercial committed lines has increased as compared to the first quarter 2019, but is still lower than our normal run rate for periods prior to 2018. Further, loan originations are outpacing loan paydowns,” commented Findlay.

Average total deposits for the second quarter of 2019 were $4.30 billion, an increase of $208.6 million, or 5%, versus $4.09 billion for the second quarter of 2018. Average total deposits increased by $210.4 million or 5% as compared to average deposits of $4.09 billion on a linked quarter basis. Total deposits grew $286.3 million, or 7%, from $3.93 billion as of June 30, 2018 to $4.22 billion as of June 30, 2019. In addition, total core deposits, which exclude brokered deposits, increased $288.3 million, or 8%, from $3.72 billion at June 30, 2018 to $4.00 billion at June 30, 2019 due to growth in commercial deposits of $230.2 million or 24%, increases in retail deposits of $29.5 million, or 2%, and increases in public fund deposits of $28.6 million or 2%. Brokered deposits were $218.0 million at June 30, 2019, a decrease of $1.9 million, or 1%, as compared to $219.9 million as of June 30, 2018.

Findlay added, “The double digit growth in commercial deposits on a year over year basis was strong and reflective of our focus on growing these relationship driven, low cost deposits. Consistent with our strategic focus on these accounts, we continue to see growth in the number of commercial checking accounts and the volume of commercial checking account balances.”

The company’s net interest margin decreased five basis points to 3.37% for the second quarter of 2019 compared to 3.42% for the second quarter of 2018. The year over year decline in net interest margin 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, the corresponding increase in the fair value of the investment securities portfolio, as well as increased premium bond amortization resulting from elevated prepayment speeds.  

Linked quarter net interest margin declined by eight basis points from 3.45% as of March 31, 2019 to 3.37% as of June 30, 2019 due to an increase of five basis points in the cost of funds as well as a decline of three basis points in the yield on earning assets. The decline in investment securities yields resulted primarily from a decline in yields for agency mortgage backed securities and collateralized mortgage obligations.

The company’s net interest margin increased three basis points to 3.42% for the six months ended June 30, 2019 compared to 3.39% for the six months ended June 30, 2018. The increase in net interest margin for the six month period was primarily attributable to increases in loan yields partially offset by higher cost of funds, driven by the Federal Reserve Bank increasing the target Federal Funds Rate in June, September and December of 2018. Net interest income increased by $2.9 million or 4% for the six months ended June 30, 2019 as compared to the first half of 2018 due to both net interest margin expansion and loan and deposit growth.

The company recorded a provision for loan losses of $785,000 in the second quarter of 2019, compared to $1.7 million in the second quarter of 2018 and $1.2 million in the linked first quarter of 2019. Net recoveries in the second quarter of 2019 were $217,000 versus net recoveries of $379,000 in the second quarter of 2018 and net charge offs of $91,000 during the linked first quarter of 2019. Annualized net recoveries to average loans were 0.02% for the second quarter of 2019 versus 0.04% for the second quarter of 2018. Annualized net charge offs to average loans were 0.01% for the linked first quarter of 2019. On a year to date basis, net recoveries to average loans were 0.01% compared to net charge offs to average loans of 0.23% for the first six months of 2018.

Nonperforming assets increased $2.4 million, or 19%, to $15.3 million as of June 30, 2019 versus $12.9 million as of June 30, 2018 due to an increase in nonaccrual loans. On a linked quarter basis, nonperforming assets were $15.3 million versus $7.0 million reported as of March 31, 2019. The increase was primarily driven by a single commercial relationship being placed in nonaccrual status, which was past due as of the first quarter of 2019. The ratio of nonperforming assets to total assets at June 30, 2019 was 0.31% compared to 0.27% at June 30, 2018 and 0.14% at March 31, 2019. Loan loss reserve to total loans was 1.26% as of June 30, 2019 as compared with 1.24% as of June 30, 2018 and unchanged from 1.26% as of March 31, 2019.

“We are proud of our asset quality performance during the first two quarters of 2019 with net recoveries year to date. While we encountered a slight shift in nonperforming loans, we don’t believe that it is reflective of any broader concerns and our watch list loan totals are stable,” commented Findlay.

The company’s noninterest income increased $1.9 million, or 19%, to $11.6 million for the second quarter of 2019, compared to $9.7 million for the second quarter of 2018. Noninterest income was positively impacted by a 23% increase over the prior year second quarter in recurring fee income for service charges on deposit accounts, primarily due to growth in treasury management fees from business accounts. In addition, investment brokerage fees increased 40% and wealth advisory fees increased by 7% compared to the second quarter 2018 due to continued growth of client relationships. Noninterest income was $11.5 million in the linked first quarter of 2019.

The company’s noninterest income increased $3.5 million, or 18%, to $23.1 million for the six months ended June 30, 2019 compared to $19.6 million in the prior year period. Noninterest income was positively impacted by $1.7 million increase in service charges on deposit accounts, as well as increases of $287,000 in loan and service fees, $247,000 in investment brokerage fees and $217,000 in wealth advisory fees.

During the second quarter, a single commercial treasury management relationship contributed $2.1 million in treasury management fees that are reported with service charges on deposit accounts. This relationship contributed $1.6 million in the first quarter of 2019, resulting in a total of $3.7 million of revenue on a year to date basis. As a result of the bank discovering potentially fraudulent activity by this client involving multiple banks, the related treasury management activity was terminated and the revenue will not recur in future periods. The bank has not incurred any loss related to this activity and we believe that an investigation is ongoing by authorities. In addition, the bank continues its review of its enterprise risk management policies and procedures.

The company’s noninterest expense increased $1.8 million, or 9%, to $22.1 million in the second quarter of 2019, compared to $20.3 million in the second quarter of 2018 and decreased by $381,000 on a linked quarter basis. Salaries and employee benefits increased on a year over year basis primarily due to higher employee health insurance expense, staffing increases in revenue producing areas and normal merit increases. Other expense increased by $672,000 or 40% to $2.3 million from $1.7 million in the second quarter 2018.

The company’s noninterest expense increased by $3.1 million, or 7%, to $44.6 million in the first six months of 2019 compared to $41.5 million in the prior year period. The increase was driven by salaries and employee benefits, which increased by 4%, or $882,000, primarily due to higher health insurance expense, staffing increases in revenue producing areas and normal merit increases. Other expense increased by $1.4 million or 44% to $4.6 million from $3.2 million in the six month period ended June 30, 2018.

The company’s efficiency ratio was 44.2% for the second quarter of 2019, compared to 42.9% for the second quarter of 2018 and 45.2% for the linked first quarter of 2019. The company’s efficiency ratio was 44.7% for the six months ended June 30, 2019 compared to 44.4% in the prior year period.

Lakeland Financial Corporation is a $5.0 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 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 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 and Quarterly Report on Form 10-Q.