Thursday, August 17th, 2017

Lake City Bank reports 24% increase in net income

Posted: Tuesday, November 2, 2010

Warsaw, Indiana (October 25, 2010) – Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record net income of $6.5 million for the third quarter of 2010, a 24% increase over the $5.3 million in the third quarter of 2009 and a record quarterly net income performance.  Diluted net income per share for the quarter increased 11% to $0.40 versus $0.36 for the comparable period of 2009.  On a linked quarter basis, net income increased 5% compared to net income of $6.2 million for the second quarter of 2010.

The Company further reported a 38% increase in net income to $18.8 million for the nine months ended September 30, 2010 versus $13.6 million for the comparable period of 2009.  This performance also represents record net income for the year-to-date period.  Diluted net income per common share was $0.96 for the nine months ended September 30, 2010 versus $0.94 for the comparable period of 2009.

Michael L. Kubacki, Chairman and Chief Executive Officer, commented, “Lake City Bank has posted record quarterly net income for five successive quarters.  Over that same time period, we’ve substantially strengthened the balance sheet and continued to experience loan growth within our Indiana client base.  We are pleased with our consistently good performance, but remain concerned about the lack of economic recovery in our Indiana markets.  We’re working to help contribute to a recovery, including expanding lending efforts in all of our markets, but the regional business environment remains sluggish.”

Kubacki continued, “While loan demand has slowed in 2010, we’re actively working throughout our footprint to help clients build their businesses and prepare for the recovery that will certainly come.  We’re confident that our reputation as one of the leading business lenders in Indiana is growing and we continue to believe that our business strategy is more relevant than ever. In addition, we believe that our reputation is further enhanced by the strength of our core operating results.”

Earnings per share for the nine month period ended September 30, 2010 was impacted by the Company’s June 9, 2010 redemption of the 56,044 shares of TARP preferred stock issued to the U.S. Treasury Department in February of 2009 under the Capital Purchase Program of the Economic Stabilization Act of 2008.  As a result of the second quarter 2010 redemption, the Company recognized a non-cash reduction in net income available to common shareholders of $1.8 million, which represented the remaining unamortized accretion of the discount on the preferred shares.  This non-cash item impacted net income available to common shareholders and earnings per share.  Excluding the impact of this $1.8 million accretion, diluted earnings per share would have been $1.07 year-to-date versus $0.94 for the comparable period in 2009, an increase of 14%.

The Company also announced that the Board of Directors approved a cash dividend for the third quarter of $0.155 per share, payable on November 5, 2010 to shareholders of record as of October 25, 2010.

Average total loans for the third quarter of 2010 were $2.06 billion versus $1.91 billion for the third quarter of 2009 and $2.04 billion for the linked second quarter of 2010.  The year-over-year average loan growth represented an increase of 8%, or $154 million.  On a linked quarter basis, average loans increased by $16 million versus the second quarter of 2010.  Total gross loans as of September 30, 2010 were $2.05 billion compared to $1.94 billion as of September 30, 2009 and $2.06 billion as of June 30, 2010.

The Company’s net interest margin was 3.70% in the third quarter of 2010 versus 3.69% for the third quarter of 2009 and 3.75% in the linked second quarter of 2010.  For the nine months ended September 30, 2010, the Company’s net interest margin was 3.77% versus 3.42% for the comparable period in 2009.  This margin improvement for the year, which was driven by declines in the Company’s cost of funds, contributed to an increase of 20% in the Company’s net interest income to $69.3 million in the first nine months of 2010 versus $57.8 million for the comparable period in 2009.  On a linked quarter basis, net interest income increased slightly versus the second quarter of 2010, despite a 0.05% decline in the net interest margin. This linked quarter margin decline resulted primarily from higher costs of funds as the Company continued to increase its reliance on deposits as a funding source and extended maturities on brokered certificate of deposits.

David M. Findlay, President, stated, “We view the stability of our net interest margin as a positive, given that we have extended funding maturities during the past two quarters.  While the future outlook for interest rate movements is uncertain, we would anticipate that the margin would experience some compression as we continue our strategy of longer term funding.”

The Company’s provision for loan losses in the quarter of $6.2 million represented an increase of $650,000, or 12%, versus $5.5 million in the same period of 2009.  In the second quarter of 2010, the provision was $5.8 million.  For the nine months ended September 30, 2010, the provision for loan losses was $17.4 million versus $15.0 million, an increase of $2.4 million, or 17%.  The provision increase on a year-over-year basis was generally driven by higher levels of loan charge-offs and overall economic conditions in the Company’s markets and the related possible weaknesses in our borrowers’ future performance and prospects.

Lakeland Financial’s allowance for loan losses as of September 30, 2010 was $42.0 million, compared to $28.8 million as of September 30, 2009 and $37.4 million as of June 30, 2010.  The allowance for loan losses increased to 2.05% of total loans as of September 30, 2010 versus 1.48% at September 30, 2009 and 1.82% as of June 30, 2010.

Non-performing assets were $29.5 million as of September 30, 2010 versus $31.1 million as of June 30, 2010.  The decrease during the third quarter resulted primarily from net charge-offs, which totaled $1.5 million in the third quarter.  The ratio of nonperforming assets to total assets declined from 1.18% at June 30, 2010 to 1.09% on September 30, 2010.  The allowance for loan losses represented 162% of nonperforming loans as of September 30, 2010 versus 98% at September 30, 2009 and 122% at June 30, 2010.

Findlay added “Over the past two years, we’ve substantially strengthened our balance sheet with a $23.9 million, or 132%, increase in the allowance for loan losses.  The allowance was $18.1 million at September 30, 2008, when signs of economic weakness became widespread, and today stands at $42.0 million.  We believe that we’ve continued to approach the management of our balance sheet conservatively and have focused on building a strong balance sheet for the future.”

As noted above, net charge-offs totaled $1.5 million in the third quarter of 2010 versus $1.8 million during the third quarter of 2009 and $4.7 million during the second quarter of 2010.  Loan exposure to two borrowers represented $966,000, or 64%, of these charge offs.  $623,000 was related to a manufacturing company which has terminated operations and is in the process of liquidation.  The Bank has no additional exposure to this borrower.  The second loss of $344,000 was a loan to a real estate holding company.  The real estate securing the credit has been transferred to other real estate and the Bank has no additional exposure to this borrower.

The Company's non-interest income was $6.2 million in the third quarter of 2010 versus $5.3 million in the third quarter of 2009 and $5.4 million for the second quarter of 2010.  On a year-over-year basis, the increase was driven in large part by higher mortgage banking income, which increased by $509,000, investment brokerage income, which increased by $266,000 and increases in other ancillary revenue sources.  The Company’s non-interest income was $16.4 million in the nine months ended September 30, 2010, a decrease of $453,000 compared to the comparable period of 2009.  The decrease was driven by a change related to the processing of merchant credit card activities, which is reflected in merchant card fee income.  It declined $1.3 million from $2.2 million in the nine months ended September 30, 2009 to $846,000 for the comparable period of 2010.  Beginning in the second quarter of 2009, the Company began converting clients to a new third-party processor for this activity.  As a result, only net revenues with the new processor are being recognized in merchant card fee income in non-interest income.  Excluding merchant credit card activities, other non-interest income categories increased 6% on a year over year basis.  Overall, total revenue for the third quarter of 2010 increased 11% to $29.4 million versus $26.5 million for the comparable period of 2009.

The Company's non-interest expense increased 4% to $13.6 million for the third quarter of 2010 compared to $13.1 million for the same period in 2009.  On a linked quarter basis, non-interest expense increased 2% from $13.4 million in the second quarter of 2010.  On a year-over-year basis, salaries and employee benefits increased from $7.3 million in the third quarter of 2009 to $7.7 million in the third quarter of 2010.  This increase in the third quarter of 2010 was driven by additions to staff in revenue producing areas as well as higher employee insurance costs.  Credit card interchange expense decreased $271,000 due to the change in processing merchant credit card activities.  In addition, other expense increased by $546,000, primarily due to higher professional fees and other costs associated with borrowers who are experiencing difficulties. The Company's efficiency ratio for the third quarter of 2010 improved to 46% compared to 53% for the third quarter of 2009 and 47% in the second quarter of 2010.

For the three months ended September 30, 2010, Lakeland Financial’s tangible equity to tangible assets ratio was 8.93% compared to 6.56% for the third quarter of 2009 and 8.91% for the second quarter of 2010.  Equity was positively impacted by the sale of common stock during the fourth quarter of 2009, resulting in net proceeds to the Company of $57.9 million.  Average total capital to average assets for the quarter ended September 30, 2010 was 9.12% versus 8.83% for the third quarter of 2009 and 10.44% for the second quarter of 2010.  In addition to the fourth quarter of 2009 sale of common stock, average total capital was impacted by the Company’s June, 2010 redemption of $56.0 million in preferred shares issued to the U.S. Treasury Department under the TARP Capital Purchase Program.  Average total deposits for the quarter ended September 30, 2010 were $2.20 billion versus $2.13 billion for the second quarter of 2010 and $1.82 billion for the third quarter of 2009.

Kubacki concluded, “During a tumultuous two year period for the financial services sector, as well as the regional and national economy, we’ve consistently produced quality earnings and remained committed to our Indiana clients.  The entire Lake City Bank Team understands the importance of our commitment to the communities we serve and we remain confident in our ability to deliver.”

Lakeland Financial Corporation is a $2.7 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank serves Northern Indiana with 43 branches located in the following Indiana counties: Kosciusko, Elkhart, Allen, St. Joseph, DeKalb, Fulton, Huntington, LaGrange, Marshall, Noble, Pulaski and Whitley.  The Company also has a Loan Production Office in Indianapolis, Indiana.

Lakeland Financial Corporation may be accessed on its home page at www.lakecitybank.com. The Company’s common stock is traded on the Nasdaq Global Select Market under “LKFN”. Market makers in Lakeland Financial Corporation common shares include Automated Trading Desk Financial Services, LLC, B-Trade Services, LLC, Citadel Securities, LLC, Citigroup Global Markets Holdings, Inc., Domestic Securities, Inc., E*TRADE Capital Markets LLC, FTN Financial Securities Corp., FTN Equity Capital Markets Corp., Goldman Sachs & Company, Howe Barnes Hoefer & Arnett, Inc., Keefe, Bruyette & Woods, Inc., Knight Equity Markets, L.P., Morgan Stanley & Co., Inc., Stifel Nicolaus & Company, Inc., Susquehanna Capital Group and UBS Securities LLC.

In addition to the results presented in accordance with generally accepted accounting principles in the United States of America, this press release contains certain non-GAAP financial measures.  Lakeland Financial believes that providing non-GAAP financial measures provides investors with information useful to understanding Lakeland Financial’s financial performance.  Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including measures based on “tangible equity” which is “common stockholders’ equity” 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.