Lakeland Financial Reports Record First Quarter Performance

Company Increases Dividend 12%

WARSAW, Ind., April 25, 2013 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported record net income of $9.2 million for the first quarter of 2013, an increase of 7% versus $8.6 million in the first quarter of 2012. Diluted net income per share was also a record for the first quarter and increased 8% to $0.56 versus $0.52 for the comparable period of 2012. On a linked quarter basis, net income increased 7% compared to net income of $8.6 million, or $0.52 per diluted share, for the fourth quarter of 2012.

Michael L. Kubacki, Chairman and Chief Executive Officer, commented, "This record performance represents a very good start to 2013. As we recently noted at our annual meeting of shareholders, we believe that consistent day-to-day performance and superior client service are critical to the success of our mission to be the acknowledged and recognized leader in Indiana community banking. As our results demonstrate, this client-centered strategy has proven to be good for our shareholders as well."

As previously announced, the Board of Directors approved a cash dividend for the first quarter of $0.19 per share, payable on May 6, 2013, to shareholders of record as of April 25, 2013. The quarterly dividend represents a 12% increase over the quarterly dividends paid for each quarter of 2012.

Kubacki continued, "We are very proud of the robust capital structure that we have built, and this significant increase in our shareholder dividend is reflective of our strong performance in the first quarter and our positive outlook for the future. For decades, our shareholders have benefited from our consistent ability to grow the balance sheet and produce quality earnings."

Average total loans for the first quarter of 2013 were $2.26 billion versus $2.22 billion for the first quarter of 2012, an increase of 2%. Total loans outstanding grew $37 million, or 2%, from $2.23 billion as of March 31, 2012 to $2.26 billion as of March 31, 2013. On a linked quarter basis, average total loans increased $42.6 million, or 2%, from $2.21 billion for the fourth quarter of 2012.

David M. Findlay, President and Chief Financial Officer, observed, "Loan demand continues to be a challenge throughout the banking industry, thus we are encouraged by the growth we experienced in the first quarter. As an Indiana bank serving Indiana clients, we believe it's critical that we use our balance sheet to support the economic recovery in the state."

The Company's net interest margin was 3.17% in the first quarter of 2013 versus 3.41% for the first quarter of 2012. The net interest margin improved from 3.10% in the fourth quarter of 2012. The year-over-year margin decline resulted primarily from reduced yields in the investment portfolio and slightly lower commercial loan yields as interest rates continue to be at historic lows. The reduced yields in the investment portfolio were driven by prepayments in the Company's agency mortgage-backed securities portfolio, which were also affected by the low interest rate environment. The prepayments generally have a negative impact on investment portfolio yields, including the Company having to reinvest in lower yielding securities and the acceleration of premium amortization.

Findlay stated, "We were very focused on our net interest margin in the first quarter and were pleased that it resulted in an improvement versus 2012's fourth quarter. We're now in the fifth year of an unprecedented monetary policy position by the Federal Reserve Bank, and there is no expectation that this will change in the foreseeable future. As a result, we will continue to actively manage our funding costs while at the same time working hard to retain and grow client relationships."

The Company's tangible common equity to tangible assets ratio was 10.38% at March 31, 2013 compared to 9.41% at March 31, 2012 and 9.63% at December 31, 2012. Average total deposits for the quarter ended March 31, 2013 were $2.47 billion versus $2.55 billion for the fourth quarter of 2012 and $2.43 billion for the first quarter of 2012.

The Company's provision for loan losses in the first quarter of 2013 was $0 versus $799,000 in the same period of 2012. In the fourth quarter of 2012, the provision was $1.3 million. The provision decrease on a year-over-year basis was generally driven by the stabilization and improvement in key loan quality metrics, including lower levels of net charge offs, appropriate reserve coverage of nonperforming loans, continuing signs of stabilization in the economic conditions of the Company's markets and general signs of improvement in our borrowers' performance and future prospects. The Company's allowance for loan losses as of March 31, 2013 was $50.8 million compared to $52.8 million as of March 31, 2012 and $51.4 million as of December 31, 2012. The allowance for loan losses represented 2.25% of total loans as of March 31, 2013 versus 2.37% at March 31, 2012 and 2.28% as of December 31, 2012. Further, the allowance for loan losses represented 234% of nonperforming loans as of March 31, 2013 versus 144% at March 31, 2012 and 167% as of December 31, 2012.

Net charge-offs totaled $626,000 in the first quarter of 2013 versus net charge-offs of $1.4 million during the first quarter of 2012 and net charge-offs of $1.7 million during the linked fourth quarter of 2012. The largest charge-off attributable to a single commercial credit during the quarter was $365,000. Nonperforming assets decreased 42% to $22.4 million as of March 31, 2013 versus $38.6 million as of March 31, 2012. On a linked quarter basis, nonperforming assets were 29% lower than the $31.6 million reported as of December 31, 2012. The decrease in nonperforming assets during the quarter primarily resulted from the removal of two commercial credits totaling $8.4 million from the impaired category, as well as charge-offs taken and payments received on nonperforming loans. The ratio of nonperforming assets to total assets at March 31, 2013 was 0.77% versus 1.31% at March 31, 2012 and 1.03% at December 31, 2012.

Findlay noted, "We're encouraged by the material improvement in nonperforming loans. Throughout the economic downturn and the slow recovery that has followed, we have continued to work with our clients that have encountered financial difficulty. We are very proud that we work with our clients, not against them during these challenging times. This significant reduction in nonperforming loans was driven by the sustained improved performance of two commercial clients who we worked closely with to return to stable financial performance."

The Company's noninterest income increased $1.6 million, or 28%, to $7.5 million for the first quarter of 2013, versus $5.9 million for the first quarter of 2012. On a year-over-year basis, quarterly noninterest income was positively impacted by a $710,000 increase in other income, which was driven by $590,000 in fees related to the execution of interest rate swaps with clients. Loan, insurance and service fees increased by $267,000 and investment brokerage fees increased by $149,000. In addition, noninterest income in the first quarter of 2012 was negatively impacted by $510,000 in other than temporary impairment on several non-agency mortgage backed securities. On a linked quarter basis, noninterest income increased by $176,000 from $7.3 million in the fourth quarter of 2012. 

The Company's noninterest expense increased $213,000, or 1%, to $14.9 million in the first quarter of 2013 versus $14.7 million in the comparable quarter of 2012. On a year-over-year basis, quarterly data processing fees increased by $452,000 driven by a larger customer base as well as greater utilization of services from the Company's core processor, which the Company expects will improve marketing and cross-selling initiatives. The Company's efficiency ratio was 52% for the first quarters of 2013 and 2012, as well as the fourth quarter of 2012, which consistently ranks in the top quartile of peer financial institutions in the country. On a linked quarter basis, noninterest expense increased by $382,000 versus $14.5 million in the fourth quarter of 2012.

Lakeland Financial Corporation is a $2.9 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank serves Indiana with 45 branches located in the following Indiana counties: Kosciusko, Elkhart, Allen, St. Joseph, DeKalb, Fulton, Hamilton, Huntington, LaGrange, Marshall, Noble, Pulaski and Whitley.

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 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 common 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.

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," "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.

CONTACT: David M. Findlay
         President and
         Chief Financial Officer
         (574) 267-9197
         david.findlay@lakecitybank.com