Lake City Bank Reports Highest Quarterly Income in History

WARSAW, Ind., Oct. 25, 2013 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported quarterly net income of $9.8 million for the third quarter of 2013, an increase of 5% versus $9.3 million in the third quarter of 2012. Diluted net income per share was $0.59, an increase of 4% versus $0.57 for the comparable period of 2012. This performance represents the highest quarterly net income and earnings per share in the Company's history.

The Company further reported record net income of $28.3 million for the nine months ended September 30, 2013 versus $26.8 million for the comparable period of 2012, which was an increase of 5%. Diluted net income per common share increased 4% to $1.70 for the nine months ended September 30, 2013 versus $1.63 for the comparable period of 2012. This per share performance also represents a record level for the Company.

Michael L. Kubacki, Chairman and Chief Executive Officer of the Company, commented, "We continue to benefit from a strengthening economy in our Indiana markets and are encouraged by this favorable performance. Lake City Bank has a very strong balance sheet, which has allowed us to continue our growth and support our Indiana markets. This has translated into a track record of quality earnings and consistent growth."

Earnings for the nine-month period ended September 30, 2013 were negatively impacted in the second quarter of 2013 by a non-cash provision for state income tax expense of $465,000, which resulted from a revaluation of the Company's state deferred tax items. Excluding the effect of the one-time non-cash adjustment, net income for the nine months ended September 30, 2013 would have been $28.7 million, representing an increase of 7% over the comparable period of 2012. Diluted net income per share would have been $1.73 for the nine month period ended September 30, 2013, representing an increase of 6% over the comparable period in 2012.

The Company also announced that the Board of Directors approved a cash dividend for the third quarter of $0.19 per share, payable on November 5, 2013, to shareholders of record as of October 25, 2013. The quarterly dividend represents a 12% increase over the quarterly dividends paid for each quarter of 2012.

Kubacki continued, "We believe that our consistent day-to-day performance and client-focused business strategy has served our shareholders well. Our mission is to be the acknowledged leader in Indiana community banking, and we'll stay focused on that goal as we close out 2013 and develop our plans for 2014."

Average total loans for the third quarter of 2013 were $2.35 billion versus $2.22 billion for the third quarter of 2012, an increase of 6%. Total loans outstanding grew $189.3 million, or 9%, from $2.20 billion as of September 30, 2012 to $2.39 billion as of September 30, 2013. On a linked quarter basis, average total loans increased $46.5 million, or 2%, from $2.30 billion for the second quarter of 2013 to $2.35 billion for the third quarter of 2013.

David M. Findlay, President and Chief Financial Officer, observed, "We've increased lending by $137 million in 2013, which represents a 6% year-to-date increase. We have established a consistent record of loan growth and are particularly pleased with the loan growth over the past two quarters, which has been led by our Commercial Banking Group.  Our commercial loans have grown by $144 million this year as a result of our expanding market share and overall organic growth."

The Company's net interest margin was 3.29% in the third quarter of 2013 versus 3.30% for the third quarter of 2012. The net interest margin improved from 3.20% in the second quarter of 2013. 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. Despite this pressure on asset yields, the Company has improved its net interest margin in each quarter of 2013 as a result of declines in deposit rates and overall funding costs.

The Company's tangible common equity to tangible assets ratio was 10.25% at September 30, 2013 compared to 9.90% at September 30, 2012 and 10.25% at June 30, 2013. Average total deposits for the quarter ended September 30, 2013 were $2.48 billion versus $2.49 billion for the second quarter of 2013 and $2.49 billion for the third quarter of 2012.

For the third consecutive quarter, the Company did not make a provision for loan losses. As a result, the provision for loan losses in the nine months ended September 30, 2013 was $0 versus $1.3 million in the same period of 2012. The Company's ability to not have a provision expense 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 September 30, 2013 was $49.8 million compared to $51.9 million as of September 30, 2012 and $50.6 million as of June 30, 2013. The allowance for loan losses represented 2.08% of total loans as of September 30, 2013 versus 2.36% at September 30, 2012 and 2.17% as of June 30, 2013. Further, the allowance for loan losses represented 215% of nonperforming loans as of September 30, 2013 versus 156% at September 30, 2012 and 234% as of June 30, 2013.

Net charge-offs totaled $831,000 in the third quarter of 2013 versus net recoveries of $96,000 during the third quarter of 2012 and net charge-offs of $183,000 during the linked second quarter of 2013. Nonperforming assets decreased 31% to $23.3 million as of September 30, 2013 versus $34.0 million as of September 30, 2012. The decrease in nonperforming assets during 2013 primarily resulted from the removal of two commercial credits totaling $8.4 million from the impaired category, as well as sales of other real estate owned and charge-offs taken and payments received on nonperforming loans. The ratio of nonperforming assets to total assets at September 30, 2013 was 0.77% versus 1.15% at September 30, 2012 and 0.73% at June 30, 2013.

Findlay added, "Our balance sheet is well-positioned for future growth. As our Indiana economy continues to improve, we will be there to work with clients to grow their businesses through increased lending and investment in the communities we serve."

The Company's noninterest income increased $1.6 million, or 25%, to $7.8 million for the third quarter of 2013, versus $6.2 million for the third quarter of 2012. On a year-over-year basis, quarterly noninterest income was positively impacted by an $808,000 increase in investment brokerage fees, driven by higher trading volumes and improvements in product mix. Service charges on deposit accounts increased $280,000 and other income increased by $187,000, driven by a $116,000 increase in income from bank owned life insurance. In addition, the Company recognized gains of $106,000 on the sale of securities during the third quarter of 2013, versus losses of $380,000 on the sale of securities during the third quarter of 2012. On a linked quarter basis, noninterest income increased by $240,000 from $7.6 million in the second quarter of 2013.

Findlay further stated, "Our fee-based revenues reflect a diverse mix of commercial, retail and investment management services, all of which have enjoyed growth in 2013. Cross-selling across business lines is an important strategic goal and we've successfully grown these business lines in 2013."

The Company's noninterest expense increased $2.0 million, or 14%, to $16.3 million in the third quarter of 2013 versus $14.3 million in the comparable quarter of 2012. On a linked quarter basis, noninterest expense increased by $1.2 million from $15.1 million in the second quarter of 2013. On a year-over-year basis, salaries and employee benefits increased by $868,000 in the three month period ended September 30, 2013 versus the same period of 2012. These increases in salary and employee benefits were driven by staff additions, normal merit increases, increased health insurance costs and higher performance incentive-based compensation costs. Quarterly data processing fees increased by $300,000 due to 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. In addition, other expense increased $669,000 during the third quarter of 2013, driven by a $307,000 increase in advertising expenses and $310,000 of consulting fees related to the Company's realignment of deposit products. The advertising and consulting expenses, which totaled $617,000, were specific to programs that the Company made investments in during the third quarter and are not expected to be recurring levels of spending. The Company's efficiency ratio was 53% for the third quarter of 2013 compared to 50% for the third quarter of 2012, and 51% for the linked second quarter of 2013, which consistently ranks in the top quartile of peer financial institutions in the country.

Lakeland Financial Corporation is a $3.0 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. The Company expects to open a 46^th office in the Indianapolis market in the fourth quarter located in Fishers, Indiana.

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.

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