Lakeland Financial Reports Record Performance

WARSAW, Ind., Jan. 25, 2019 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record net income of $80.4 million, which represents an increase of $23.1 million or 40% compared with net income of $57.3 million for 2017. Diluted earnings per share also increased 40% to $3.13 compared to $2.23 for 2017. This per share performance also represents a record for the company and its shareholders.

The company further reported record quarterly net income of $21.4 million for the three months ended December 31, 2018 versus $11.6 million for the comparable period of 2017, an increase of 84%. Diluted net income per common share was also a record for the quarter and increased 84% to $0.83 for the three months ended December 31, 2018 versus $0.45 for the comparable period of 2017. Excluding the $4.1 million 2017 income tax provision, net income increased 36% and diluted earnings per share increased 36% for the three months ended December 31, 2018 compared to the comparable period of 2017.

David M. Findlay, President and CEO commented, “2018 represents our ninth consecutive year of record income performance. Our long-term performance is especially gratifying as we have reported record net income in 29 of the last 30 years. We’re particularly proud of our ability to consistently produce quality earnings over the last three decades for our shareholders.”

Highlights for the year and quarter are noted below.

Full year 2018 versus 2017 highlights:

• Return on average equity of 16.5%, up from 12.7%
• Organic average loan growth of $233 million, or 6%
• Average deposit growth of $337 million, or 9%
• Net interest income increase of $15.4 million, or 11%
• Net interest margin increase of 10 basis points to 3.43%
• Noninterest income increase of $4.1 million, or 11%
• Revenue growth of $19.5 million, or 11%
• Pretax net income growth of $9.3 million, or 10%
• Nonperforming assets to total assets of 0.16%, down from 0.20% a year ago
• Total equity and tangible common equity¹ increase of $53 million,  or 11%

4th Quarter 2018 versus 4th Quarter 2017 highlights:

• Return on average equity of 16.8%, up from 9.9%
• Organic average loan growth of $178 million, or 5%
• Average deposit growth of $174 million, or 4%
• Net interest income increase of $4.2 million, or 12%
• Net interest margin increase of 19 basis points to 3.52%
• Noninterest income increase of $643,000, or 7%
• Pretax net income growth of $3.4 million, or 15%
• Revenue growth of $4.8 million, or 11%
• Total equity and tangible common equity² increase of $53 million,  or 11%

4th Quarter 2018 versus 3rd Quarter 2018 highlights:

• Return on average equity of 16.8% up from 16.6%
• Organic average loan growth of $68 million, or 2%
• Net interest income growth of $1.7 million, or 4%
• Revenue growth of $1.3 million, or 3%
• Reduced nonperforming assets of $5.2 million, or 41%
• Average equity  increase of $12.4 million, or 3%

As announced on January 8, 2019, the board of directors approved a cash dividend for the fourth quarter of $0.26 per share, payable on February 5, 2019, to shareholders of record as of January 25, 2019. The fourth quarter dividend per share represents an 18% increase over the fourth quarter 2017 dividend of $0.22 per share.

In addition, on January 8, 2019, the Board of Directors authorized the purchase of up to $30,000,000 shares of the company’s common stock, representing approximately 3.0% of the company’s issued and outstanding shares of common stock as of December 31, 2018. The Board of Directors authorized this stock repurchase plan based on the strength of the company’s balance sheet and capital position. The Board believes that a stock repurchase plan is an important tool that can be utilized to enhance long term shareholder value. Share repurchases may be made periodically as permitted by securities laws and other legal and regulatory requirements and will be subject to market conditions as well as other factors. The timing, price and quantity of purchases will be at the discretion of the corporation and the program may be discontinued or suspended at any time. Repurchases may be made in the open market, through block trades or otherwise, and in privately negotiated transactions. If any share purchases are made, they will be made on or prior to December 31, 2019.

Findlay continued, “Revenue growth was once again a critical driver of our ability to generate strong earnings growth. We experienced healthy double digit increases in fee-based services in all three of our core business units, commercial, retail, and wealth advisory. In addition, our asset sensitive balance sheet contributed to an expansion of our net interest margin.”

Return on average total equity for the year ended December 31, 2018 was 16.51%, compared to 12.72% in 2017. Return on average assets was 1.69% in 2018 compared to 1.29% in 2017. The company’s total capital as a percent of risk-weighted assets was 14.20% at December 31, 2018, compared to 13.26% at December 31, 2017 and 14.14% at September 30, 2018. The company’s tangible common equity³ to tangible assets ratio was 10.63% at December 31, 2018, compared to 9.93% at December 31, 2017 and 10.41% at September 30, 2018.

Average total loans for 2018 were $3.84 billion, an increase of $233.0 million, or 6%, versus $3.61 billion for 2017. Total loans outstanding grew $96.3 million, or 3%, from $3.82 billion as of December 31, 2017 to $3.91 billion as of December 31, 2018. On a linked quarter basis, total loans grew $71.6 million, or 2%, from $3.84 billion at September 30, 2018. Average total loans for the fourth quarter of 2018 was $3.91 billion, an increase of $177.5 million, or 5%, versus $3.73 billion for the comparable period of 2017. On a linked quarter basis, total average loans increased by $67.9 million, or 2%, from $3.84 billion for the third quarter of 2018 to $3.91 billion for the fourth quarter of 2018.

Average total deposits for 2018 were $4.09 billion, an increase of $336.7 million, or 9%, versus $3.76 billion for 2017. Total deposits grew $35.4 million, or 1%, from $4.01 billion as of December 31, 2017 to $4.04 billion as of December 31, 2018. In addition, total core deposits, which exclude brokered deposits, increased $135.5 million, or 4%, from $3.74 billion at December 31, 2017 to $3.88 billion at December 31, 2018 due to growth in commercial deposits of $112.4, million or 12%, growth in retail deposits of $57.8 million, or 4%, offset by declines in public fund deposits of $34.7 million or 3%.

Findlay added, “Our commercial and retail banking teams delivered good core deposit growth in 2018, which provided deposit-driven funding for our loan growth. We are pleased that net loan growth returned to the balance sheet in the fourth quarter. We continued to experience strong organic growth in the quarter and did not incur the elevated level of loan pay downs that occurred in the second and third quarters.”

The company’s net interest margin increased 10 basis points to 3.43% for 2018 compared to 3.33% for 2017. The company’s net interest margin was 3.52% in the fourth quarter of 2018 versus 3.33% for the fourth quarter of 2017 and 3.42% during the third quarter 2018. The higher margin in 2018 was due to higher yields and growth in loans, and was partially offset by a higher cost of funds, which was driven by the Federal Reserve Bank increasing the target Federal Funds Rate in March, June, September and December of 2018. The company estimates that net interest margin benefited by four basis points during the fourth quarter 2018 from the payoff of a nonaccrual loan and other nonaccrual adjustments.

Net interest income increased $15.4 million, or 11%, to $151.3 million in 2018, versus $135.9 million in 2017 due to net interest margin expansion and growth in loans and deposits during the year. Net interest income increased $4.2 million, or 12%, to $39.6 million in the fourth quarter of 2018, versus $35.4 million in the fourth quarter of 2017. On a linked quarter basis, net interest income increased by $1.7 million from $37.9 million or 4%.

The company recorded a provision for loan losses of $6.4 million in 2018 compared to $3.0 million in 2017, primarily resulting from a charge off of $5.1 million from a single commercial loan relationship in addition to growth in the loan portfolio. The company recorded a provision for loan losses of $300,000 in the fourth quarter of 2018, versus $1.9 million in the fourth quarter of 2017 and $1.1 million in the third quarter of 2018. The company’s allowance for loan losses as of December 31, 2018 was $48.5 million compared to $47.1 million as of December 31, 2017 and $48.3 million as of September 30, 2018. The allowance for loan losses represented 1.24% of total loans as of December 31, 2018 versus 1.23% at December 31, 2017 and 1.26% as of September 30, 2018.

Net charge offs were $5.1 million in 2018 versus net recoveries of $403,000 in 2017. Net charge offs for the fourth quarter of 2018 were $189,000 versus net charge offs of $226,000 in the fourth quarter of 2017 and net charge offs of $463,000 during the linked third quarter 2018. Net charge offs to average loans were 0.13% in 2018 compared to net recoveries of 0.01% for 2017. Annualized net charge offs to average loans were 0.02% for the fourth quarters of 2018 and 2017. Annualized net charge offs to average loans were 0.05% for the linked third quarter of 2018.

Nonperforming assets decreased $1.9 million, or 20%, to $7.6 million as of December 31, 2018 versus $9.5 million as of December 31, 2017 due to a decrease in nonaccrual loans. On a linked quarter basis, nonperforming assets were $5.2 million lower than the $12.8 million reported as of September 30, 2018. The ratio of nonperforming assets to total assets at December 31, 2018 decreased to 0.16% from 0.20% at December 31, 2017 and 0.27% at September 30, 2018.  

Findlay stated, “We ended 2018 with stable asset quality and believe it’s reflective of broader economic conditions in our markets.”

The company’s noninterest income increased $4.1 million, or 11%, to $40.1 million in 2018, compared to $36.0 million in 2017. The company’s noninterest income increased by $643,000, or 7%, to $10.1 million for the fourth quarter of 2018, compared to $9.5 million for the fourth quarter of 2017. Noninterest income decreased by $328,000 from $10.4 million during the third quarter due to reduced mortgage banking income and reduced bank owned life equity based income. During 2018, noninterest income was positively impacted by increases in service charges on deposit accounts primarily related to business accounts, loan and service fees, and wealth advisory and brokerage fees due to continued growth of client relationships.

The company’s noninterest expense increased $6.8 million, or 9%, to $86.0 million in 2018 compared to $79.3 million in 2017. The company’s noninterest expense increased $3.0 million, or 15%, to $22.6 million in the fourth quarter of 2018, compared to $19.6 million in the fourth quarter of 2017 and was higher by $543,000, or 2% on a linked quarter basis. Salaries and employee benefits increased during 2018 primarily due to an increase to the company’s minimum hiring wage, normal merit increases and increased health insurance cost. Data processing fees also increased during 2018 primarily due to the company’s continued investment in technology-based solutions and ongoing transition to cloud-based technology. In addition, corporate and business development expense increased primarily due to higher community support and donation expense.

Findlay noted, “We continue to invest in our growing branch presence in our Indiana footprint with the opening of our 50^th office in downtown Indianapolis. Importantly, we will stay focused on providing innovative and technology-based solutions for our customers. It is critical that we maintain and increase our investment in our technology platform as we continue to work with key technology and Fintech partners in this long-term strategy.”

The company’s efficiency ratio was 45.0% for 2018 compared to 46.1% for 2017. The company’s efficiency ratio was 45.4% for the fourth quarter of 2018, compared to 43.7% for the fourth quarter of 2017 and 45.5% for the linked third quarter of 2018.

The effective tax rate for 2018 was 18.7%, compared to 36.0% for 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. Results for 2017 included a non-cash, non-operating and non-recurring income tax provision of $4.1 million or $0.16 per diluted share. Excluding this tax item, and calculating both periods at the 2017 effective tax rate of 31.3%, net income increased 10.4% for 2018 compared to 2017.

Lakeland Financial Corporation is a $4.9 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 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 “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.

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

LAKELAND FINANCIAL CORPORATION
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(UNAUDITED)

(1) Reconciliation of Non-GAAP Financial Measures

Contact
Lisa M. O’Neill
Executive Vice President and Chief Financial Officer
(574) 267-9125
lisa.oneill@lakecitybank.com