Lake City Bank Reports Record Results

WARSAW, Ind., July 25, 2012 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported the highest quarterly and six month net income and earnings per share in its history. The Company achieved record net income of $8.8 million for the second quarter of 2012, an increase of 10% versus $8.0 million in the second quarter of 2011. Diluted net income per share also increased 10% to a record level of $0.54 in the second quarter versus $0.49 for the comparable period of 2011.

The Company also announced that the Board of Directors approved a cash dividend for the second quarter of $0.17 per share, payable on August 6, 2012 to shareholders of record as of July 25, 2012. The quarterly dividend represents a 10% increase over the quarterly dividends paid in 2011.

The Company further reported record net income of $17.4 million for the six months ended June 30, 2012 versus $14.0 million for the comparable period of 2011, an increase of 25%. Diluted net income per common share also set a new record and increased 23% to $1.06 for the six months ended June 30, 2012 versus $0.86 for the comparable period of 2011.

Michael L. Kubacki, Chairman and Chief Executive Officer, commented, "With strong earnings momentum and a robust balance sheet, Lake City Bank is well positioned to capitalize on our reputation as one of the leading commercial banks in Indiana. Our shareholders continue to be rewarded by these good results through a healthy dividend, as well as the performance of our stock, which has increased more than 30% in the last two years."   

Average total loans for the second quarter of 2012 were $2.22 billion versus $2.14 billion for the second quarter of 2011, an increase of 4%. On a linked quarter basis, average loans grew by $5 million compared to the first quarter of 2012. Total loans outstanding grew $66 million, or 3%, from $2.15 billion as of June 30, 2011 to $2.21 billion as of June 30, 2012.  Net loans outstanding at June 30, 2012 represented a decrease of $19 million versus $2.23 billion as of December 31, 2011. Driving this $19 million decrease in net loans outstanding were anticipated reductions in nonowner occupied commercial real estate loans of $52 million and seasonal reductions in total agribusiness loans of $17 million.  

Kubacki added, "Overall, loan demand has been good in 2012. Yet, quarter end loan totals reflect the impact of payoffs of existing credit facilities, particularly in our commercial real estate portfolio. This portfolio has been significantly reduced through the anticipated and successful placement of these interim project financings with long-term, non-bank institutional lenders." 

The Company's net interest margin was 3.32% in the second quarter of 2012 versus 3.53% for the second quarter of 2011 and 3.41% in the linked first 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. For the six months ended June 30, 2012, the Company's net interest margin was 3.37% versus 3.66% for the comparable period in 2011.

David M. Findlay, President and Chief Financial Officer, stated, "With the prolonged and unprecedented period of low interest rates continuing, we're experiencing net interest margin compression as the rates we earn on loans and investments continue to decline. Absent any material change in the Federal Reserve's stance on rates, we expect to continue to see a tightening margin."

The Company's tangible common equity to tangible assets ratio was 9.58% at June 30, 2012 compared to 9.37% at June 30, 2011 and 9.41% at March 31, 2012. Average total deposits for the quarter ended June 30, 2012 were $2.55 billion versus $2.43 billion for the first quarter of 2012 and $2.34 billion for the second quarter of 2011.

Findlay added, "We've done an exceptional job of building a capital structure that provides us with a solid base for future loan growth. This capital strength will be critical to our competitive position as the inevitable rebound in our economy continues and, as a result, loan demand picks up. We believe that an important use of our capital is to lend money to our clients and contribute to the commercial recovery and expansion of our Indiana communities."

The Company's provision for loan losses in the second quarter of 2012 was $500,000 versus $2.9 million in the same period of 2011. In the first quarter of 2012, the provision was $799,000. For the six months ended June 30, 2012, the Company's provision for loan losses was $1.3 million versus $8.5 million for the comparable period in 2011. The provision decrease on a year-over-year basis was generally driven by the stabilization and improvement in key loan quality metrics, adequate 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 June 30, 2012 was $51.8 million compared to $51.3 million as of June 30, 2011 and $53.4 million as of December 31, 2011. The allowance for loan losses represented 2.34% of total loans as of June 30, 2012 versus 2.39% at June 30, 2011 and 2.37% as of March 31, 2012. The Company improved its coverage of troubled loans as the allowance for loan losses represented 150% of nonperforming loans as of June 30, 2012 versus 137% at June 30, 2011 and 144% as of March 31, 2012.  

Net charge-offs totaled $1.4 million in the second quarter of 2012 versus $136,000 during the second quarter of 2011 and $1.4 million during the linked first quarter of 2012. The largest charge off attributable to a single commercial credit during the quarter was $1.7 million. For the six months ended June 30, 2012, net charge-offs were $2.9 million versus $2.2 million for the comparable period in 2011. Nonperforming assets decreased 10% to $36.4 million as of June 30, 2012 versus $40.1 million as of June 30, 2011. On a linked quarter basis, nonperforming assets were 6% lower than the $38.6 million reported as of March 31, 2012. The decrease in nonperforming loans during the quarter primarily resulted from the aforementioned net charge-offs. The ratio of nonperforming assets to total assets at June 30, 2012 was 1.22% versus 1.47% at June 30, 2011 and 1.31% at March 31, 2012. Total watch list loans were $151.0 million at June 30, 2012 versus $160.5 million at June 30, 2011, a decrease of 6%.

The Company's noninterest income decreased 2% to $5.8 million for the second quarter of 2012, versus $5.9 million for the second quarter of 2011. On a linked quarter basis, noninterest income decreased by $38,000 from $5.9 million in the first quarter of 2012. On a year-over-year basis, noninterest income was positively impacted by a $319,000 increase in investment brokerage fees, a $192,000 increase in loan, insurance and service fees and an $189,000 increase in mortgage banking income.  Noninterest income was negatively impacted by a $449,000 increase in other than temporary impairment on three non-agency mortgage backed securities in the Company's investment portfolio. Other than temporary impairment, which is a non-cash item, was $449,000 in the second quarter of 2012, versus $510,000 in the linked first quarter of 2012. There was no other than temporary impairment recognized in the second quarter of 2011. Excluding the non-cash other than temporary impairment charges, noninterest income increased 6%, or $343,000, from $5.9 million in the second quarter of 2011 to $6.3 million for the comparable period in 2012. 

The Company's noninterest expense increased by only 2%, or $276,000, to $14.2 million in the second quarter of 2012 versus $14.0 million in the comparable quarter of 2011. On a linked quarter basis, non-interest expense decreased by 3% versus $14.7 million in the first quarter of 2012. On a year-over-year basis, salaries and employee benefits increased by $345,000 in the three-month period ended June 30, 2012 versus the same period of 2011.  These increases were driven by staff additions, normal merit increases and employee health insurance expense increases. The Company's efficiency ratio for the second quarter of 2012 was 51%, compared to a ratio of 48% for the comparable quarter of 2011 and 52% for the linked first quarter of 2012.

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.

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.