Lakeland Financial Touts Record Earnings

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The parent company of Warsaw-based Lake City Bank is reporting record net income of $9.8 million for the third quarter of 2013, compared to $9.3 million during the same quarter last year. Lakeland Financial Corp. (Nasdaq: LKFN) says its $28.3 million profit so far this year is a record performance over a nine-month period. October 25, 2013

News Release

WARSAW, Ind. - 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 percent versus $9.3 million in the third quarter of 2012. Diluted net income per share was $0.59, an increase of 4 percent 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 percent. Diluted net income per common share increased 4 percent 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 percent, 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 20