Lake City Reports Record Year

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The parent company of Warsaw-based Lake City Bank is reporting record net income of $38.8 million for 2013, compared to $35.4 million the previous year. Lakeland Financial Corp. (Nasdaq: LKFN) says its $10.6 million profit for the fourth quarter is also a record. January 27, 2014

News Release

WARSAW, Ind. - Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported record high net income of $38.8 million for 2013. Net income increased 10 percent from $35.4 million for 2012. Diluted net income per common share increased 8 percent to $2.33 for 2013 versus $2.15 for 2012. This per share performance also represents a record level for the company and its shareholders.

The company further reported record quarterly net income of $10.6 million for the fourth quarter of 2013, an increase of 23 percent, versus $8.6 million in the fourth quarter of 2012. Diluted net income per share was $0.63 for the fourth quarter of 2013, an increase of 21 percent, versus $0.52 for the comparable period of 2012. This performance represents the highest quarterly and annual net income and earnings per share in the company's 141 year history.

Michael L. Kubacki, Chairman and Chief Executive Officer, commented, "We've always believed that by adhering to our long term strategy of consistently taking care of clients each and every day, we would create value for our shareholders. The entire Lake City Bank team is proud of the strong earnings performance in the fourth quarter and for the full year. And our shareholders have benefitted as well, as they were rewarded with a healthy dividend and a 50 percent increase in our stock price in 2013."

The company also announced that the board of directors approved a cash dividend for the fourth quarter of $0.19 per share, payable on February 5, 2014, to shareholders of record as of January 25, 2014. The quarterly dividend represents a 12 percent increase over the quarterly dividends paid for each quarter of 2012.

Kubacki further observed, "With the January 2014 opening of our second office in the Indianapolis market, we are continuing to expand the business organically. While Indianapolis represents our newest market, we're getting great traction in that market and are pleased with the growth we've experienced there. Overall, it was a positive year as we experienced good loan growth in every market we serve."

David M. Findlay, President and Chief Financial Officer, stated, "In the fourth quarter, we grew our loan portfolio by $142 million, or 6 percent, versus the third quarter. This represents the largest quarterly loan growth in our history. For the full year, total loans grew by 12 percent, or

$278 million. We believe that this lending growth is reflective of the strengthening regional economy and of our further market share expansion. We are clearly focused on growing our balance sheet through lending more money in our Northern and Central Indiana markets. This robust loan growth is further evidence of our mission to be the acknowledged and recognized leader in Indiana community banking."

For the year ended December 31, 2013, the company's average total loans increased 6 percent from $2.22 billion to $2.34 billion. Average total loans for the fourth quarter of 2013 were $2.46 billion versus $2.21 billion for the fourth quarter of 2012, an increase of 11 percent. Total loans outstanding grew $277.6 million, or 12 percent, from $2.26 billion as of December 31, 2012 to $2.54 billion as of December 31, 2013. On a linked quarter basis, average total loans increased $109.4 million, or 5 percent, from $2.35 billion for the third quarter of 2013 to $2.46 billion for the fourth quarter of 2013.

The company's net interest margin was 3.33 percent in the fourth quarter of 2013, up from 3.10 percent for the fourth quarter of 2012. Further, the net interest margin improved from 3.29 percent in the third quarter of 2013.

Despite downward pressure on loan and investment portfolio yields, the company 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 book value per common share increased 7 percent in 2013 from $18.00 to $19.36. As a result, the company's tangible common equity to tangible assets ratio was 10.05 percent at December 31, 2013 compared to 9.63 percent at December 31, 2012 and 10.25 percent at September 30, 2013. Average total deposits for the quarter ended December 31, 2013 were $2.58 billion versus $2.48 billion for the third quarter of 2013 and $2.55 billion for the fourth quarter of 2012.

For the fourth consecutive quarter, the company did not record a provision for loan losses. As a result, the provision for loan losses for 2013 was $0 versus $2.5 million in 2012. The absence of a provision for loan losses 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 its borrowers' performance and future prospects. The company's allowance for loan losses as of December 31, 2013 was $48.8 million compared to $51.4 million as of December 31, 2012 and $49.8 million as of September 30, 2013. The allowance for loan losses represented 1.92 percent of total loans as of December 31, 2013 versus 2.28 percent at December 31, 2012 and 2.08 percent as of September 30, 2013. Further, the allowance for loan losses as a percentage of nonperforming loans increased to 204 percent as of December 31, 2013 versus 167 percent at December 31, 2012 and 215 percent as of September 30, 2013.

For the year ended December 31, 2013, net charge-offs totaled $2.6 million versus $4.5 million in 2012, a decline of 41 percent. Net charge-offs totaled $1.0 million in the fourth quarter of 2013 versus $1.7 million during the fourth quarter of 2012 and $831,000 during the linked third quarter of 2013. Nonperforming assets decreased 23 percent to $24.4 million as of December 31, 2013 versus $31.6 million as of December 31, 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 charge-offs taken and payments received on nonperforming loans. The ratio of nonperforming assets to total assets at December 31, 2013 was 0.77 percent versus 1.03 percent at December 31, 2012 and 0.77 percent at September 30, 2013.

Findlay observed, "The strength of our balance sheet is critical to our ability to continue to lend money to growing businesses and retail banking clients in our Indiana markets. Our consistent earnings performance, combined with a prudent capital structure, has put us in a position of strength as a lender and we will continue to target quality loan growth throughout 2014."

For the year ended December 31, 2013, the company's noninterest income increased 22 percent from $25.2 million to $30.7 million. The company's noninterest income increased $573,000, or 8 percent, to $7.9 million for the fourth quarter of 2013, versus $7.3 million for the fourth quarter of 2012. On a year-over-year basis, quarterly noninterest income was positively impacted by a $661,000 increase in investment brokerage fees, driven by higher trading volumes and improvements in product mix.

Income from bank owned life insurance increased $216,000, and other income increased by $455,000, driven by a $151,000 increase in income from leases. On a linked quarter basis, noninterest income increased by $69,000 from $7.8 million in the third quarter of 2013.

Kubacki concluded, "We experienced great growth in fee-based services in 2013 as we continued to expand relationships with our existing clients. We are very focused on establishing broader relationships with o