Lake City Touts Record Quarter

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Warsaw-based Lakeland Financial Corp. (Nasdaq:LKFN) is reporting a record third quarter. The parent company of Warsaw-based Lake City Bank says net income was $11.5 million, compared to $9.8 million during the same quarter last year. Chief Executive Officer David Findlay says he is optimistic about continued growth due, in part, to expansion in the state. October 27, 2014

News Release

WARSAW, Ind. - Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported net income of $11.5 million for the third quarter of 2014, an increase of 18 percent versus $9.8 million for the third quarter of 2013. Diluted net income per common share increased 17 percent to $0.69 versus $0.59 for the comparable period of 2013. This quarterly net income and per share performance represents a record level for the company.

The company further reported net income of $32.7 million for the nine months ended September 30, 2014 versus $28.3 million for the comparable period of 2013, an increase of 16 percent over a nine-month period. Diluted net income per common share increased 15 percent to $1.95 for the nine months ended September 30, 2014 versus $1.70 for the comparable period of 2013. This net income and per share performance also represents a record level for the company over a nine-month period.

David M. Findlay, President and Chief Executive Officer, commented, "We are pleased with both the strength and quality of our record earnings performance in 2014. The expansion of our Indiana footprint, as well as our increased market share growth in every market we serve, has contributed to our success in 2014. We remain strategically focused on taking care of customers every day while at the same time continuing organic loan and deposit growth in our Indiana markets."

Return on average total equity for the first nine months of 2014 improved to 12.94 percent from 12.28 percent in the prior year period. Return on average assets for the first nine months of 2014 increased to 1.33 percent up from 1.27 percent in the same period of 2013. The company's tangible common equity to tangible assets ratio was 10.40 percent at September 30, 2014, compared to 10.25 percent at September 30, 2013 and 9.96 percent at June 30, 2014. As previously announced, the board of directors approved a cash dividend for the third quarter of $0.21 per share, payable on November 5, 2014, to shareholders of record as of October 25, 2014. The quarterly dividend represents an 11 percent increase over the quarterly dividends paid for each quarter of 2013 and for the first quarter of 2014.The dividend yield is currently 2.19 percent based on the $37.50 closing price of our common stock on September 30, 2014.

Total loans outstanding grew $309.2 million, or 13%, from $2.39 billion as of September 30, 2013 to $2.70 billion as of September 30, 2014. Average total loans for the third quarter of 2014 were $2.68 billion, an increase of $333.7 million, or 14%, versus $2.35 billion for the comparable period in 2013. On a linked quarter basis, average total loans increased $39.0 million, or 1%, from $2.65 billion for the second quarter of 2014 to $2.68 billion for the third quarter of 2014.

Total deposits grew $444.8 million, or 18%, from $2.44 billion as of September 30, 2013 to $2.89 billion as of September 30, 2014. Average total deposits for the third quarter of 2014 were $2.82 billion versus $2.48 billion for the third quarter of 2013, an increase of 14%. On a linked quarter basis, average total deposits increased $31.1 million, or 1%.

Findlay observed, "Market share growth is very important on both the loan and deposit fronts, and our overall progress in both categories in 2014 reflects the ongoing efforts of our commercial and retail banking teams working together to grow our balance sheet one client at a time."

The company's net interest margin was 3.31% in the third quarter of 2014, up from 3.29% for the third quarter of 2013. The net interest margin was 3.34% in the linked second quarter of 2014. The net interest margin for the nine months ended September 30, 2014 was 3.34% compared to 3.22% in the prior year nine month period. Net interest margin improved during the nine month period despite downward pressure on loan yields and the prolonged low interest rate environment. The net interest margin expansion was attributable primarily to declines in deposit rates and overall funding costs and improvement in the investment portfolio yields, which have offset declining loan yields.

Nonperforming assets decreased 36% to $15.0 million as of September 30, 2014 versus $23.3 million as of September 30, 2013. On a linked quarter basis, nonperforming assets were 2% lower than the $15.2 million reported as of June 30, 2014. The decrease in nonperforming assets during the third quarter of 2014 primarily resulted from sales of other real estate owned. The ratio of nonperforming assets to total assets at September 30, 2014, was 0.45% versus 0.77% at September 30, 2013 and 0.45% at June 30, 2014. Net recoveries totaled $782,000 in the third quarter of 2014 versus net charge-offs of $831,000 during the third quarter of 2013 and $532,000 during the linked second quarter of 2014. Net charge-offs to average loans were 0.12% for the nine months ended September 30, 2014 compared to 0.10% for the same period in 2013.

For the seventh consecutive quarter, the company did not record a provision for loan losses. The absence of a provision for loan losses was generally driven by continued stabilization and improvement in key loan quality metrics, including lower levels of nonperforming loans, appropriate reserve coverage of nonperforming loans, continuing signs of stabilization in the economic conditions of the company's markets and sustained signs of improvement in its borrowers' performance and future prospects. The company's allowance for loan losses as of September 30, 2014 was $46.4 million compared to $49.8 million as of September 30, 2013 and $45.6 million as of June 30, 2014. The allowance for loan losses represented 1.72% of total loans as of September 30, 2014 versus 2.08% at September 30, 2013 and 1.71% as of June 30, 2014. Further, the allowance for loan losses as a percentage of nonperforming loans increased to 314% as of September 30, 2014, versus 215% as of September 30, 2013, and 324% as of June 30, 2014.

Findlay added, "We've been able to maintain our historically strong asset quality trends as the loan portfolio has continued to grow. We're proud of the fact that we have not compromised our disciplined credit culture as this growth has occurred. We continue to be encouraged by the improved economic conditions in our Indiana markets. "

The company's noninterest income was $7.9 million for the third quarter of 2014 versus $7.8 million in the comparable quarter of 2013. Year-over-year, quarterly noninterest income was positively impacted by a $448,000 increase in loan, insurance and service fees driven by higher commercial loan fees. In addition, other income increased $398,000, driven by income related to bank owned life insurance proceeds. Offsetting the increase was an $804,000 decrease in investment brokerage fees due to lower production volumes. Noninterest income was $22.9 million for the nine months ended September 30, 2014, unchanged from the same period in 2013. Growth in deposit fees, loan fees and other income offset declines in mortgage banking income and investment brokerage fees.

The company's noninterest expense increased $394,000, or 2%, to $16.7 million in the third quarter of 2014 versus $16.3 million in the comparable quarter of 2013. On a linked quarter basis, noninterest expense increased by $576,000 from $16.1 million in the second quarter of 2014. Salaries and employee benefits increased by $419,000 in the three month period ended September 30, 2014 versus the same period of 2013. These increases in salary and em