The parent company of Warsaw-based Lake City Bank is reporting a first quarter net income of $9.9 million for 2013, compared to $9.2 million during the same period last year. Lakeland Financial Corp. (Nasdaq: LKFN) Chief Executive Officer David Findlay says factors including commercial and industrial sector lending helped boost the bottom line. April 25, 2014
WARSAW, Ind. – Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported net income of $9.9 million for the first quarter of 2014, an increase of 7% versus $9.2 million for the first quarter of 2013. Diluted net income per common share increased 5% to $0.59 versus $0.56 for the comparable period of 2013.
David M. Findlay, President and Chief Executive Officer, commented, “Led by another quarter of strong loan growth, we are pleased with our operating performance. We're particularly encouraged by the strengthening economic indicators in our Indiana markets as our core lending business in the commercial and industrial sector grew by $43 million in the quarter.”
Earnings for the first quarter of 2014 were negatively impacted by a non-cash provision for state income tax expense of $431,000, which resulted from a revaluation of the company's state deferred tax items. During the first quarter of 2014, the Indiana legislature approved new tax rates for financial institutions. The tax rate, currently 8.0%, is scheduled to drop to 6.5% for 2017. The new legislation further reduces the rate to 4.9%, phased-in beginning in 2019. This lower state tax rate going forward will reduce the benefit provided by the company's existing deferred tax items.
Excluding the effect of the non-cash adjustment, net income for the three months ended March 31, 2014 was $10.3 million, representing an increase of 12% over the comparable period of 2013. Diluted net income per share would have been $0.62 for the three month period ended March 31, 2014, representing an increase of 11% over the comparable period in 2013.
As previously announced, the board of directors approved a cash dividend for the first quarter of $0.21 per share, payable on May 5, 2014, to shareholders of record as of April 25, 2014. The quarterly dividend represents an 11% increase over the quarterly dividends paid for each quarter of 2013.
“This double digit increase in our dividend reflects our confidence in the strength and quality of our earnings and the extremely strong capital structure we have built through long-term and consistent performance,” observed Findlay.
Average total loans for the first quarter of 2014 were $2.54 billion, an increase of $283.1 million, or 13% versus $2.26 billion for the comparable period in 2013. Total loans outstanding grew $311.7 million, or 14%, from $2.26 billion as of March 31, 2013 to $2.57 billion as of March 31, 2014. On a linked quarter basis, average total loans increased $78.2 million, or 3%, from $2.46 billion for the fourth quarter of 2013 to $2.54 billion for the first quarter of 2014.
The company's net interest margin was 3.38% in the first quarter of 2014, up from 3.17% for the first quarter of 2013. Further, the net interest margin improved from 3.33% in the fourth quarter of 2013. Despite downward pressure on loan yields and the prolonged low interest rate environment, the company improved its net interest margin in each of the past five quarters as a result of declines in deposit rates and overall funding costs and improvement in the investment portfolio yields.
The company's tangible common equity to tangible assets ratio was 10.18% at March 31, 2014, compared to 10.38% at March 31, 2013 and 10.05% at December 31, 2013. Average total deposits for the quarter ended March 31, 2014 were $2.64 billion versus $2.47 billion for the first quarter of 2013, an increase of 7%. On a linked quarter basis, average total deposits increased $64.8 million, or 2.5%.
Findlay added, “As a result of our strong capital structure, we are in a great position to continue our Indiana growth strategy. During the quarter, we experienced loan growth across all of our Indiana markets and believe that our reputation and positioning as a smartly aggressive commercial lender has further strengthened as we start the year.”
For the fifth consecutive quarter, the company did not record a provision for loan losses. 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 nonperforming loans, 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 March 31, 2014 was $46.1 million compared to $50.8 million as of March 31, 2013 and $48.8 million as of December 31, 2013. The allowance for loan losses represented 1.79% of total loans as of March 31, 2014 versus 2.25% at March 31, 2013 and 1.92% as of December 31, 2013. Further, the allowance for loan losses as a percentage of nonperforming loans increased to 306% as of March 31, 2014, versus 234% at March 31, 2013, and 204% as of December 31, 2013.
Nonperforming assets decreased 27% to $16.3 million as of March 31, 2014 versus $22.4 million as of March 31, 2013. On a linked quarter basis, nonperforming assets were 33% lower than the $24.4 million reported on December 31, 2013. The decrease in nonperforming assets during the first quarter of 2014 primarily resulted from payoffs of $4.3 million and charge offs of $2.4 million recognized on a commercial relationship consisting of three loans totaling $6.7 million. In addition, one commercial credit of $1.4 million was removed from the impaired category due to improved performance. The ratio of nonperforming assets to total assets at March 31, 2014, was 0.50% versus 0.77% at both March 31, 2013 and December 31, 2013. Net charge-offs totaled $2.7 million in the first quarter of 2014 versus $626,000 during the first quarter of 2013 and $1.0 million during the linked fourth quarter of 2013.
The company's noninterest income decreased 1% to $7.4 million for the first quarter of 2014 from $7.5 million for the first quarter of 2013. Year-over-year, quarterly noninterest income was negatively impacted by a $444,000 decrease in mortgage banking income, driven by lower production volumes due to higher mortgage rates. Service charges on deposit accounts increased by $180,000 and investment brokerage fees increased by $168,000.
The company's noninterest expense increased $1.9 million, or 13%, to $16.8 million in the first quarter of 2014 versus $14.9 million in the comparable quarter of 2013. On a linked quarter basis, noninterest expense increased by $262,000 from $16.5 million in the fourth quarter of 2013. On a year-over-year basis, salaries and employee benefits increased by $822,000 in the three month period ended March 31, 2014 versus the same period of 2013.
These increases in salary and employee benefits were driven by staff additions, normal merit increases and higher performance incentive-based compensation costs. Quarterly net occupancy expense increased $264,000 driven by higher weather-related expenses, including snow removal and utility costs. Professional fees increased $205,000 due to higher legal and placement expenses. Data processing fees increased by $198,000 due to a larger customer base as well as greater utilization of services from the company's core processor, which the company expects will improve marketing and cross-selling initiatives. In addition, equipment costs increased $164,000 during the first quarter of 2014, driven by higher depreciation expenses. The company's efficiency ratio was 52% for the first quarters of 2014 and 2013, compared to 51% for the linked fourth quarter of 2013, which consistently ranks in the top qua