• Lakeland Financial Reports Record First Quarter Performance; Balance Sheet Strength Highlights the Quarter

    Source: Nasdaq GlobeNewswire / 25 Apr 2023 08:00:53   America/New_York

    WARSAW, Ind., April 25, 2023 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record first quarter net income of $24.3 million for the three months ended March 31, 2023, which represents an increase of $636,000, or 3%, compared with net income of $23.6 million for the three months ended March 31, 2022. Diluted earnings per share of $0.94 was also a record for the first quarter and increased 2% compared to $0.92 for the first quarter of 2022. On a linked quarter basis, net income decreased 7%, or $1.7 million, from the fourth quarter of 2022 net income of $26.0 million, or $1.01 diluted earnings per share. Pretax pre-provision earnings, which is a non-GAAP financial measure, were $32.4 million for the first quarter of 2023, an increase of 13%, or $3.8 million, from $28.6 million from the first quarter of 2022. On a linked quarter basis, pretax pre-provision earnings decreased 19%, or $7.5 million, from $39.9 million for the fourth quarter of 2022.

    “The continued strength of our balance sheet highlights another strong quarter for the Lake City Bank team. Healthy organic loan growth accompanied by a robust capital position contributed to a good start to 2023,” stated David M. Findlay, President, and Chief Executive Officer, “We also did a terrific job maintaining our core deposit franchise and delivering on our relationship-driven community banking model.”

    Quarterly Financial Performance

    First Quarter 2023 versus First Quarter 2022 highlights:

    • Return on average equity of 16.81%, compared to 14.04%
    • Return on average assets of 1.54%, compared to 1.44%
    • Loan growth of $401.2 million, or 9%
    • Investments as a percent of total assets decreased to 19% from 23%
    • Deposit contraction of $302.9 million, or 5%
    • Net interest margin expanded by 61 basis points from 2.93% to 3.54%
    • Noninterest expense increased $2.5 million, or 9%
    • Provision expense of $4.4 million, compared to $471,000
    • Watch list loans as a percentage of total loans of 3.68% compared to 5.03%
    • Total risk-based capital ratio of 15.21%, compared to 15.16%
    • Tangible capital ratio of 9.34%, compared to 9.22%

    First Quarter 2023 versus Fourth Quarter 2022 highlights:

    • Return on average equity of 16.81%, compared to 19.16%
    • Return on average assets of 1.54%, compared to 1.63%
    • Loan growth of $44.5 million, or 1%
    • Investments as a percent of total assets decreased to 19% from 20%
    • Deposit growth of $57.1 million, or 1%
    • Net interest margin contraction of 35 basis points from 3.89% to 3.54%
    • Noninterest expense increased $2.0 million, or 7%
    • Provision expense of $4.4 million, compared to $9.0 million
    • Watch list loans as a percentage of total loans of 3.68% compared to 3.42%
    • Total risk-based capital ratio of 15.21%, compared to 15.07%
    • Tangible capital ratio of 9.34%, compared to 8.79%

    Capital Strength

    The company’s total capital as a percentage of risk-weighted assets was 15.21% at March 31, 2023, compared to 15.16% at March 31, 2022 and 15.07% at December 31, 2022. These healthy capital levels are well in excess of the 10.00% threshold required to be characterized as “well-capitalized” and represent a strong capital position to support the company’s balance sheet and future growth.

    Findlay added, “Our focus on building a capital structure that provides the bank with a solid foundation for future growth has been unrelenting. Both the strength and consistency of our profits and the conservative balance sheet management approach that we have historically embraced are reflective of our dedication to our long-term strategy of retaining our roots as a community bank, while also building a fortress balance sheet.”

    The company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 9.34% at March 31, 2023, compared to 9.22% at March 31, 2022 and 8.79% at December 31, 2022. Tangible equity and tangible assets have been impacted by declines in the market value of the company’s available-for-sale investment securities portfolio. The rising interest rate environment has generated unrealized losses in the available-for-sale investment securities portfolio which are reflected in the company’s reported accumulated other comprehensive income (loss). Unrealized losses from available-for-sale investment securities were $188.5 million at March 31, 2023, compared to $117.4 million at March 31, 2022 and improved from $215.3 million at December 31, 2022. When excluding the impact of accumulated other comprehensive income (loss) on tangible common equity and tangible assets, the company’s ratio of adjusted tangible common equity to adjusted tangible assets was 11.56% at March 31, 2023 compared to 10.44% at March 31, 2022, and 11.30% at December 31, 2022.

    As announced on April 11, 2023, the board of directors approved a cash dividend for the first quarter of $0.46 per share, payable on May 5, 2023, to shareholders of record as of April 25, 2023. The first quarter dividend per share represents a 15% increase from the $0.40 dividend per share paid for the first quarter of 2022 and is unchanged from the dividend paid in February 2023.

    “Our healthy dividend reflects both the operating performance in the first quarter of 2023 and the overall strength of our capital structure. It’s a continuation of a long history of delivering consistent and growing dividends to our shareholders,” continued Findlay.

    On April 11, 2023, the company’s board of directors reauthorized and extended the share repurchase program through April 30, 2025. Under the program the company is authorized to repurchase, from time to time as the company deems appropriate, shares of the company’s common stock with an aggregate purchase price of up to $30.0 million, of which none has been utilized.

    Loan Portfolio

    Total loans outstanding increased by $401.2 million, or 9%, from $4.35 billion as of March 31, 2022, compared to $4.75 billion as of March 31, 2023. On a linked quarter basis, total outstanding loans increased by $44.5 million, or 1%, compared to $4.71 billion as of December 31, 2022. Loan growth in the first quarter was negatively impacted by seasonal reductions in agribusiness and agricultural loans of $39.1 million. Total commercial loans, excluding the impact of these seasonal reductions in agribusiness and agricultural loans, increased by $83.6 million, or 2%. The company experienced strong loan growth in construction and land development loans, multi-family residential loans as well as tax-exempt commercial loans segments. The company has limited exposure to commercial office space borrowers. Loans totaling $33.6 million for this sector represent less than 1.0% of total loans at March 31, 2023 with a single loan on an Indianapolis commercial office building representing $22.6 million, or 67%, of the total and occupancy in excess of 80%. The building is stabilized at market rate rents.

    Average total loans were $4.73 billion in the first quarter of 2023, an increase of $424.5 million, or 10%, from $4.30 billion for the first quarter of 2022, and an increase of $162.1 million, or 4%, from $4.56 billion for the fourth quarter of 2022. Commercial loan originations for the first quarter included $474.0 million in loan originations offset by approximately $441.0 million in commercial loan pay downs. Line of credit usage decreased to 40% at March 31, 2023, compared to 43% and March 31, 2022 and 42% at December 31, 2022. Total available lines of credit expanded by $575.0 million, or 14%, as compared to a year ago, and line usage increased by $138.0 million, or 8%, for the same period.

    “Our double-digit year over year average loan growth is a reflection of the stable economy in our Indiana footprint and diversified demand for both commercial and consumer loans. Line usage remains muted as many of our commercial and industrial clients continue to utilize cash for working capital purposes,” stated Findlay.

    Diversified Deposit Base

    “Our deposits are highly diversified, and we do not have any significant client or industry concentrations anywhere on our balance sheet, particularly on the deposit front. We are very proud that our deposit composition reflects local individuals, businesses, and municipalities that live and work in our Indiana communities. We’ve spent 150 years building this balance sheet one day, one client and one relationship at a time and appreciate the stability of our deposit base,” Findlay noted. “We have been monitoring inflows and outflows of deposit activity daily since the first week in March and are pleased to report that deposit activity remains stable and typical of this time of year.”

    The company’s diversified deposit base consists of deposits gathered throughout the company's footprint and includes approximately 130,000 commercial, retail and public fund deposit accounts. Daily monitoring of deposit inflows and outflows performed since March 6, 2023, prior to the emergence of the banking crisis, identified typical activities by our customers for this time of year. Large depositors with balances greater than $10.0 million as of March 6, 2023, held aggregate deposits of $1.8 billion as of such date, which have decreased by $69.7 million compared to April 17, 2023. Daily monitoring of inflows and outflows greater than $50,000 has identified minimal retail deposit outflows of $43.6 million to third-party brokerage firms and large banks. Offsetting these outflows, the bank has experienced customer-directed retail deposit inflows to the wealth advisory group and our affiliated registered broker dealer of $17.0 million and $5.1 million, respectively. Nominal outflows to banks headquartered in our markets have been offset by similar amounts of inflows. In addition, the bank has seen an increase in the number of newly onboarded customers during March 2023.

    Core deposits, which consist of commercial, retail and public fund deposits, remained stable on a year over year basis and on a linked quarter basis.

    DEPOSIT DETAIL
    (unaudited, in thousands)

     March 31,
    2023    		 December 31,
    2022    		 March 31,
    2022
    Retail$1,894,707 34.3% $1,934,787 35.4% $2,187,733 37.6%
    Commercial  2,105,512 38.2   2,085,934 38.2   2,282,081 39.2 
    Public fund 1,356,851 24.6   1,429,872 26.1   1,340,565 23.0 
    Core deposits 5,357,070 97.1   5,450,593 99.7   5,810,379 99.8 
    Brokered deposits 160,658  2.9   10,027 0.3   10,244 0.2 
    Total$5,517,728  100.0% $5,460,620 100.0% $5,820,623 100.0%


    Average total deposits were $5.49 billion for the first quarter of 2023, a decrease of $361.0 million, or 6%, from $5.85 billion for the first quarter of 2022. On a linked quarter basis, average total deposits decreased by $145.4 million, or 3%, continuing the trend of the last four quarters as the excess deposits created by the liquidity events of the Economic stimulus payments and the PPP have slowly decreased from their peaks. Total deposits decreased $302.9 million, or 5%, from $5.82 billion as of March 31, 2022, to $5.52 billion as of March 31, 2023.

    On a linked quarter basis, total deposits increased by $57.1 million, or 1%, from $5.46 billion as of December 31, 2022. On a linked quarter basis, core deposits contracted by $93.5 million, or 2%, from $5.45 billion at December 31, 2022 due primarily to a reduction in public fund deposits of $73.0 million. Commercial deposits grew $19.6 million, or 1%, from $2.09 billion; retail deposits contracted $40.1 million, or 2%, from $1.93 billion; and public fund deposits contracted $73.0 million, or 5%, from $1.43 billion. Commercial checking accounts increased in number of accounts and balances since year end and average balances per account remain elevated above pre-pandemic levels. The number of retail checking accounts has increased, but average balances have declined from pandemic level highs, as expected. Average retail checking account balances per account have declined modestly but remain elevated above pre-pandemic levels. The number of Public Fund accounts is unchanged, but balances have decreased. Average public fund checking account balances are lower on a linked quarter basis but remain elevated as compared to pre-pandemic levels.

    Uninsured deposits, not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (PDIF), were 29% of total deposits as of March 31, 2023, versus 33% as of March 31, 2022, and 30% as of December 31, 2022. Deposits not insured by FDIC Insurance coverage (including those public fund deposits that are covered by the PDIF) were 54% as of March 31, 2023, versus 56% at March 31, 2022 and December 31, 2022. As of March 31, 2023, and December 31, 2022, 98% of deposit accounts have deposit balances less than $250,000 and 2% of accounts have deposit balances greater than $250,000.

    Liquidity Overview

    The bank has robust liquidity resources available. These sources include secured borrowings available from the Federal Home Loan Bank, the Federal Reserve Bank Discount Window and the Federal Reserve Bank Term Funding Program. In addition, the bank has unsecured borrowing capacity through long established relationships within the brokered deposits markets, Federal Funds lines from correspondent bank partners, and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of March 31, 2023, the company had access to $3.03 billion in unused liquidity available from these aggregate sources, compared to $3.31 billion at March 31, 2022 and $2.99 billion at December 31, 2022. Utilization from these sources totaled only $360.7 million at March 31, 2023 compared to $85.2 million at March 31, 2022, and $307.0 million at December 31, 2022. Importantly, core deposits have historically and currently represent the primary funding resource of the bank.

    Investment Portfolio Overview

    Total investment securities were $1.24 billion at March 31, 2023, reflecting a decrease of $285.6 million, or 19%, as compared to $1.52 billion at March 31, 2022. On a linked quarter basis, investment securities decreased $76.8 million, or 6%. Investment securities represented 19% of total assets on March 31, 2023, compared to 23% on March 31, 2022, and 20% on December 31, 2022. Effective duration for the investment portfolio was 6.6 years at March 31, 2023, compared to 4.0 years at December 31, 2019 before the pandemic, and 6.5 years at December 31, 2022. Duration of the portfolio extended following the deployment of excess liquidity to the portfolio and the dramatic rise in interest rates during 2022 and into 2023. The ratio of investment securities as a percentage of total assets remains elevated over historical levels of approximately 12-14% during 2014 to 2020. The increase in this ratio resulted from the deployment of excess liquidity during 2021 and 2022 to the investment securities portfolio as an earning asset alternative for excess balance sheet liquidity stemming from increased levels of core deposits from government stimulus programs. The company expects the investment securities portfolio as a percentage of assets to decrease over time as the proceeds from pay downs, sales and maturities of these investment securities are used to fund loan portfolio growth and for other general liquidity purposes. Investment portfolio sales of $87.0 million for $16,000 gains and investment portfolio cash flows of $24.0 million provided liquidity of $111.0 million during the first quarter of 2023.

    Net Interest Margin

    "During the fourth quarter of 2022 and the first quarter of 2023, we experienced an increasingly competitive environment for deposit products across the board resulting from the Federal Reserve Bank’s continued interest rate tightening cycle and the intensified efforts to retain deposits by all banks. We experienced a shift in deposit mix from noninterest bearing to interest bearing deposits, resulting in rising deposit interest expense and net interest margin compression. Given our 91 basis point expansion in net interest margin for 2022 that was considerably higher than industry averages, we are not surprised that net interest margin has come under pressure in 2023. We continue to thoughtfully manage deposit strategies to develop products that represent long-term relationship opportunities,” commented Findlay.

    The net interest margin was 3.54% for the first quarter of 2023, representing a 61 basis point expansion from 2.93% for the first quarter of 2022. The net interest margin expansion was driven by a 475 basis point increase to the target Federal Funds rate implemented by the Federal Reserve through a series of rate increases beginning in March of 2022. The target Federal Funds rate increased from a zero-bound range of 0.00%-0.25% in March 2022 to a range of 4.75%-5.00% at March 31, 2023. The impact of the higher interest rate environment increased earning assets yields by 226 basis points to 5.39% for the first quarter of 2023, up from 3.13% for the first quarter of 2022. This increase was offset by an increase in the company's funding costs as excess customer liquidity was utilized and the competition for deposits increased throughout the industry. Interest expense as a percentage of average earning assets increased to 1.85% for the first quarter of 2023 from a historical low 0.20% for the first quarter of 2022, an increase of 165 basis points.

    Linked quarter net interest margin contracted by 35 basis points and was 3.54% the first quarter of 2023, compared to 3.89% for the fourth quarter of 2022. The linked quarter contraction in net interest income was a result of a net increase in funding costs over average earning asset yields. Further, the net interest margin was positively impacted during the fourth quarter of 2022 by the recognition of nonaccrual interest resulting from the interest recovery from two nonaccrual commercial borrowers. The interest recovery was from two loans placed on nonaccrual status in 2009 and contributed $1.9 million of nonaccrual interest income recognized into loan interest income. The nonaccrual interest income recovery provided a 12 basis point benefit to net interest margin for the fourth quarter of 2022. Excluding the impact of this recovery, the company's net interest margin contracted by 23 basis points from 3.77% for the fourth quarter of 2022.

    Average earning asset yields increased by 27 basis points from 5.12% during the fourth quarter of 2022 to 5.39% during the first quarter of 2023. Earning asset yields benefited from an additional 50 basis point increase in the target Federal Funds rate during the first quarter of 2023. The increase in earning asset yields was offset by a 62 basis point increase in interest expense as a percentage of average earning assets. This increase was driven by a rise in deposit costs as deposit betas increased due to market competition to attract and retain deposits. An increase in borrowing costs also contributed to the increased interest expense for the first quarter of 2023.

    Net interest income was $51.5 million for the first quarter of 2023, representing an increase of $6.6 million, or 15%, as compared to the first quarter of 2022. On a linked quarter basis, net interest income decreased $5.3 million, or 9%, from $56.8 million for the fourth quarter of 2022.

    Asset Quality

    The company recorded a provision expense of $4.4 million in the first quarter of 2023, compared to provision expense of $417,000 in the first quarter of 2022, an increase of $3.9 million. On a linked quarter basis, the provision expense decreased by $4.6 million from $9.0 million for the fourth quarter of 2022, or 51%. The first quarter 2023 provision was primarily attributable to increases in the qualitative and environmental risk factors for certain segments of the company's loan portfolio that could be impacted by higher borrowing costs and the potential economic weakness in the company’s markets.

    “Nonperforming assets and watch list loans remain close to historical low levels. While we have not seen any broad-based indications of weakening economic conditions, we continue to maintain a comfortable allowance for credit losses that prepares us for any potential economic uncertainties as we move through 2023,” commented Findlay.

    The allowance for credit loss reserve to total loans was 1.50% at March 31, 2023 versus 1.55% at March 31, 2022 and 1.54% at December 31, 2022. Net charge offs in the first quarter of 2023 were $5.7 million versus net charge offs of $664,000 in the first quarter of 2022 and net charge offs of $3.6 million during the linked fourth quarter of 2022. Annualized net charge offs to average loans were 0.49% for the first quarter of 2023, 0.06% in the first quarter of 2022, and 0.31% for the linked fourth quarter of 2022.

    The increase in charge offs in the first quarter of 2023 compared to the first quarter of 2022 and linked fourth quarter of 2022 was the result of a further charge off of $5.5 million attributable to a single commercial customer. The $10.7 million credit was downgraded late in December 2022 and a partial charge off of $3.7 million was recognized at that time. The remaining $7.0 million was placed on nonaccrual status pending additional due diligence and financial analysis related to the borrower’s debt service capacity. During the first quarter of 2023, the outlook for repayment of the loan weakened significantly and resulted in the additional charge off of $5.5 million. The charge off amount was fully allocated in the allowance for credit losses.

    Nonperforming assets increased $3.8 million, or 27%, to $17.9 million as of March 31, 2023, versus $14.1 million as of March 31, 2022. The increase was primarily a result of the net addition of loan balances placed on nonaccrual status over loan payoffs of other nonaccrual notes. On a linked quarter basis, nonperforming assets increased $698,000, or 4%, compared to $17.2 million as of December 31, 2022. The ratio of nonperforming assets to total assets at March 31, 2023 increased to 0.28% from 0.22% at March 31, 2022 and 0.27% at December 31, 2022.

    Total individually analyzed and watch list loans decreased by $43.9 million, or 20%, to $174.9 million at March 31, 2023 versus $218.8 million as of March 31, 2022, primarily due to loan pay downs and credit upgrades. On a linked quarter basis, total individually analyzed and watch list loans increased by $13.9 million, or 9%, from $161.0 million at December 31, 2022. The increase was primarily driven by the downgrade of two commercial relationships to the watch list. Watch list loans as a percentage of total loans decreased by 135 basis points to 3.68% at March 31, 2023, compared to 5.03% at March 31, 2022, and increased by 26 basis points from a historical low of 3.42% at December 31, 2022.

    Noninterest Income

    The company’s noninterest income decreased $373,000, or 3%, to $10.3 million for the first quarter of 2023, compared to $10.7 million for the first quarter of 2022. The decrease in noninterest income was primarily driven by a decline in mortgage banking income of $608,000, resulting from reduced levels of mortgage financing activity. Additionally, a decrease in other income of $273,000, or 31%, and service charges on deposit accounts of $179,000, or 6%, contributed to the decrease in noninterest income. The decrease in other income was the result of less income from partnership investments during the comparable quarters and the decrease in service charges on deposit accounts was primarily the result of increased earning credit rating for commercial depositors related to commercial treasury management fees. Offsetting these decreases was an increase in bank owned life insurance income of $774,000. Bank owned life insurance income benefited by improved market performance of the company's variable life insurance policies, which track to the overall performance of the equity markets. In addition, increased general account bank owned life insurance income resulted from the purchase of insurance policies during the fourth quarter of 2022.  

    Noninterest income for the first quarter of 2023 decreased by $205,000, or 2%, on a linked quarter basis from $10.5 million during the fourth quarter of 2022. The linked quarter decrease was largely driven by reductions in income for various fee-based service lines of business. Service charges on deposit accounts decreased $284,000 driven by lower overdraft fees, or 10%, loan and service fees decreased $237,000, or 8%, and investment brokerage fees decreased $73,000, or 12%. Reductions in fee-generating transaction volume, as well as adjustments to the fee schedule for deposit accounts were the primary drivers for these decreases on a linked quarter basis. In addition, interest rate swap fee income decreased by $87,000. Offsetting these decreases was an increase in wealth advisory fees of $114,000, or 5%, and an increase in other income of $304,000. The increase in wealth advisory fees was driven by an increase in trust assets which benefited from new customer inflows and other income primarily benefited by an increased dividend paid by the Federal Home Loan Bank on the bank's stock holding.

    Noninterest Expense

    Noninterest expense increased $2.5 million, or 9%, to $29.4 million for the first quarter of 2023, compared to $27.0 million during the first quarter of 2022. Salaries and employee benefits expense contributed $1.7 million, or 12%, of the increase in noninterest expense primarily as a result of increased salaries and wages and health insurance expense. Variable compensation expense, which is tied to market performance of the company's variable bank owned life insurance policies, increased due to improved market performance and also contributed to the increase in salaries and employee benefits expense. Additionally, professional fees increased $562,000, or 36%, data processing fees and supplies expense increased $371,000, or 12%, FDIC insurance and other regulatory fees increased $356,000, or 81%, and corporate and business development expense increased $212,000, or 17%. The increase in professional fees was a result of increased interest charges associated with the bank's cash swap collateral positions as well as continued investment in technology solutions for our retail and commercial digital applications. This increased investment in technology was also primarily responsible for the increase in data processing fees and supplies expense. The increase to FDIC insurance and other regulatory fees was caused by a blanket increase to the assessment rate used by the FDIC to calculate insurance premiums, effective during the first quarter of 2023. Corporate and business development expense was impacted by increased spending for advertising and other corporate and business development activities. These increases were offset by a decrease to other expense of $677,000, driven by a decrease in accruals pertaining to ongoing legal matters between the two periods.

    On a linked quarter basis, noninterest expense increased by $2.0 million, or 7%, compared to $27.4 million during the fourth quarter of 2022. Salaries and employee benefits contributed $1.4 million, or 9%, to the linked quarter increase in noninterest expense as a result of the timing of annual salary adjustments. Health insurance and annual HSA contribution expense also contributed to the increase in salaries and employee benefits on a linked quarter basis. In addition, FDIC insurance and other regulatory fees increased $312,000, or 65%, corporate business and development expense increased $311,000, or 28%, professional fees increased $165,000, or 8%, and data processing fees and supplies expense increased $136,000, or 4%. The increase to FDIC insurance and other regulatory fees was caused by the increased assessment rate used by the FDIC. Corporate business and development expense increased due to increased advertising and business development expense. Professional fees and data processing fees and supplies expense increased due to the increased investment in customer-facing and operational investments in technology solutions. These increases were offset by a decrease in other expense of $300,000, driven by a decrease in accruals pertaining to ongoing legal matters when comparing the linked quarters.

    The company’s efficiency ratio was 47.6% for the first quarter of 2023, compared to 48.5% for the first quarter of 2022 and 40.7% for the linked fourth quarter of 2022.

    Information regarding Lakeland Financial Corporation may be accessed on the home page of its subsidiary, Lake City Bank, at 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, this earnings release contains certain non-GAAP financial measures. The company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company’s financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including tangible common equity, tangible assets, tangible book value per share, tangible common equity to tangible assets ratio and pretax pre-provision earnings. A reconciliation of these and other non-GAAP measures to the most comparable GAAP equivalents is included in the attached financial tables where the non-GAAP measures are 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,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. The company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statements made by the company. 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. Numerous factors could cause the company’s actual results to differ from those reflected in forward-looking statements, including the effects of the COVID-19 pandemic, including its effects on our customers, local economic conditions, our operations and vendors, and the responses of federal, state and local governmental authorities, as well as those identified in the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K and quarterly reports on Form 10-Q.


    LAKELAND FINANCIAL CORPORATION
    FIRST QUARTER 2023 FINANCIAL HIGHLIGHTS

     Three Months Ended
    (Unaudited – Dollars in thousands, except per share data)March 31, December 31, March 31,
    END OF PERIOD BALANCES 2023   2022   2022 
    Assets$6,411,529  $6,432,371  $6,572,259 
    Investments 1,236,932   1,313,770   1,522,535 
    Loans 4,754,928   4,710,396   4,353,714 
    Allowance for Credit Losses 71,215   72,606   67,526 
    Deposits 5,517,728   5,460,620   5,820,623 
    Brokered Deposits 160,658   10,027   10,244 
    Core Deposits (1) 5,357,070   5,450,593   5,810,379 
    Total Equity 602,006   568,887   609,102 
    Goodwill net of deferred tax assets 3,803   3,803   3,803 
    Tangible Common Equity (2) 598,203   565,084   605,299 
    Adjusted Tangible Common Equity (2) 764,815   753,238   698,050 
    AVERAGE BALANCES     
    Total Assets$6,412,080  $6,304,366  $6,651,943 
    Earning Assets 6,067,576   5,958,113   6,392,075 
    Investments 1,250,189   1,312,050   1,514,024 
    Loans 4,725,427   4,563,321   4,300,926 
    Total Deposits 5,487,592   5,633,040   5,848,638 
    Interest Bearing Deposits 3,825,062   3,867,655   3,882,521 
    Interest Bearing Liabilities 4,066,932   3,893,652   3,957,547 
    Total Equity 585,604   537,985   682,692 
    INCOME STATEMENT DATA     
    Net Interest Income$51,519  $56,837  $44,880 
    Net Interest Income-Fully Tax Equivalent 52,887   58,346   46,148 
    Provision for Credit Losses 4,350   8,958   417 
    Noninterest Income 10,314   10,519   10,687 
    Noninterest Expense 29,434   27,434   26,969 
    Net Income 24,278   25,977   23,642 
    Pretax Pre-Provision Earnings (2) 32,399   39,922   28,598 
    PER SHARE DATA     
    Basic Net Income Per Common Share$0.95  $1.02  $0.93 
    Diluted Net Income Per Common Share 0.94   1.01   0.92 
    Cash Dividends Declared Per Common Share 0.46   0.40   0.40 
    Dividend Payout 48.94%  39.60%  43.48%
    Book Value Per Common Share (equity per share issued)$23.51  $22.28  $23.86 
    Tangible Book Value Per Common Share (2) 23.36   22.13   23.71 
    Market Value – High 77.07   83.57   85.71 
    Market Value – Low 59.55   71.37   72.78 
    Basic Weighted Average Common Shares Outstanding 25,583,026   25,536,026   25,515,271 
    Diluted Weighted Average Common Shares Outstanding 25,742,885   25,754,274   25,690,372 
          
          
     Three Months Ended
    (Unaudited – Dollars in thousands, except per share data)March 31, December 31, March 31,
    KEY RATIOS (continued) 2023   2022   2022 
    Return on Average Assets 1.54%  1.63%  1.44%
    Return on Average Total Equity 16.81   19.16   14.04 
    Average Equity to Average Assets 9.13   8.53   10.26 
    Net Interest Margin 3.54   3.89   2.93 
    Efficiency  (Noninterest Expense / Net Interest Income plus Noninterest Income) 47.60   40.73   48.53 
    Loans to Deposits 86.18   86.26   74.80 
    Investment Securities to Total Assets 19.29   20.42   23.17 
    Tier 1 Leverage (3) 11.56   11.50   10.47 
    Tier 1 Risk-Based Capital (3) 13.95   13.82   13.91 
    Common Equity Tier 1 (CET1) (3) 13.95   13.82   13.91 
    Total Capital (3) 15.21   15.07   15.16 
    Tangible Capital (2) 9.34   8.79   9.22 
    Adjusted Tangible Capital (2) 11.56   11.30   10.44 
    ASSET QUALITY     
    Loans Past Due 30 - 89 Days$2,403  $1,169  $3,671 
    Loans Past Due 90 Days or More 25   123   18 
    Non-accrual Loans 17,715   16,964   13,900 
    Nonperforming Loans 17,740   17,087   13,918 
    Other Real Estate Owned 100   100   196 
    Other Nonperforming Assets 82   37   17 
    Total Nonperforming Assets 17,922   17,224   14,131 
    Individually Analyzed Loans 18,188   31,327   24,554 
    Non-Individually Analyzed Watch List Loans 156,663   129,671   194,222 
    Total Individually Analyzed and Watch List Loans 174,851   160,998   218,776 
    Gross Charge Offs 5,896   3,923   740 
    Recoveries 155   332   76 
    Net Charge Offs/(Recoveries) 5,741   3,591   664 
    Net Charge Offs/(Recoveries) to Average Loans 0.49%  0.31%  0.06%
    Credit Loss Reserve to Loans 1.50   1.54   1.55 
    Credit Loss Reserve to Nonperforming Loans 401.44   424.91   485.18 
    Nonperforming Loans to Loans 0.37   0.36   0.32 
    Nonperforming Assets to Assets 0.28   0.27   0.22 
    Total Individually Analyzed and Watch List Loans to Total Loans 3.68   3.42   5.03 
    OTHER DATA     
    Full Time Equivalent Employees 619   609   585 
    Offices 52   52   52 

    (1)  Core deposits equals deposits less brokered deposits.
    (2)  Non-GAAP financial measure - see "Reconciliation of Non-GAAP Financial Measures".
    (3)  Capital ratios for March 31, 2023 are preliminary until the Call Report is filed.


    CONSOLIDATED BALANCE SHEETS (in thousands, except share data)   
    ​March 31,
    2023    		 December 31,
    2022
    ​(Unaudited) ​
    ASSETS   
    Cash and due from banks$67,342  $80,992 
    Short-term investments 86,179   49,290 
    Total cash and cash equivalents 153,521   130,282 
    ​   
    Securities available-for-sale, at fair value 1,108,281   1,185,528 
    Securities held-to-maturity, at amortized cost (fair value of $115,533 and $111,029, respectively) 128,651   128,242 
    Real estate mortgage loans held-for-sale 508   357 
    ​   
    Loans, net of allowance for credit losses of $71,215 and $72,606 4,683,713   4,637,790 
    ​   
    Land, premises and equipment, net 58,707   58,097 
    Bank owned life insurance 107,026   108,407 
    Federal Reserve and Federal Home Loan Bank stock 15,795   15,795 
    Accrued interest receivable 26,883   27,994 
    Goodwill 4,970   4,970 
    Other assets 123,474   134,909 
    Total assets$6,411,529  $6,432,371 
    ​   
    ​   
    LIABILITIES   
    Noninterest bearing deposits$1,548,066  $1,736,761 
    Interest bearing deposits 3,969,662   3,723,859 
    Total deposits 5,517,728   5,460,620 
    ​   
    Federal Funds purchased 0   22,000 
    Federal Home Loan Bank advances 200,000   275,000 
    Total borrowings 200,000   297,000 
        
    Accrued interest payable 5,425   3,186 
    Other liabilities 86,370   102,678 
    Total liabilities 5,809,523   5,863,484 
    ​   
    STOCKHOLDERS’ EQUITY   
    Common stock: 90,000,000 shares authorized, no par value   
    25,896,764 shares issued and 25,430,917 outstanding as of March 31, 2023   
    25,825,127 shares issued and 25,349,225 outstanding as of December 31, 2022 125,840   127,004 
    Retained earnings 658,629   646,100 
    Accumulated other comprehensive income (loss) (167,370)  (188,923)
    Treasury stock, at cost (465,847 shares and 475,902 shares as of March 31, 2023 and December 31, 2022, respectively) (15,182)  (15,383)
    Total stockholders’ equity 601,917   568,798 
    Noncontrolling interest 89   89 
    Total equity 602,006   568,887 
    Total liabilities and equity$6,411,529  $6,432,371 


    CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)
    ​Three Months Ended March 31,
    ​ 2023   2022 
    NET INTEREST INCOME   
    Interest and fees on loans   
    Taxable$69,542  $39,735 
    Tax exempt 901   169 
    Interest and dividends on securities​ ​
    Taxable 3,513   3,278 
    Tax exempt 4,300   4,606 
    Other interest income 964   246 
    Total interest income 79,220   48,034 
    ​​ ​
    Interest on deposits 24,918   3,081 
    Interest on borrowings​ ​
    Short-term 2,783   0 
    Long-term 0   73 
    Total interest expense 27,701   3,154 
    ​​ ​
    NET INTEREST INCOME 51,519   44,880 
    ​​ ​
    Provision for credit losses 4,350   417 
    ​​ ​
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 47,169   44,463 
    ​​ ​
    NONINTEREST INCOME   
    Wealth advisory fees 2,200   2,287 
    Investment brokerage fees 534   519 
    Service charges on deposit accounts 2,630   2,809 
    Loan and service fees 2,846   2,889 
    Merchant and interchange fee income 877   815 
    Bank owned life insurance income (loss) 691   (83)
    Interest rate swap fee income 0   50 
    Mortgage banking income (loss) (99)  509 
    Net securities gains 16   0 
    Other income 619   892 
    Total noninterest income 10,314   10,687 
    ​​ ​
    NONINTEREST EXPENSE   
    Salaries and employee benefits 16,063   14,392 
    Net occupancy expense 1,572   1,629 
    Equipment costs 1,438   1,411 
    Data processing fees and supplies 3,452   3,081 
    Corporate and business development 1,431   1,219 
    FDIC insurance and other regulatory fees 795   439 
    Professional fees 2,121   1,559 
    Other expense 2,562   3,239 
    Total noninterest expense 29,434   26,969 
    ​​ ​
    INCOME BEFORE INCOME TAX EXPENSE 28,049   28,181 
    Income tax expense 3,771   4,539 
    NET INCOME$24,278  $23,642 
    ​​ ​
    BASIC WEIGHTED AVERAGE COMMON SHARES 25,583,026   25,515,271 
    ​​ ​
    BASIC EARNINGS PER COMMON SHARE$0.95  $0.93 
    ​​ ​
    DILUTED WEIGHTED AVERAGE COMMON SHARES 25,742,885   25,690,372 
    ​   
    DILUTED EARNINGS PER COMMON SHARE$0.94  $0.92 


    LAKELAND FINANCIAL CORPORATION
    LOAN DETAIL
    (unaudited, in thousands)

     March 31,
    2023    		 December 31,
    2022    		 March 31,
    2022
    Commercial and industrial loans:           
    Working capital lines of credit loans$636,171  13.4% $650,948  13.8% $678,567  15.6%
    Non-working capital loans 823,447  17.3   842,101  17.9   784,890  18.0 
    Total commercial and industrial loans 1,459,618  30.7   1,493,049  31.7   1,463,457  33.6 
                
    Commercial real estate and multi-family residential loans:           
    Construction and land development loans 591,812  12.4   517,664  11.0   399,618  9.2 
    Owner occupied loans 750,840  15.8   758,091  16.0   724,588  16.6 
    Nonowner occupied loans 705,830  14.8   706,107  15.0   619,163  14.2 
    Multifamily loans 217,274  4.5   197,232  4.2   214,003  4.9 
    Total commercial real estate and multi-family residential loans 2,265,756  47.5   2,179,094  46.2   1,957,372  44.9 
                
    Agri-business and agricultural loans:           
    Loans secured by farmland 178,683  3.8   201,200  4.3   164,252  3.8 
    Loans for agricultural production 214,299  4.5   230,888  4.9   259,417  6.0 
    Total agri-business and agricultural loans 392,982  8.3   432,088  9.2   423,669  9.8 
                
    Other commercial loans 132,284  2.8   113,593  2.4   78,412  1.8 
    Total commercial loans 4,250,640  89.3   4,217,824  89.5   3,922,910  90.1 
                
    Consumer 1-4 family mortgage loans:           
    Closed end first mortgage loans 221,616  4.7   212,742  4.5   180,448  4.1 
    Open end and junior lien loans 175,907  3.7   175,575  3.7   158,583  3.6 
    Residential construction and land development loans 20,393  0.4   19,249  0.4   11,135  0.3 
    Total consumer 1-4 family mortgage loans 417,916  8.8   407,566  8.6   350,166  8.0 
                
    Other consumer loans 89,734  1.9   88,075  1.9   83,395  1.9 
    Total consumer loans 507,650  10.7   495,641  10.5   433,561  9.9 
    Subtotal 4,758,290  100.0%  4,713,465  100.0%  4,356,471  100.0%
    Less:  Allowance for credit losses (71,215)    (72,606)    (67,526)  
    Net deferred loan fees (3,362)    (3,069)    (2,757)  
    Loans, net$4,683,713    $4,637,790    $4,286,188   


    LAKELAND FINANCIAL CORPORATION
    DEPOSITS AND BORROWINGS
    (unaudited, in thousands)

     March 31,
    2023    		 December 31,
    2022    		 March 31,
    2022
    Noninterest bearing demand deposits$1,548,066 $1,736,761 $1,880,418
    Savings and transaction accounts:     
    Savings deposits 385,353  403,773  423,030
    Interest bearing demand deposits 2,820,146  2,693,900  2,702,912
    Time deposits:     
    Deposits of $100,000 or more 577,549  455,427  620,737
    Other time deposits 186,614  170,759  193,526
    Total deposits$5,517,728 $5,460,620 $5,820,623
    FHLB advances and other borrowings 200,000  297,000  75,000
    Total funding sources$5,717,728 $5,757,620 $5,895,623


    LAKELAND FINANCIAL CORPORATION
    AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
    (UNAUDITED) 

      Three Months Ended
    March 31, 2023    		 Three Months Ended
    December 31, 2022    		 Three Months Ended
    March 31, 2022
    (fully tax equivalent basis, dollars in thousands) Average
    Balance    		 Interest
    Income    		 Yield (1)/
    Rate    		 Average
    Balance    		 Interest
    Income    		 Yield (1)/
    Rate    		 Average
    Balance    		 Interest
    Income    		 Yield (1)/
    Rate
    Earning Assets                  
    Loans:                  
    Taxable (2)(3) $4,667,867  $69,542 6.04% $4,512,012  $65,424 5.75% $4,278,894  $39,735 3.77%
    Tax exempt (1)  57,560   1,126 7.93   51,309   948 7.33   22,032   213 3.92 
    Investments: (1)                  
    Securities  1,250,189   8,956 2.91   1,312,050   9,777 2.96   1,514,024   9,108 2.44 
    Short-term investments  2,242   22 3.98   2,312   18 3.09   2,143   1 0.11 
    Interest bearing deposits  89,718   942 4.26   80,430   695 3.43   574,982   245 0.17 
    Total earning assets $6,067,576  $80,588 5.39% $5,958,113  $76,862 5.12% $6,392,075  $49,302 3.13%
    Less:  Allowance for credit losses  (73,266)      (67,815)      (68,051)    
    Nonearning Assets                  
    Cash and due from banks  76,578       72,487       71,905     
    Premises and equipment  58,319       58,501       59,309     
    Other nonearning assets  282,873       283,080       196,705     
    Total assets $6,412,080      $6,304,366      $6,651,943     
                       
    Interest Bearing Liabilities                  
    Savings deposits $392,567  $71 0.07% $415,942  $86 0.08% $408,314  $75 0.07%
    Interest bearing checking accounts  2,757,120   21,402 3.15   2,781,061   16,727 2.39   2,642,003   1,862 0.29 
    Time deposits:                  
    In denominations under $100,000  180,502   642 1.44   172,622   337 0.77   198,257   346 0.71 
    In denominations over $100,000  494,873   2,803 2.30   498,030   1,094 0.87   633,947   798 0.51 
    Miscellaneous short-term borrowings  241,870   2,783 4.67   25,997   272 4.15   26   0 0.00 
         Long-term borrowings and subordinated debentures  0   0 0.00   0   0 0.00   75,000   73 0.40 
    Total interest bearing liabilities $4,066,932  $27,701 2.76% $3,893,652  $18,516 1.89% $3,957,547  $3,154 0.32%
    Noninterest Bearing Liabilities                  
    Demand deposits  1,662,530       1,765,385       1,966,117     
    Other liabilities  97,014       107,344       45,587     
    Stockholders' Equity  585,604       537,985       682,692     
    Total liabilities and stockholders' equity $6,412,080      $6,304,366      $6,651,943     
    Interest Margin Recap                  
    Interest income/average earning assets    80,588 5.39%    76,862 5.12%    49,302 3.13%
    Interest expense/average earning assets    27,701 1.85     18,516 1.23     3,154 0.20 
    Net interest income and margin   $52,887 3.54%   $58,346 3.89%   $46,148 2.93%

    (1)  Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses. Taxable equivalent basis adjustments were $1.37 million, $1.51 million and $1.27 million in the three month periods ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.
    (2)  Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, are included as taxable loan interest income.
    (3)  Nonaccrual loans are included in the average balance of taxable loans.

    Reconciliation of Non-GAAP Financial Measures 
    Tangible common equity, adjusted tangible common equity, tangible assets, adjusted tangible assets, tangible book value per common share, tangible common equity to tangible assets, adjusted tangible common equity to adjusted tangible assets, and pretax pre-provision earnings are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of equity, net of deferred tax. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred tax. Adjusted tangible assets and adjusted tangible common equity remove the fair market value adjustment impact of the available-for-sale investment securities portfolio. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding less true treasury stock. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. However, management considers these measures of the company’s value including only earning assets as meaningful to an understanding of the company’s financial information.

    A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

     Three Months Ended
     Mar. 31, 2023 Dec. 31, 2022 Mar. 31, 2022
    Total Equity$602,006  $568,887  $609,102 
    Less: Goodwill (4,970)  (4,970)  (4,970)
    Plus: DTA Related to Goodwill 1,167   1,167   1,167 
    Tangible Common Equity 598,203   565,084   605,299 
    AOCI Market Value Adjustment$166,612   188,154   92,751 
    Adjusted Tangible Common Equity 764,815   753,238   698,050 
          
    Assets$6,411,529  $6,432,371  $6,572,259 
    Less: Goodwill (4,970)  (4,970)  (4,970)
    Plus: DTA Related to Goodwill 1,167   1,167   1,167 
    Tangible Assets 6,407,726   6,428,568   6,568,456 
    Securities Market Value Adjustment 210,901   238,170   117,406 
    Adjusted Tangible Assets 6,618,627   6,666,738   6,685,862 
          
    Ending Common Shares Issued 25,607,663   25,536,026   25,527,896 
          
    Tangible Book Value Per Common Share$23.36  $22.13  $23.71 
          
    Tangible Common Equity/Tangible Assets 9.34%  8.79%  9.22%
    Adjusted Tangible Common Equity / Adjusted Tangible Assets 11.56%  11.30%  10.44%
          
    Net Interest Income$51,519  $56,837  $44,880 
    Plus:  Noninterest income 10,314   10,519   10,687 
    Minus:  Noninterest expense (29,434)  (27,434)  (26,969)
          
    Pretax Pre-Provision Earnings$32,399  $39,922  $28,598 


    Contact
    Lisa M. O’Neill
    Executive Vice President and Chief Financial Officer
    (574) 267-9125
    lisa.oneill@lakecitybank.com


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