Lakeland Reports Record Net Income for Third Consecutive Quarter

WARSAW, Ind., April 26, 2010 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq:LKFN), parent company of Lake City Bank, today reported record net income of $6.0 million for the first quarter of 2010. This record net income performance represents a 56% increase over $3.9 million for the first quarter of 2009. Diluted net income per share for the quarter was $0.32 versus $0.29 for the comparable period of 2009. On a linked quarter basis, net income increased 12% compared to net income of $5.4 million, or $0.32 per diluted share, for the fourth quarter of 2009.

Michael L. Kubacki, Chairman, President and Chief Executive Officer, commented, "For three successive quarters, we have reported record quarterly net income. During the same time period, we have further strengthened our balance sheet and continued our client-driven expansion in Indiana. Overall, we're extremely pleased that the Lake City Bank Team has produced growing, quality earnings in a very challenging environment."

Kubacki continued, "As we recently recognized the one year anniversary of the Company's receipt of U.S. Treasury Capital Purchase Program funds, we look back on our performance with pride. One of the primary objectives of the program was to promote continued lending by the banking industry. Since year-end 2008, the quarter which preceded our Capital Purchase Program funding, we have increased total loans by $178 million, or 10%. We believe that the Bank has an important role in contributing to the economic recovery in our Indiana markets and this robust loan growth demonstrates our commitment to this responsibility."

"During the same 15 month time period, our balance sheet has been strengthened considerably, led by our $58 million common stock offering in the fourth quarter of 2009. Another indicator of balance sheet strength is the growth in our loan loss reserve, which increased by 93% from $18.9 million at year-end 2008 to $36.3 million at March 31, 2010. We believe that we've got a balance sheet that is well structured relative to today's economic environment and for future growth as well."

The Company also announced that the Board of Directors approved a cash dividend for the first quarter of $0.155 per share, payable on May 5, 2010 to shareholders of record as of April 25, 2010. Kubacki noted, "Our ongoing dividend payment is a reflection of both the strength of our earnings and our strong capital position. We recognize that the dividend is an important component of value for our shareholders and we're pleased that our record performance supports the ongoing dividend."

Average total loans for the first quarter of 2010 were $2.01 billion versus $1.84 billion for the first quarter of 2009 and $1.96 billion for the linked fourth quarter of 2009. The year-over-year average loan growth represented an increase of 9%, or $165 million. On a linked quarter basis, average loans increased by $47 million versus the fourth quarter of 2009. Total gross loans as of March 31, 2010 were $2.01 billion compared to $1.86 billion as of March 31, 2009, an increase of 8%. Total gross loans at December 31, 2009 were $2.01 billion.

The Company's net interest margin was 3.86% in the first quarter of 2010 versus 3.12% for the first quarter of 2009 and 3.74% in the linked fourth quarter of 2009. This margin improvement, driven by declines in the Company's cost of funds, contributed to an increase of 35% in the Company's net interest income to $23.0 million in the first quarter of 2010 versus $17.0 million in the first quarter of 2009. On a linked quarter basis, net interest income increased by 2% versus the fourth quarter of 2009. 

"The expansion of our net interest margin over the past five quarters has contributed to our earnings growth. As we consider today's interest rate environment, we believe it is likely that our margin has reached a relative peak and may flatten or contract as we move forward. Given our historical and expected loan growth, incremental funding costs will likely put some slight pressure on our margin performance," observed Kubacki. 

The Company's provision for loan losses in the quarter of $5.5 million represented an increase of $1.0 million, or 22%, versus $4.5 million in the same period of 2009. In the fourth quarter of 2009, the provision was $6.3 million. The provision increase on a year-over-year basis was generally driven by the economic conditions in the Company's markets and the related possible weaknesses in our borrowers' future performance and prospects, as well as by continued loan growth.

The Company's non-interest income was $4.8 million in the first quarter of 2010 versus $5.6 million in the first quarter of 2009 and $5.4 million for the fourth quarter of 2009. On a year-over-year basis, the decline of $723,000 was driven in large part by a change related to the processing of merchant credit card activities, which is reflected in merchant card fee income.   It declined $523,000 from $803,000 in the first quarter of 2009 to $280,000. Beginning in the second quarter of 2009, the Company began converting clients to a new third-party processor for this activity. As a result, only net revenues with the new processor are being recognized in merchant card fee income in non-interest income. 

Several other factors affected non-interest income in 2010 versus 2009, including recognition of the non-cash other than temporary impairment of $171,000 on available-for-sale securities and a decrease in mortgage banking income of $269,000.  Overall, total revenue for the first quarter of 2010 increased 23% to $27.8 million versus $22.6 million for the comparable period of 2009.

The Company's non-interest expense increased only 2.8% to $13.0 million for the first quarter of 2010 compared to $12.7 million for the same period in 2009. On a linked quarter basis, non-interest expense decreased 3.6% from $13.5 million in the fourth quarter of 2009.   On a year-over-year basis, salaries and employee benefits increased from $6.1 million in the first quarter of 2009 to $7.5 million in 2010. This increase in the first quarter of 2010 was significantly driven by higher performance based compensation accruals, which resulted from a combination of strong performance versus corporate objectives in the first quarter of 2010 and lower performance versus these criteria in the first quarter of 2009.  The Company also experienced increased health insurance costs during the first quarter of 2010. Further contributing to the increase were staff additions, primarily in revenue generating positions.  Credit card interchange expense decreased due to the change in processing merchant credit card activities. In addition, other expense decreased by $470,000. The Company's efficiency ratio for the first quarter of 2010 improved to 47% compared to 56% for the first quarter of 2009 and 49% for the fourth quarter of 2009. 

For the three months ended March 31, 2010, Lakeland Financial's tangible equity to tangible assets ratio was 8.74% compared to 6.18% for the first quarter of 2009 and 8.65% for the fourth quarter of 2009. Equity was positively impacted by the sale of common stock during the fourth quarter of 2009, resulting in net proceeds to the Company of $57.9 million. Average total capital to average assets for the quarter ended March 31, 2010 was 11.07% versus 7.27% for the first quarter of 2009 and 9.82% for the fourth quarter of 2009. Average total deposits for the quarter ended March 31, 2010 were $1.93 billion versus $1.90 billion for the fourth quarter of 2009 and $1.91 billion for the first quarter of 2009.

Net charge-offs totaled $1.3 million in the first quarter of 2010, versus $2.0 million during the first quarter of 2009 and $3.0 million during the fourth quarter of 2009. Lakeland Financial's allowance for loan losses as of March 31, 2010 was $36.3 million, compared to $21.4 million as of March 31, 2009 and $32.1 million as of December 31, 2009. The allowance for loan losses increased to 1.81% of total loans as of March 31, 2010 versus 1.15% at March 31, 2009 and 1.59% as of December 31, 2009.

Nonperforming assets were $33.0 million as of March 31, 2010 versus $31.6 million as of December 31, 2009.  The increase during the first quarter resulted primarily from the addition of two commercial credits involved in manufacturing. The increase was partially offset by the receipt of a large paydown from another nonperforming loan. The ratio of nonperforming assets to total assets was 1.26% on March 31, 2010 compared to 1.23% on December 31, 2009. The allowance for loan losses represented 113% of nonperforming loans as of March 31, 2010 versus 104% at December 31, 2009 and March 31, 2009.    

Kubacki emphasized, "While we are seeing some indicators of economic recovery in our Indiana markets, we believe that our borrowers will continue to experience challenges in the near term. These economic recovery indicators are spotty, but encouraging. Having said that, we have continued the growth in our loan loss reserve, which now stands at 1.81% of total loans, and provides coverage of 113% of total nonperforming loans."

Lakeland Financial Corporation is a $2.6 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank serves Northern Indiana with 43 branches located in the following Indiana counties: Kosciusko, Elkhart, Allen, St. Joseph, DeKalb, Fulton, Huntington, LaGrange, Marshall, Noble, Pulaski and Whitley. The Company also has a Loan Production Office in Indianapolis, Indiana.

Lakeland Financial Corporation may be accessed on its home page at www.lakecitybank.com. The Company's common stock is traded on the Nasdaq Global Select Market under "LKFN". Market makers in Lakeland Financial Corporation common shares include Automated Trading Desk Financial Services, LLC, B-Trade Services, LLC, Citadel Securities, LLC, Citigroup Global Markets Holdings, Inc., Domestic Securities, Inc., E*TRADE Capital Markets LLC, FTN Financial Securities Corp., FTN Equity Capital Markets Corp., Goldman Sachs & Company, Howe Barnes Hoefer & Arnett, Inc., Keefe, Bruyette & Woods, Inc., Knight Equity Markets, L.P., Morgan Stanley & Co., Inc., Stifel Nicolaus & Company, Inc., Susquehanna Capital Group and UBS Securities LLC.

In addition to the results presented in accordance with generally accepted accounting principles in the United States of America, this press release contains certain non-GAAP financial measures. Lakeland Financial believes that providing non-GAAP financial measures provides investors with information useful to understanding Lakeland Financial's financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including measures based on "tangible equity" which is "common stockholders' equity" excluding intangible assets, net of deferred tax. A reconciliation of these non-GAAP measures to the most comparable GAAP equivalent is included in the attached financial tables where the non-GAAP measure is 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," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. 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. Additional information concerning the Company and its business, including factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on form 10-K.