Lakeland Financial Corporation, parent company of Lake City Bank, today reported net income of $9.2 million for the second quarter of 2013, an increase of 5 percent versus $8.8 million in the second quarter of 2012. Diluted net income per share increased 4 percent to $0.56 versus $0.54 for the comparable period of 2012.
The company further reported net income of $18.5 million for the six months ended June 30, versus $17.4 million for the comparable period of 2012, an increase of 6 percent and a record performance for the company over a 6 month period. Diluted net income per common share also increased 6 percent to $1.12 for the 6 months ended June 30, versus $1.06 for the comparable period of 2012. This per share performance also represents a record level for the company.
Michael L. Kubacki, Chairman and Chief Executive Officer, commented, “We are extremely pleased with this record performance and continue to be encouraged by the quality and consistency of our earnings. As the largest bank in the state dedicated to serving Indiana, these results are a further affirmation of our Indiana-focused strategy and reflect the commitment we have to our communities.”
Earnings for the 3 month and 6 month periods that ended June 30, were negatively impacted by a one-time non-cash provision for state income tax expense of $465,000, which resulted from a revaluation of the company’s state deferred tax items. During the second quarter of 2013, the Indiana legislature approved new tax rates for financial institutions which will lower their state income tax rate from 8.5 percent to 6.5 percent. The decrease will be phased in over four years, beginning in 2014. This lower state tax rate going forward will reduce the benefit provided by the company’s existing deferred tax items. As a result, the company recorded this one-time non-cash adjustment.
Excluding the effect of the one-time non-cash adjustment, net income for the three months and six months ended June 30, would have been $9.7 million and $18.9 million, respectively, representing increases of 10 percent and 9 percent over the comparable periods of 2012. Diluted net income per share would have been $0.59 and $1.15, respectively for the three and six month periods ended June 30, representing increases of 9 percent and 8 percent over the comparable periods in 2012.
The company also announced that the Board of Directors approved a cash dividend for the second quarter of $0.19 per share, payable on August 5, to shareholders of record as of July 25. The quarterly dividend represents a 12 percent increase over the quarterly dividends paid for each quarter of 2012.
Commenting on the dividend, Kubacki added, “Lakeland Financial’s shareholders continue to benefit from our strong performance. This dividend represents a healthy dividend payout ratio of 34 percent, which is reflective of our strong capital structure and our consistently good results.”
Average total loans for the second quarter of 2013 were $2.30 billion versus $2.22 billion for the second quarter of 2012, an increase of 4 percent. Total loans outstanding grew $120.3 million, or 5 percent, from $2.21 billion as of June 30, 2012 to $2.33 billion as of June 30. On a linked quarter basis, average total loans increased $49.0 million, or 2 percent, from $2.26 billion for the first quarter of 2013.
David M. Findlay, President and Chief Financial Officer, observed, “Total loan growth of $72 million during the quarter is the highest quarterly loan growth since the fourth quarter of 2008. The loan growth was geographically and industry diverse, which we believe is indicative of both a strengthening Indiana economy and good market penetration by Lake City Bank.”
The company’s net interest margin was 3.20 percent in the second quarter of 2013 versus 3.32 percent for the second quarter of 2012. The net interest margin improved from 3.17 percent in the first quarter of 2013. The year-over-year margin decline resulted primarily from reduced yields in the investment portfolio and slightly lower commercial loan yields as interest rates continue to be at historic lows. The reduced yields in the investment portfolio were driven by prepayments in the company’s agency mortgage-backed securities portfolio, which were also affected by the low interest rate environment. The prepayments generally have a negative impact on investment portfolio yields because they cause the company to reinvest in lower yielding securities and the acceleration of premium amortization.
Findlay emphasized, “We’re very pleased with the stability and improvement in our net interest margin during the quarter. Despite a challenging interest rate environment, we were able to improve our margin and generally maintain deposit levels. The margin improvement was driven by a reduction in funding costs, which we will continue to manage as interest rates remain at historic lows.”
The company’s tangible common equity to tangible assets ratio was 10.25 percent at June 30, compared to 9.58 percent at June 30, 2012 and 10.38 percent at March 31. Average total deposits for the quarter ended June 30, were $2.49 billion versus $2.47 billion for the first quarter of 2013 and $2.55 billion for the second quarter of 2012.
The company’s provision for loan losses in the six months ended June 30, was $0 versus $1.3 million in the same period of 2012. The provision decrease on a year-over-year basis 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 our borrowers’ performance and future prospects.
The company’s allowance for loan losses as of June 30, was $50.6 million compared to $51.8 million as of June 30, 2012 and $50.8 million as of March 31. The allowance for loan losses represented 2.17 percent of total loans as of June 30, versus 2.34 percent at June 30, 2012 and 2.25 percent as of March 31. Further, the allowance for loan losses represented 234 percent of nonperforming loans as of June 30, 2013, versus 150 percent at June 30, 2012 and 234 percent as of March 31.
Net charge-offs totaled $183,000 in the second quarter of 2013 versus net charge-offs of $1.4 million during the second quarter of 2012 and net charge-offs of $626,000 during the linked first quarter of 2013. Nonperforming assets decreased 40 percent to $21.8 million as of June 30, 2013 versus $36.4 million as of June 30, 2012. As of June 30, 2013, the company’s other real estate consisted of two properties and totaled only $171,000. On a linked quarter basis, nonperforming assets were 3 percent lower than the $22.4 million reported as of March 31, 2013. 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 sales of other real estate owned and charge-offs taken and payments received on nonperforming loans. The ratio of nonperforming assets to total assets at June 30, 2013 was 0.73 percent versus 1.22 percent at June 30, 2012 and 0.77 percent at March 31, 2013.
Kubacki concluded, “We believe Lake City Bank’s credit quality is in good shape. Since the fourth quarter of 2010, we have reduced nonperforming assets by $18.8 million, or 46 percent. During that same time period, net charge offs have totaled $10.7 million, significantly less than this reduction in nonperforming assets. We also have an allowance for loan losses that is appropriately strong, with coverage of nonperforming loans at 234 percent.”
The company’s noninterest income increased $1.8 million, or 30 percent, to $7.6 million for the second quarter of 2013, versus $5.8 million for the second quarter of 2012. On a year-over-year basis, quarterly noninterest income was positively impacted by a $426,000 increase in other income, which was driven by a $268,000 increase in income from bank owned life insurance. Loan, insurance and service fees increased by $360,000 and service charges on deposit accounts increased by $241,000. In addition, noninterest income in the second quarter of 2012 was negatively impacted by $449,000 in other than temporary impairment on several non-agency mortgage backed securities. On a linked quarter basis, noninterest income increased by $88,000 from $7.5 million in the first quarter of 2013.
The company’s noninterest expense increased $842,000, or 6 percent, to $15.1 million in the second quarter of 2013 versus $14.2 million in the comparable quarter of 2012. On a linked quarter basis, noninterest expense increased by $198,000 from $14.9 million in the first quarter of 2013. On a year-over-year basis, salaries and employee benefits increased by $528,000 in the three month period ended June 30, 2013, versus the same period of 2012. These increases in salary and employee benefits were driven by normal merit increases and higher performance incentive-based compensation costs. Quarterly data processing fees increased by $319,000 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.
The company’s efficiency ratio was 51 percent for the second quarters of 2013 and 2012, and 52 percent for the linked first quarter of 2013, which consistently ranks in the top quartile of peer financial institutions in the country.
Lakeland Financial Corporation is a $3.0 billion bank holding company. Headquartered in Warsaw, Lake City Bank serves Indiana with 45 branches located in the following Indiana counties: Kosciusko, Elkhart, Allen, St. Joseph, DeKalb, Fulton, Hamilton, Huntington, LaGrange, Marshall, Noble, Pulaski and Whitley.
Source: Lakeland Financial Corp., Inside INdiana Business