WARSAW, Ind., Oct. 26, 2020 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record quarterly net income of $22.8 million for the three months ended September 30, 2020, an increase of 6% versus $21.5 million for the third quarter of 2019. Diluted earnings per share increased 7% to $0.89 for the third quarter of 2020, versus $0.83 for the third quarter of 2019. This quarterly net income and earnings per share performance both represent quarterly records for the company and its shareholders. On a linked quarter basis, net income increased $3.1 million, or 16%, from the second quarter of 2020, in which the company had net income of $19.7 million, or $0.77, diluted earnings per share. Pretax pre-provision earnings1 were $29.9 million for the third quarter of 2020, an increase of 8%, or $2.3 million, from $27.6 million for the third quarter of 2019. On a linked quarter basis, pretax pre-provision earnings increased 1%, or $285,000, from $29.6 million for the second quarter of 2020.

The company further reported net income of $59.7 million for the nine months ended September 30, 2020 versus $64.8 million for the comparable period of 2019, a decrease of $5.1 million, or 8%. Diluted earnings per share also decreased 8% to $2.33 for the nine months ended September 30, 2020 versus $2.52 for the comparable period of 2019. Pretax pre-provision earnings1 were $87.1 million for the nine months ended September 30, 2020, versus $82.7 million for the comparable period of 2019, an increase of 5%, or $4.3 million.

David M. Findlay, President and Chief Executive Officer commented, “The Lake City Bank team is particularly proud of this record quarterly performance in a very tumultuous environment. We’ve remained focused, despite the negative impact of the COVID-19 crisis, on taking care of our clients and our communities. Thanks to strong performances from our Commercial Banking, Wealth Advisory and Retail Banking teams, we weathered the third quarter challenges well.”

Financial Performance – Third Quarter 2020

Third Quarter 2020 versus Third Quarter 2019 highlights:

  • Return on average equity of 14.36%, compared to 14.78%
  • Return on average assets of 1.64%, compared to 1.72%
  • Loan growth of $567 million, or 14%
  • Paycheck Protection Program (PPP) loans of $558 million
  • Core deposit growth of $572 million, or 14%
  • Noninterest bearing demand deposit account growth of $410 million, or 40%
  • Net interest income increase of $368,000, or 1%
  • Noninterest income increase of $2.4 million, or 22%
  • Revenue growth of $2.7 million, or 5%
  • Provision for loan losses of $1.8 million compared to $1.0 million, an increase of $750,000 or 75%
  • Noninterest expense increase of $388,000, or 2%
  • Pretax pre-provision earnings1 increase of $2.3 million, or 8%
  • Average total equity increase of $55 million, or 10%

Third Quarter 2020 versus Second Quarter 2020 highlights:

  • Return on average equity of 14.36%, compared to 12.92%
  • Return on average assets of 1.64%, compared to 1.45%
  • Loan growth, excluding PPP loans, of $96 million, or 2%
  • Core deposit growth of $123 million, or 3%
  • Net interest income increase of $385,000, or 1%
  • Noninterest income increase of $1.9 million, or 17%
  • Revenue growth of $2.3 million, or 5%
  • Provision for loan losses of $1.8 million compared to $5.5 million, a decrease of $3.7 million, or 68%
  • Noninterest expense increase of $2.0 million, or 10%
  • Pretax pre-provision earnings1 increase of $285,000, or 1%
  • Average total equity increase of $18.7 million, or 3%

Return on average total equity for the third quarter of 2020 was 14.36%, compared to 14.78% in the third quarter of 2019 and 12.92% in the linked second quarter of 2020. Return on average total equity for the first nine months of 2020 was 12.96%, compared to 15.68% in the same period of 2019. Return on average assets for the third quarter of 2020 was 1.64%, compared to 1.72% in the third quarter of 2019 and 1.45% in the linked second quarter of 2020. Return on average assets for the first nine months of 2020 was 1.50% compared to 1.76% in the same period of 2019. The company’s total capital as a percent of risk-weighted assets was 14.90% at September 30, 2020, compared to 14.78% at September 30, 2019 and 14.93% at June 30, 2020. The company’s tangible common equity to tangible assets ratio1 was 11.41% at September 30, 2020, compared to 11.74% at September 30, 2019 and 11.35% at June 30, 2020.

Findlay added, “Our operating performance during the quarter further strengthens our fortress balance sheet, and we believe it provides ample capacity to support our dividend to shareholders. “

As announced on October 13, 2020, the board of directors approved a cash dividend for the third quarter of $0.30 per share, payable on November 5, 2020, to shareholders of record as of October 25, 2020. The third quarter dividend per share of $0.30 is unchanged from the dividend per share paid in the second quarter of 2020.

During the first quarter of 2020, the company repurchased 289,101 shares of its common stock for $10 million at a weighted average price per share of $34.63. Share repurchases under the repurchase plan were suspended in March with $20 million of authorization remaining available under the plan. No shares were repurchased under the plan during the second or third quarters of 2020. The company continues to evaluate the share repurchase program pursuant to its previously established criteria for execution.

Average total loans for the third quarter of 2020 were $4.56 billion, an increase of $541.0 million, or 13%, versus $4.02 billion for the third quarter 2019. PPP average loans were $557.3 million during the third quarter 2020. Excluding PPP loans, average loans were $4.00 billion compared to $4.02 billion for the third quarter of 2019, a decrease of $16.3 million. On a linked quarter basis, average total loans grew $96.4 million, or 2%, from $4.46 billion for the second quarter of 2020. Average loans excluding PPP loans decreased by $3.1 million, on a linked quarter basis.

Total loans outstanding grew $566.7 million, or 14%, from $4.02 billion as of September 30, 2019 to $4.59 billion as of September 30, 2020. PPP loans outstanding were $557.9 million as of September 30, 2020. Total loans excluding PPP loans increased by $8.9 million, as of September 30, 2020 as compared to September 30, 2019. On a linked quarter basis, total loans excluding PPP loans were $4.0 billion, an increase of $96.2 million, or 2%, as of September 30, 2020 as compared to the second quarter of 2020.

Findlay observed, “The Paycheck Protection Program has been beneficial for our clients on multiple levels. It has strengthened our borrowers’ balance sheets and improved their operating performance. Further, It has provided a valuable cash injection for all of our clients who participated in the program. Yet, in conjunction with the uncertain economic conditions, it has contributed to a reduction in usage of available credit facilities by clients. Given these factors, we are very pleased with nearly $100 million of loan growth in the third quarter.”

The Small Business Administration (SBA) and the United States Treasury Department formally announced the PPP on March 31, 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). During the third quarter 2020, $3.2 million of additional PPP loans were funded representing 122 loan applications. The yield on all PPP loans was 2.35% for the third quarter of 2020, which reflects the combined impact of the 1.00% interest rate on PPP loans and net PPP loan fee accretion.

Findlay continued, “We have shifted from our focus on PPP loan originations during the second quarter to preparation for PPP loan forgiveness applications in the third quarter. We stand ready to support our PPP borrowers through this next step in the process. Unfortunately, the process is a burdensome one for many of our clients and we will continue to work with them to expedite these applications.”

Average total deposits were $4.74 billion for the third quarter of 2020, an increase of $470.0 million, or 11%, versus $4.27 billion for the third quarter of 2019. On a linked quarter basis, average total deposits increased by $40.8 million, or 1%. Total deposits grew $484.6 million, or 11%, from $4.28 billion as of September 30, 2019 to $4.77 billion as of September 30, 2020. On a linked quarter basis, total deposits increased by $124.5 million, or 3%, from $4.64 billion as of June 30, 2020.

Importantly, core deposits, which exclude brokered deposits, increased $571.6 million, or 14%, from $4.17 billion at September 30, 2019 to $4.74 billion at September 30, 2020 due to growth in commercial deposits of $496.5 million or 38% and growth in retail deposits of $144.4 million, or 9%, offset by decreases in public fund deposits of $69.3 million, or 5%. On a linked quarter basis core deposits increased by $122.9 million or 3% at September 30, 2020 as compared to June 30, 2020. PPP loan proceeds to borrowers continued to impact the increase in deposits during the quarter as loan proceeds were deposited into borrower checking accounts at the bank. Management expects demand deposit balances to decrease over time as PPP loan proceeds are deployed by borrowers for payroll and other business operating needs.

The company’s net interest margin decreased 33 basis points to 3.05% for the third quarter of 2020 compared to 3.38% for the third quarter of 2019. The lower margin in the third quarter of 2020 as compared to the prior year period was due to lower yields on loans and securities, partially offset by a lower cost of funds, driven by the Federal Reserve Bank decreasing the target Federal Funds Rate by 225 basis points since the second half of 2019, inclusive of two Federal Reserve Bank emergency cuts to the Federal Funds Rate during March 2020. The two emergency cuts reduced the Federal Funds Rate by 150 basis points and brought the Federal Funds Rate back to the zero-bound range of 0.00% to 0.25%. The third quarter net interest margin was impacted by the lower yield on the PPP loan portfolio. The company’s net interest margin excluding PPP loans1 was 12 basis points higher at 3.17% and reflects a 21 basis point decline from 3.38% the third quarter of 2019. Linked quarter net interest margin excluding PPP loans was unchanged at 3.17% for the second and third quarters of 2020. Earning asset yields declined by 11 basis points and cost of funds declined by 11 basis points, as well.

Net interest income increased by $368,000, or 1%, for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. On a linked quarter basis, net interest income increased $385,000, or 1%, from the second quarter of 2020.

For the nine months ended September 30, 2020, the company’s net interest margin decreased 24 basis points to 3.16% compared to 3.40% for the nine months ended September 30, 2019. The company’s net interest margin excluding PPP loans1 was 3.22% for the nine months ended September 30, 2020, which was 18 basis points lower than net interest margin for the nine months ended September 30, 2019. Net interest income increased by $2.1 million, or 2%, for the nine months ended September 30, 2020 as compared to the first nine months of 2019 due to significant loan and core deposit growth offset by margin compression.

Pursuant to the incurred loan loss methodology, the company recorded a provision for loan losses of $1.8 million in the third quarter of 2020, compared to $1.0 million in the third quarter of 2019, an increase of $750,000. On a linked quarter basis, the provision decreased by $3.8 million from $5.5 million in the second quarter of 2020. The company recorded a provision for loan losses of $13.9 million in the nine months ended September 30, 2020 compared to $3.0 million for the comparable period of 2019. The higher provision in 2020 was driven by the potential negative impact to the company’s borrowers as a result of the economic conditions resulting from the COVID-19 pandemic. The company’s loan loss reserve to total loans was 1.32% at September 30, 2020 versus 1.26% at September 30, 2019 and 1.31% at June 30, 2020. The company’s loan loss reserve to total loans excluding PPP loans1 was 1.51% at September 30, 2020 an increase from 1.26% at September 30, 2019 and 1.50% at June 30, 2020. PPP loans are guaranteed by the United States SBA and have not been allocated for within the allowance for loan losses. As permitted by the CARES Act, the company elected to defer its application of FASB’s new rule covering the Current Expected Credit Loss (CECL) standard. The company will continue to monitor developments related to CECL adoption and anticipates adopting the standard during the fourth quarter of 2020. The CECL Day 1 impact is estimated to result in a $7.7 million increase to the allowance for credit losses.

Net charge offs in the third quarter of 2020 were $23,000 versus net charge-offs of $936,000 in the third quarter of 2019 and net charge offs of $90,000 during the linked second quarter of 2020. Annualized net charge offs to average loans were 0.00% for the third quarter of 2020 versus 0.09% for the third quarter of 2019, and 0.01% for the linked second quarter of 2020. On a year-to-date basis, net charge offs to average loans were 0.12% compared to 0.03% for both the first nine months of 2020 and the first nine months of 2019.

Nonperforming assets decreased $5.5 million, or 28%, to $13.8 million as of September 30, 2020 versus $19.3 million as of September 30, 2019. On a linked quarter basis, nonperforming assets decreased $1.3 million, or 9%, versus the $15.1 million reported as of June 30, 2020. The ratio of nonperforming assets to total assets at September 30, 2020 decreased to 0.25% from 0.39% at September 30, 2019 and decreased from 0.28% at June 30, 2020 on a linked quarter basis. Total impaired and watch list loans increased by $18.5 million, or 9%, to $221.3 million at September 30, 2020 versus $202.8 million as of September 30, 2019. On a linked quarter basis, total impaired and watch list loans increased by $13.1 million, or 6%, from $208.2 million at June 30, 2020. The increase in total impaired and watch list loans was due primarily to an increase in non-impaired watch list credits. Impaired watch list loans decreased by $5.6 million, or 20%, to $22.5 million at September 30, 2020 versus September 30, 2019. On a linked quarter basis, impaired watch list loans decreased by $1.5 million, or 6%, from $24.0 million at June 30, 2020 due primarily to a reduction in loans outstanding.

“We are in an interesting environment from an asset quality perspective. Our relatively stable asset quality metrics reflect our confidence in the status of our borrowers, but we continue to be concerned about the uncertainty in the future. We will continue to monitor closely those sectors that appear to be most impacted by this crisis, as well as our broader watch list. Many of our borrowers continue to face difficult operating environments and while we are cautiously optimistic today, this recession could present future asset quality issues,” Findlay said. “We will likely implement the CECL allowance for credit losses standard in the fourth quarter of 2020 and we expect that this implementation will further augment our healthy allowance coverage ratios.”

The company’s noninterest income increased $2.4 million, or 22%, to $13.1 million for the third quarter of 2020, compared to $10.8 million for the third quarter of 2019. Noninterest income was positively impacted by a $2.1 million increase in interest rate swap fee income, a $369,000 increase, or 58% growth, in mortgage banking income and a $194,000 increase, or 11% growth, in wealth management fees over the prior year third quarter. Bank owned life insurance income increased $417,000, or 81%, primarily due to a variable bank owned life insurance product that contains equity-based investments. Net securities gains increased $308,000 due to repositioning of the available-for-sale securities portfolio. Offsetting these increases were decreases of $1.2 million, or 32%, in service charges on deposit accounts driven by lower treasury management fees and lower transaction-based fees. Overdraft fee income, which is included in service charges on deposit accounts, declined by $344,000, or 36%, during the third quarter as compared to the prior year third quarter.

Noninterest income increased by $1.9 million, or 17%, on a linked quarter basis to $13.1 million. The linked quarter increase resulted primarily from an increase in interest rate swap fee income of $834,000 as well as increases in service charges on deposit accounts of $302,000 due primarily to increased overdraft fees. Offsetting these increases was a $349,000 decline in mortgage banking income during the quarter.

The company’s noninterest income increased $1.2 million, or 3%, to $35.1 million for the nine months ended September 30, 2020 compared to $33.9 million in the prior year period. Noninterest income was positively impacted by a $3.3 million increase, or 385% growth, in swap fee income generated from commercial lending transactions, a $1.7 million increase, or 134%, growth in mortgage banking income, and a $592,000 increase, or 12% growth, in wealth management fees over the corresponding prior year period. The credit valuation adjustments on interest rate swaps, which is included in other income, increased noninterest income by $1.2 million in the nine months ended September 30, 2020 compared to the corresponding prior year period. Noninterest income was negatively impacted by a $5.3 million, or 42%, decrease in service charges on deposit accounts. Service charges on deposit accounts for the nine months ended September 30, 2019, included $4.5 million of fees from a former commercial treasury management customer.

Findlay commented, “Our teams in Mortgage Banking, Wealth Advisory and Commercial Banking have all experienced healthy growth in fee-based services in 2020. We are particularly pleased with our interest rate swap fee income as it reflects a strong partnership between our Commercial Banking and Treasury units. In a difficult interest rate environment, overall fee generation has been a nice offset to net interest margin compression.”

The company’s noninterest expense increased $388,000, or 2%, to $23.1 million in the third quarter of 2020, compared to $22.7 million in the third quarter of 2019. FDIC insurance and regulatory fees increased $803,000 as all FDIC deposit insurance credits due to the company were received by the end of the first quarter of 2020. Data processing fees increased $405,000, or 15%, driven by the company’s continued investment in customer focused, technology-based solutions and ongoing cybersecurity and data management enhancements. Offsetting these increases were decreases in corporate and business development of $413,000, or 41%, due to reduced business development and training expense, which is deemed temporary due to the pandemic.

On a linked quarter basis, noninterest expense increased by $2.0 million, or 10%, to $23.1 million. Salaries and employee benefits increased by $1.3 million due primarily to reduced deferred loan origination costs and increased health insurance expense. During the third quarter of 2020, deferred loan origination costs of $467,000 decreased from $889,000 on a linked quarter basis. Other expense increased by $407,000 on a linked quarter basis due primarily to the semi-annual payment of Board of Director fees that are paid in January and July of each year. In addition, professional fees increased by $253,000 due primarily to legal and project implementation fees.

The company’s noninterest expense decreased by $1.0 million, or 2%, to $66.3 million in the first nine months of 2020 compared to $67.3 million in the corresponding prior year period. The decrease was driven by corporate and business development, which decreased $1.1 million, or 31%, due to reduced business development and training expense. Salaries and employee benefits decreased by $843,000, or 2%, primarily due to lower long-term incentive-based compensation expense. Offsetting the decreases were increases of $1.1 million, or 15%, in data processing fees and supplies. In addition, FDIC insurance and other regulatory fees increased $658,000, or 116%, as insurance assessment credits have expired.

The company’s efficiency ratio was 43.6% for the third quarter of 2020, compared to 45.2% for the third quarter of 2019 and 41.6% for the linked second quarter of 2020. The company’s efficiency ratio decreased to 43.2% for the nine months ended September 30, 2020 compared to 44.9% in the prior year period due to revenue growth outpacing expense growth during 2020.

COVID-19 Crisis Management

The company reopened all its branch lobbies on June 15, 2020. During the third quarter most of all company employees returned to the workplace in a Lake City Bank facility. The company invested in personal protective equipment, installed protective barriers and enhanced social distancing measures in order to prioritize the safety of bank customers and employees. These investments have totaled approximately $500,000 since the pandemic began. The company will keep all safety protocols in place until it determines that the public health risks posed by COVID-19 no longer require them.

Active Management of Credit Risk

The company’s Commercial Banking and Credit Administration leadership continues to review and refine the list of industries that the company believes are most likely to be materially impacted by the potential economic impact resulting from the COVID-19 pandemic. The current assessment includes a smaller group of industries as compared to the initial list of potentially affected industries disclosed in the company’s April 27, 2020 first quarter and July 27, 2020 second quarter press releases. The company’s current list of industries under review represents approximately 5.7%, or $228 million, of the total loan portfolio versus $765 million, or 18.7%, as of April 27, 2020 and $261 million, or 6.6% as of July 27, 2020, excluding PPP loans. The following industries are included in the 5.7% along with their respective percentage of the loan portfolio: hotel and accommodations – 2.5%, dairy – 1.1%, education – 0.9%, entertainment and recreation – 0.8% and full-service restaurants – 0.4%. The company has no direct exposure to oil and gas and limited exposure to retail shopping centers.

The company’s commercial loan portfolio is highly diversified, and no industry sector represents more than 8% of the bank’s loan portfolio as of September 30, 2020. Agri-business and agricultural loans represented the highest specific industry concentration at 7% of total loans. The company’s Commercial Banking and Credit Administration teams continue to actively work with customers to understand their business challenges and credit needs during this time.

COVID-19 Related Loan Deferrals

As detailed below, loan deferrals peaked on June 17, 2020, at $737 million, which represented 16% of the total loan portfolio. As of October 21, 2020, total deferrals attributable to COVID-19 were $110 million, representing 63 borrowers, or 2% of the total loan portfolio. Total deferrals as of October 21, 2020 represented a decline in deferral balances of 85% from the peak levels. Of the $110 million, 37 were commercial loan borrowers representing $107 million in loans, or 3% of total commercial loans and 26 were retail loan borrowers representing $3 million, or 1% of total retail loans. All COVID-19 related loan deferrals remain on accrual status, as each deferral is evaluated individually, and management has determined that all contractual cashflows are collectable at this time.

As of October 21, 2020, 38 borrowers with loans outstanding of $70 million were in their second deferral period, most of which were additional 90 day deferrals. Additionally, 17 borrowers with loans outstanding of $32 million were in their third deferral period. Of the third deferral borrowers, four represented 87% of the third deferral population and were commercial real estate nonowner occupied loans supported by adequate collateral and personal guarantors and consist of loans to the hotel and accommodation industry.  

The company’s retail loan portfolio is comprised of 1-4 family mortgage loans, home equity lines of credit and other direct and indirect installment loans. A third-party vendor manages the company’s retail and commercial credit card program and the company does not have any balance sheet exposure with respect to this program except for nominal recourse on limited commercial card accounts.

Total Loan Deferrals
 Peak
June 17, 2020		June 30, 2020September 30, 2020October 21, 2020% change from
Peak
Borrowers

48738410263-87%
Amount
(in millions)		$737$653$158$110-85%
% of Total
Loan Portfolio		16%15%3%2%NA


Total Commercial Loan Deferrals
 Peak
June 17, 2020		June 30, 2020September 30, 2020October 21, 2020% change from
Peak
Borrowers

3513227137-89%
Amount
(in millions)		$730$647$155$107-85%
% of Commercial
Loan Portfolio		18%16%4%3%NA


Total Retail Loan Deferrals
 Peak
June 17, 2020		June 30, 2020September 30, 2020October 21, 2020% change from
Peak
Borrowers

136623126-81%
Amount
(in millions)		$7$6$3$3-57%
% of Retail
Loan Portfolio		2%1%1%1%NA

Paycheck Protection Program

During the third quarter, the company continued to fund PPP loans for its customers. In addition, the bank has engaged a third-party Fintech technology partner to assist the bank and its customers to automate the forgiveness application process. The software solution provides tools to facilitate communications with borrowers, gathering of information securely, calculation of forgiveness amounts and electronic transmission to the SBA for approval. The company is utilizing a phased approach for the forgiveness application process and has begun to process forgiveness applications for borrowers. As of October 21, 2020, Lake City Bank had 2,409 PPP loans outstanding representing $561.8 million in loan balances. Most of the PPP loans are for existing customers and 51% of the number of PPP loans are for amounts less than $50,000. As of October 21, 2020, the bank submitted 36 loan forgiveness applications to the SBA in the amount of $51 million, which represented 9% of total PPP loans outstanding. The SBA has not yet approved any forgiveness applications submitted by the bank.

Liquidity Preparedness

Throughout the COVID-19 crisis, the company has monitored liquidity preparedness. Critical to this effort has been the monitoring of commercial and retail borrowers’ line of credit utilization. The company’s commercial and retail line of credit utilization at both September 30, 2020 and June 30, 2020 was 41% versus 48% at March 31, 2020 and 46% at December 31, 2019. The company has a long-standing liquidity plan in place that ensures that appropriate liquidity resources are available to fund the balance sheet.

Lakeland Financial Corporation is a $5.6 billion bank holding company headquartered in Warsaw, Indiana. Lake City Bank, its single bank subsidiary, is the sixth largest bank headquartered in the state and the largest bank 100% invested in Indiana. Lake City Bank operates 50 offices in Northern and Central Indiana, delivering technology-driven and client-centric financial services solutions to individuals and businesses.

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 measures based on “tangible common equity” which is “total equity” excluding intangible assets, net of deferred tax, and “tangible assets” which is “total assets” excluding intangible assets, net of deferred tax. A reconciliation of these 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.

__________________________________
1 Non-GAAP financial measure – see “Reconciliation of Non-GAAP Financial Measures”

           
LAKELAND FINANCIAL CORPORATION
THIRD QUARTER 2020 FINANCIAL HIGHLIGHTS
 Three Months Ended Nine Months Ended 
(Unaudited – Dollars in thousands, except per share data)Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30, 
END OF PERIOD BALANCES2020
 2020
 2019
 2020
 2019
 
Assets$ 5,551,108  $5,441,092  $4,948,155  $ 5,551,108  $4,948,155  
Deposits 4,767,954   4,643,427   4,283,390   4,767,954   4,283,390  
Brokered Deposits 29,703   28,052   116,698   29,703   116,698  
Core Deposits (3) 4,738,251   4,615,375   4,166,692   4,738,251   4,166,692  
Loans 4,589,924   4,490,532   4,023,221   4,589,924   4,023,221  
Paycheck Protection Program (PPP) Loans 557,851   554,636   0   557,851   0  
Allowance for Loan Losses 60,747   59,019   50,628   60,747   50,628  
Total Equity 636,839   620,892   584,436   636,839   584,436  
Goodwill net of deferred tax assets 3,794   3,789   3,799   3,794   3,799  
Tangible Common Equity (1) 633,045   617,103   580,657   633,045   580,657  
AVERAGE BALANCES          
Total Assets$ 5,520,861  $5,454,608  $4,941,503  $ 5,314,956  $4,928,396  
Earning Assets 5,282,569   5,212,985   4,698,937   5,078,509   4,625,820  
Investments - available-for-sale 637,523   621,134   614,784   625,887   601,098  
Loans 4,556,812   4,460,411   4,015,773   4,359,522   3,965,397  
Paycheck Protection Program (PPP) Loans 557,290   457,757   0   339,149   0  
Total Deposits 4,737,671   4,696,832   4,267,708   4,546,897   4,220,248  
Interest Bearing Deposits 3,336,268   3,335,189   3,306,638   3,294,785   3,296,995  
Interest Bearing Liabilities 3,433,326   3,421,041   3,356,436   3,393,274   3,408,767  
Total Equity 630,978   612,313   575,865   615,910   552,965  
INCOME STATEMENT DATA          
Net Interest Income$ 39,913  $39,528  $39,545  $ 118,295  $116,165  
Net Interest Income-Fully Tax Equivalent 40,523   40,124   40,084   120,091   117,716  
Provision for Loan Losses 1,750   5,500   1,000   13,850   2,985  
Noninterest Income 13,115   11,169   10,765   35,061   33,878  
Noninterest Expense 23,125   21,079   22,737   66,293   67,302  
Net Income 22,776   19,670   21,454   59,745   64,849  
Pretax Pre-Provision Earnings (1) 29,903   29,618   27,573   87,063   82,741  
PER SHARE DATA          
Basic Net Income Per Common Share$ 0.89  $0.77  $0.84  $ 2.34  $2.54  
Diluted Net Income Per Common Share 0.89   0.77   0.83   2.33   2.52  
Cash Dividends Declared Per Common Share 0.30   0.30   0.30   0.90   0.86  
Dividend Payout 33.71 % 38.96 % 36.14 % 38.63 % 34.13 %
Book Value Per Common Share (equity per share issued) 25.05   24.43   22.81   25.05   22.81  
Tangible Book Value Per Common Share (1) 24.90   24.28   22.66   24.90   22.66  
Market Value – High 53.00   47.49   47.46   53.00   49.20  
Market Value – Low 39.38   33.92   41.26   30.49   39.78  
Basic Weighted Average Common Shares Outstanding 25,418,712   25,412,014   25,622,338   25,484,329   25,576,740  
Diluted Weighted Average Common Shares Outstanding 25,487,302   25,469,680   25,796,696   25,618,401   25,745,029  
KEY RATIOS          
Return on Average Assets 1.64 % 1.45 % 1.72 % 1.50 % 1.76 %
Return on Average Total Equity 14.36   12.92   14.78   12.96   15.68  
Average Equity to Average Assets 11.43   11.23   11.65   11.59   11.22  
Net Interest Margin 3.05   3.10   3.38   3.16   3.40  
Net Interest Margin, Excluding PPP Loans (1) 3.17   3.17   3.38   3.22   3.40  
Efficiency (Noninterest Expense / Net Interest Income plus Noninterest Income) 43.61   41.58   45.19   43.23   44.86  
Tier 1 Leverage (2) 11.07   10.84   12.07   11.07   12.07  
Tier 1 Risk-Based Capital (2) 13.65   13.68   13.62   13.65   13.62  
Common Equity Tier 1 (CET1) (2) 13.65   13.68   12.94   13.65   12.94  
Total Capital (2) 14.90   14.93   14.78   14.90   14.78  
Tangible Capital (1) (2) 11.41   11.35   11.74   11.41   11.74  
ASSET QUALITY           
Loans Past Due 30 - 89 Days$ 1,106  $683  $922  $ 1,106  $922  
Loans Past Due 90 Days or More 19   19   306   19   306  
Non-accrual Loans 13,478   14,779   18,657   13,478   18,657  
Nonperforming Loans (includes nonperforming TDRs) 13,497   14,798   18,963   13,497   18,963  
Other Real Estate Owned 316   316   316   316   316  
Other Nonperforming Assets 0   0   7   0   7  
Total Nonperforming Assets 13,813   15,114   19,286   13,813   19,286  
Performing Troubled Debt Restructurings 5,658   5,772   5,975   5,658   5,975  
Nonperforming Troubled Debt Restructurings (included in nonperforming loans) 6,547   7,582   3,422   6,547   3,422  
Total Troubled Debt Restructurings 12,205   13,354   9,397   12,205   9,397  
Impaired Loans 22,484   23,987   28,070   22,484   28,070  
Non-Impaired Watch List Loans 198,851   184,203   174,768   198,851   174,768  
Total Impaired and Watch List Loans 221,335   208,190   202,838   221,335   202,838  
Gross Charge Offs 305   411   1,221   4,565   1,589  
Recoveries 282   321   285   809   779  
Net Charge Offs/(Recoveries) 23   90   936   3,756   810  
Net Charge Offs/(Recoveries) to Average Loans 0.00 % 0.01 % 0.09 % 0.12 % 0.03 %
Loan Loss Reserve to Loans 1.32 % 1.31 % 1.26 % 1.32 % 1.26 %
Loan Loss Reserve to Loans, Excluding PPP Loans (1) 1.51 % 1.50 % 1.26 % 1.51 % 1.26 %
Loan Loss Reserve to Nonperforming Loans 450.09 % 398.83 % 266.98 % 450.09 % 266.98 %
Loan Loss Reserve to Nonperforming Loans and Performing TDRs 317.13 % 286.92 % 203.02 % 317.13 % 203.02 %
Nonperforming Loans to Loans 0.29 % 0.33 % 0.47 % 0.29 % 0.47 %
Nonperforming Assets to Assets 0.25 % 0.28 % 0.39 % 0.25 % 0.39 %
Total Impaired and Watch List Loans to Total Loans 4.82 % 4.64 % 5.04 % 4.82 % 5.04 %
Total Impaired and Watch List Loans to Total Loans, Excluding PPP Loans (1) 5.49 % 5.29 % 5.04 % 5.49 % 5.04 %
OTHER DATA          
Full Time Equivalent Employees 571   574   561   571   561  
Offices 50   50   50   50   50  
           
(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Financial Measures"          
(2) Capital ratios for September 30, 2020 are preliminary until the Call Report is filed.          
(3) Core deposits equals deposits less brokered deposits          
           

 


    
CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
 September 30, December 31,
 2020 2019
 (Unaudited)  
ASSETS   
Cash and due from banks$ 69,106  $68,605 
Short-term investments 59,975   30,776 
Total cash and cash equivalents 129,081   99,381 
    
Securities available-for-sale (carried at fair value) 644,034   608,233 
Real estate mortgage loans held-for-sale 10,097   4,527 
    
Loans, net of allowance for loan losses of $60,747 and $50,652 4,529,177   4,015,176 
    
Land, premises and equipment, net 60,309   60,365 
Bank owned life insurance 84,919   83,848 
Federal Reserve and Federal Home Loan Bank stock 13,772   13,772 
Accrued interest receivable 18,447   15,391 
Goodwill 4,970   4,970 
Other assets 56,302   41,082 
Total assets$ 5,551,108  $4,946,745 
    
    
LIABILITIES   
Noninterest bearing deposits$ 1,420,853  $983,307 
Interest bearing deposits 3,347,101   3,150,512 
Total deposits 4,767,954   4,133,819 
    
Borrowings   
Federal Home Loan Bank advances 75,000   170,000 
Miscellaneous borrowings 10,500   0 
Total borrowings 85,500   170,000 
    
Accrued interest payable 6,303   11,604 
Other liabilities 54,512   33,222 
Total liabilities 4,914,269   4,348,645 
    
STOCKHOLDERS' EQUITY   
Common stock: 90,000,000 shares authorized, no par value   
25,708,915 shares issued and 25,236,371 outstanding as of September 30, 2020   
25,623,016 shares issued and 25,444,275 outstanding as of December 31, 2019 114,011   114,858 
Retained earnings 512,041   475,247 
Accumulated other comprehensive income 25,224   12,059 
Treasury stock at cost (472,544 shares as of September 30, 2020, 178,741 shares as of December 31, 2019) (14,526)  (4,153)
Total stockholders' equity 636,750   598,011 
Noncontrolling interest 89   89 
Total equity 636,839   598,100 
Total liabilities and equity$ 5,551,108  $4,946,745 
    


    
CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)
 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2020
 2019 2020
 2019
NET INTEREST INCOME       
Interest and fees on loans       
Taxable$ 42,056  $50,139  $ 130,759  $149,094 
Tax exempt 104   234   542   720 
Interest and dividends on securities       
Taxable 1,577   2,209   5,419   6,956 
Tax exempt 2,198   1,819   6,237   5,171 
Other interest income 44   368   292   957 
Total interest income 45,979   54,769   143,249   162,898 
        
Interest on deposits 5,941   14,692   24,324   44,131 
Interest on borrowings       
Short-term 51   113   458   1,295 
Long-term 74   419   172   1,307 
Total interest expense 6,066   15,224   24,954   46,733 
        
NET INTEREST INCOME 39,913   39,545   118,295   116,165 
        
Provision for loan losses 1,750   1,000   13,850   2,985 
        
NET INTEREST INCOME AFTER PROVISION FOR       
LOAN LOSSES 38,163   38,545   104,445   113,180 
        
NONINTEREST INCOME       
Wealth advisory fees 1,930   1,736   5,594   5,002 
Investment brokerage fees 421   386   1,148   1,300 
Service charges on deposit accounts 2,491   3,654   7,452   12,791 
Loan and service fees 2,637   2,518   7,470   7,403 
Merchant card fee income 670   690   1,933   1,982 
Bank owned life insurance income 932   515   1,476   1,246 
Interest rate swap fee income 2,143   77   4,105   847 
Mortgage banking income 1,005   636   2,945   1,256 
Net securities gains 314   6   363   94 
Other income 572   547   2,575   1,957 
Total noninterest income 13,115   10,765   35,061   33,878 
        
NONINTEREST EXPENSE       
Salaries and employee benefits 12,706   12,478   35,696   36,539 
Net occupancy expense 1,404   1,351   4,336   4,000 
Equipment costs 1,369   1,385   4,216   4,143 
Data processing fees and supplies 3,025   2,620   8,736   7,619 
Corporate and business development 586   999   2,324   3,376 
FDIC insurance and other regulatory fees 554   (249)  1,224   566 
Professional fees 1,306   1,479   3,506   3,487 
Other expense 2,175   2,674   6,255   7,572 
Total noninterest expense 23,125   22,737   66,293   67,302 
        
INCOME BEFORE INCOME TAX EXPENSE 28,153   26,573   73,213   79,756 
Income tax expense 5,377   5,119   13,468   14,907 
NET INCOME$ 22,776  $21,454  $ 59,745  $64,849 
        
BASIC WEIGHTED AVERAGE COMMON SHARES 25,418,712   25,622,338   25,484,329   25,576,740 
BASIC EARNINGS PER COMMON SHARE$ 0.89  $0.84  $ 2.34  $2.54 
DILUTED WEIGHTED AVERAGE COMMON SHARES 25,487,302   25,796,696   25,618,401   25,745,029 
DILUTED EARNINGS PER COMMON SHARE$ 0.89  $0.83  $ 2.33  $2.52 
        


 
LAKELAND FINANCIAL CORPORATION
LOAN DETAIL
THIRD QUARTER 2020
(unaudited, in thousands)
             
 September 30,June 30,December 31,September 30,
 2020202020192019
Commercial and industrial loans:            
Working capital lines of credit loans$592,560 12.9%$568,621 12.6%$709,849 17.5%$730,557 18.2%
Non-working capital loans 1,256,853 27.3  1,238,556 27.5  717,019 17.6  701,773 17.4 
Total commercial and industrial loans 1,849,413 40.2  1,807,177 40.1  1,426,868 35.1  1,432,330 35.6 
             
Commercial real estate and multi-family residential loans:            
Construction and land development loans 393,101 8.5  359,948 8.0  287,641 7.1  319,420 7.9 
Owner occupied loans 619,820 13.5  576,213 12.8  573,665 14.1  556,536 13.8 
Nonowner occupied loans 567,674 12.3  554,572 12.3  571,364 14.0  545,444 13.5 
Multifamily loans 279,713 6.1  290,566 6.4  240,652 5.9  259,408 6.5 
Total commercial real estate and multi-family residential loans 1,860,308 40.4  1,781,299 39.5  1,673,322 41.1  1,680,808 41.7 
             
Agri-business and agricultural loans:            
Loans secured by farmland 150,503 3.2  153,774 3.4  174,380 4.3  176,024 4.4 
Loans for agricultural production 187,651 4.1  198,277 4.4  205,151 5.0  153,943 3.8 
Total agri-business and agricultural loans 338,154 7.3  352,051 7.8  379,531 9.3  329,967 8.2 
             
Other commercial loans 97,533 2.1  110,833 2.5  112,302 2.8  100,100 2.5 
Total commercial loans 4,145,408 90.0  4,051,360 89.9  3,592,023 88.3  3,543,205 88.0 
             
Consumer 1-4 family mortgage loans:            
Closed end first mortgage loans 170,671 3.7  169,897 3.8  177,227 4.4  187,404 4.6 
Open end and junior lien loans 170,867 3.7  174,300 3.9  186,552 4.6  191,597 4.8 
Residential construction and land development loans 11,012 0.3  11,164 0.2  12,966 0.3  11,774 0.3 
Total consumer 1-4 family mortgage loans 352,550 7.7  355,361 7.9  376,745 9.3  390,775 9.7 
             
Other consumer loans 105,285 2.3  98,667 2.2  98,617 2.4  90,631 2.3 
Total consumer loans 457,835 10.0  454,028 10.1  475,362 11.7  481,406 12.0 
Subtotal 4,603,243 100.0% 4,505,388 100.0% 4,067,385 100.0% 4,024,611 100.0%
Less: Allowance for loan losses (60,747)   (59,019)   (50,652)   (50,628)  
Net deferred loan fees (13,319)   (14,856)   (1,557)   (1,390)  
Loans, net$4,529,177   $4,431,513   $4,015,176   $3,972,593   
             
             
             
LAKELAND FINANCIAL CORPORATION
DEPOSITS AND BORROWINGS
THIRD QUARTER 2020
(unaudited, in thousands)
             
 September 30,  June 30,  December 31,  September 30,  
 2020  2020  2019  2019  
Noninterest bearing demand deposits$1,420,853   $1,425,901   $983,307   $1,011,336   
Savings and transaction accounts:            
Savings deposits 289,500    274,078    234,508    237,997   
Interest bearing demand deposits 1,844,211    1,774,217    1,723,937    1,650,691   
Time deposits:            
Deposits of $100,000 or more 965,709    907,095    910,134    1,101,730   
Other time deposits 247,681    262,136    281,933    281,636   
Total deposits$4,767,954   $4,643,427   $4,133,819   $4,283,390   
FHLB advances and other borrowings 85,500    110,500    170,000    30,928   
Total funding sources$4,853,454   $4,753,927   $4,303,819   $4,314,318   
             


 
LAKELAND FINANCIAL CORPORATION
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(UNAUDITED)
         
 Three Months Ended  Three Months Ended  Three Months Ended 
 September 30, 2020  June 30, 2020  September 30, 2019 
 Average Interest Yield (1)/  Average Interest Yield (1)/  Average Interest Yield (1)/ 
(fully tax equivalent basis, dollars in thousands)Balance Income Rate  Balance Income Rate  Balance Income Rate 
Earning Assets                    
Loans:                    
Taxable (2)(3)$ 4,541,608  $ 42,056 3.68% $4,437,843  $42,649 3.87% $3,991,572  $50,139 4.98%
Tax exempt (1) 15,204   130 3.40   22,568   272 4.85   24,201   292 4.78 
Investments: (1)                    
Available-for-sale 637,523   4,359 2.72   621,134   4,442 2.88   614,784   4,509 2.91 
Short-term investments 8,865   3 0.13   79,446   29 0.15   3,478   16 1.83 
Interest bearing deposits 79,369   41 0.21   51,994   35 0.27   64,902   352 2.15 
Total earning assets$ 5,282,569  $ 46,589 3.51% $5,212,985  $47,427 3.66% $4,698,937  $55,308 4.67%
Less: Allowance for loan losses (59,519)       (56,005)       (50,732)     
Nonearning Assets                    
Cash and due from banks 61,656        57,157        77,921      
Premises and equipment 60,554        60,815        59,268      
Other nonearning assets 175,601        179,656        156,109      
Total assets$ 5,520,861       $5,454,608       $4,941,503      
                     
Interest Bearing Liabilities                    
Savings deposits$ 282,456  $ 53 0.07% $264,250  $59 0.09% $235,957  $62 0.10%
Interest bearing checking accounts 1,827,061   1,405 0.31   1,842,373   1,544 0.34   1,667,690   6,712 1.60 
Time deposits:                    
In denominations under $100,000 254,315   982 1.54   271,064   1,216 1.80   278,598   1,383 1.97 
In denominations over $100,000 972,436   3,501 1.43   957,502   4,365 1.83   1,124,393   6,535 2.31 
Miscellaneous short-term borrowings 22,058   51 0.92   10,852   45 1.67   18,870   113 2.38 
Long-term borrowings and                    
subordinated debentures 75,000   74 0.39   75,000   74 0.40   30,928   419 5.37 
Total interest bearing liabilities$ 3,433,326  $ 6,066 0.70% $3,421,041  $7,303 0.86% $3,356,436  $15,224 1.80%
Noninterest Bearing Liabilities                    
Demand deposits 1,401,403        1,361,643        961,070      
Other liabilities 55,154        59,611        48,132      
Stockholders' Equity 630,978        612,313        575,865      
Total liabilities and stockholders' equity$ 5,520,861       $5,454,608       $4,941,503      
                     
Interest Margin Recap                    
Interest income/average earning assets   46,589 3.51     47,427 3.66     55,308 4.67 
Interest expense/average earning assets   6,066 0.46     7,303 0.56     15,224 1.29 
Net interest income and margin  $ 40,523 3.05%   $40,124 3.10%   $40,084 3.38%
                     


(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 $610,000, $596,000 and $539,000 in the three-month periods ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively.
(2) Loan fees are included as taxable loan interest income. Net loan fees attributable to PPP loans were $1.87 million for the three months ended September 30, 2020 and June 30, 2020, respectively. All other loan fees were immaterial in relation to total taxable loan interest income for the periods presented.
(3) Nonaccrual loans are included in the average balance of taxable loans.

Reconciliation of Non-GAAP Financial Measures

The allowance for loan losses to loans, excluding PPP loans and total impaired and watch list loans to total loans, excluding PPP loans are non-GAAP ratios that management believes are important because they provide better comparability to prior periods. PPP loans are fully guaranteed by the SBA and have not been allocated for within the allowance for loan losses.

A reconciliation of these non-GAAP measures is provided below (dollars in thousands).

 Three Months Ended Nine Months Ended
 Sep. 30, Jun. 30, Sep. 30, Sep 30, Sep. 30,
 2020 2020 2019 2020 2019
Total Loans$4,589,924   $4,490,532  $4,023,221  $4,589,924   $4,023,221 
Less: PPP Loans 557,851   554,636   0   557,851   0 
Total Loans, Excluding PPP Loans$4,032,073   $3,935,896  $4,023,221  $4,032,073   $4,023,221 
 
Allowance for Loan Losses$60,747   $59,019   $50,628  $60,747   $50,628 
          
Loan Loss Reserve to Loans 1.32%   1.31%   1.26%   1.32%   1.26% 
Loan Loss Reserve to Loans, Excluding PPP 1.51%   1.50%   1.26%   1.51%   1.26% 
 
 Three Months Ended Nine Months Ended
 Sep. 30, Jun. 30, Sep. 30, Sep 30, Sep. 30,
 2020 2020 2019 2020 2019
Total Loans$4,589,924   $4,490,532  $4,023,221  $4,589,924   $4,023,221 
Less: PPP Loans 557,851   554,636   0   557,851   0 
Total Loans, Excluding PPP Loans$4,032,073   $3,935,896  $4,023,221  $4,032,073   $4,023,221 
 
Total Impaired and Watch List Loans$221,335   $208,190   $202,838  $221,335   $202,838 
          
Total Impaired and Watch List Loans         
to Total Loans 4.82%  4.64%  5.04%  4.82%  5.04% 
Total Impaired and Watch List Loans         
to Total Loans, Excluding PPP 5.49%  5.29%  5.04%  5.49%  5.04% 
 

Tangible common equity, tangible assets, tangible book value per share, tangible common equity to tangible assets ratio and pre-provision net revenue 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. 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 Nine Months Ended
 Sep. 30, Jun. 30, Sep. 30, Sep 30, Sep. 30,
  2020   2020   2019   2020   2019 
Total Equity$ 636,839   $620,892  $584,436  $ 636,839   $584,436 
Less: Goodwill (4,970)  (4,970)  (4,970)  (4,970)  (4,970)
Plus: Deferred tax assets related to goodwill           1,176                     1,181                    1,191        1,176                     1,191 
Tangible Common Equity  633,045    617,103   580,657    633,045    580,657 
          
Assets$ 5,551,108   $5,441,092  $4,948,155  $ 5,551,108   $4,948,155 
Less: Goodwill (4,970)  (4,970)  (4,970)  (4,970)  (4,970)
Plus: Deferred tax assets related to goodwill                  1,176                     1,181                    1,191                    1,176    1,191 
Tangible Assets  5,547,314    5,437,303   4,944,376    5,547,314    4,944,376 
          
Ending common shares issued  25,419,814    25,412,014   25,623,016    25,419,814    25,623,016 
          
Tangible Book Value Per Common Share$ 24.90   $24.28  $22.66  $ 24.90   $22.66 
          
Tangible Common Equity/Tangible Assets 11.41%   11.35%   11.74%   11.41%   11.74% 


Net Interest Income$ 39,913  $39,528  $39,545  $ 118,295  $116,165 
Plus: Noninterest income  13,115   11,169   10,765    35,061   33,878 
Less: Noninterest expense  (23,125)  (21,079)  (22,737)  (66,293)  (67,302)
          
Pretax Pre-Provision Earnings$29,903  $29,618  $27,573  $ 87,063  $82,741 

Net interest margin on a fully-tax equivalent basis, net of PPP loan impact, is a non-GAAP measure that management believes is important because it provides for better comparability to prior periods. Because PPP loans have a low fixed interest rate of 1.0% and because the accretion of net loan fee income can be accelerated upon borrower forgiveness and repayment by the SBA, management is actively monitoring net interest margin on a fully tax equivalent basis with and without PPP loan impact for the duration of this program.

A reconciliation of this non-GAAP financial measure is provided below (dollars in thousands).

Impact of Paycheck Protection Program on Net Interest Margin FTE   
        
 Three Months Ended Nine Months Ended
 Sep. 30, Sep. 30, Sep. 30, Sep. 30,
  2020   2019   2020   2019 
        
Total Average Earnings Assets$ 5,282,569  $4,698,937  $ 5,078,509  $4,625,820 
Less: Average Balance of PPP Loans 557,290   0   339,149   0 
Total Adjusted Earning Assets 4,725,279   4,698,937   4,739,360   4,625,820 
        
Total Interest Income FTE$ 46,589  $55,308  $ 145,045  $164,449 
Less: PPP Loan Income (3,294)  0   (6,323)  0 
Total Adjusted Interest Income FTE 43,295   55,308   138,722   164,449 
        
Adjusted Earning Asset Yield, net of PPP Impact 3.65%   4.67%   3.91%   4.75% 
        
Total Average Interest Bearing Liabilities$ 3,433,326  $3,356,436  $ 3,393,274  $3,408,766 
Less: Average Balance of PPP Loans 557,290   0   339,149   0 
Total Adjusted Interest Bearing Liabilities 3,990,616   3,356,436   3,732,423   3,408,766 
        
Total Interest Expense FTE$ 6,066  $15,224  $ 24,954  $46,733 
Less: PPP Cost of Funds (350)  0   (635)  0 
Total Adjusted Interest Expense FTE 5,716   15,224   24,319   46,733 
        
Adjusted Cost of Funds, net of PPP Impact 0.48%   1.29%   0.69%   1.35% 
        
Net Interest Margin FTE, net of PPP Impact 3.17%   3.38%   3.22%   3.40% 
        

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

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