Lakeland Financial Reports Record Quarterly Performance

Monday, 25. January 2021 14:00

WARSAW, Ind., Jan. 25, 2021 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported full year net income of $84.3 million, which represents a decrease of $2.7 million, or 3%, compared with net income of $87.0 million for 2019. Diluted earnings per share decreased 2% to $3.30 compared to $3.38 for 2019. Pretax pre-provision earnings1 were $118.6 million for 2020 compared to $110.6 million for 2019, an increase of $8.0 million, or 7%, due primarily to an increase in net interest income.

The company further reported record quarterly net income of $24.6 million for the three months ended December 31, 2020 versus $22.2 million for the comparable period of 2019, an increase of 11%. Diluted net income per common share was also a record for the quarter and increased 13% to $0.97 for the three months ended December 31, 2020 versus $0.86 for the comparable period of 2019. On a linked quarter basis, net income increased $1.8 million, or 8%, from the third quarter of 2020, in which the company had net income of $22.8 million, or $0.89 diluted earnings per share. Pretax pre-provision earnings1 were $31.6 million for the fourth quarter of 2020, an increase of 13%, or $3.7 million, from $27.9 million for the fourth quarter of 2019. On a linked quarter basis, pretax pre-provision earnings increased 6%, or $1.7 million, from $29.9 million for the third quarter of 2020.

David M. Findlay, President and Chief Executive Officer commented, “The Lake City Bank team demonstrated how much we can accomplish in a challenging environment when everyone steps up. During 2020, we experienced unprecedented loan growth on our balance sheet through the combination of the Paycheck Protection Program and more traditional organic loan growth. We are proud of the role we played in assisting our clients in working through the challenges presented by the COVID-19 crisis. Further, we provided uninterrupted service through our 50 branch offices in a continuously difficult environment. As we conclude 2020 with consecutive record results in the third and fourth quarters, we are well-positioned as we enter 2021.”

Highlights for the year and quarter are noted below.

Full year 2020 versus 2019 highlights:

  • Total assets of $5.8 billion, an increase of $884 million, or 18%
  • Return on average equity of 13.51% compared to 15.47%
  • Return on average assets of 1.55% compared to 1.76%
  • Average loan growth of $444.9 million, or 11%
    -- Paycheck Protection Program (PPP) loans originated of $570 million
    -- Loan growth, excluding PPP loans, of $171 million, or 4%
    -- PPP loans forgiveness applications approved by SBA of $142 million
  • Core deposit growth of $1.00 billion, or 25%
    -- Noninterest bearing demand deposit growth of $555 million, or 56%
  • Net interest income increase of $8.0 million, or 5%
  • Noninterest income increase of $1.8 million, or 4%
  • Revenue growth of $9.8 million, or 5%
  • PPP interest and fee income of $12.8 million
  • Pretax pre-provision earnings growth of $8.0 million, or 7%
  • Provision expense of $14.8 million versus $3.2 million in 2019
  • Allowance for loan losses increase of $11 million or 21%
  • Total equity and tangible common equity2 increase of $59 million, or 10%

Fourth Quarter 2020 versus Fourth Quarter 2019 highlights:

  • Return on average equity of 15.18%, compared to 14.90%
  • Loan growth, excluding PPP loans, of $171 million, or 4%
    -- PPP loans outstanding of $412 million
  • Average fourth quarter deposit growth of $651 million, or 15%
  • Net interest income increase of $5.8 million, or 15%
  • PPP interest and fee income of $6.5 million
  • Noninterest income increase of $663,000, or 6%
  • Revenue growth of $6.5 million, or 13%
  • Noninterest expense increase of $2.8 million, or 13%
  • Pretax pre-provision earnings increase of $3.7 million, or 13%
  • Average total equity increase of $53 million, or 9%
  • Risk-based capital ratio of 14.7% at December 31, 2020 compared to 14.4% at December 31, 2019

Fourth Quarter 2020 versus Third Quarter 2020 highlights:

  • Return on average equity of 15.18%, compared to 14.36%
  • Return on average assets of 1.70%, compared to 1.64%
  • Loan growth, excluding PPP loans, of $205 million, or 5%
  • Core deposit growth of $284 million, or 6%
  • Noninterest bearing demand deposit growth of $117 million, or 8%
  • Net interest income increase of $4.8 million, or 12%
  • Net interest margin of 3.28%, compared to 3.05%
  • PPP interest and fee income of $6.5 million, compared to $3.3 million
  • Revenue growth of $3.5 million, or 7%
  • Provision for loan losses of $920,000 compared to $1.8 million, a decrease of $830,000, or 47%
  • Nonperforming loans of $12.1 million, a reduction of $1.4 million, or 10%
  • Noninterest expense increase of $1.8 million, or 8%
  • Pretax pre-provision earnings increase of $1.7 million, or 6%
  • Average total equity increase of $13.7 million, or 2%
  • Full-time employee equivalent increase of 13

Return on average total equity for the year ended December 31, 2020 was 13.51%, compared to 15.47% in 2019. Return on average assets was 1.55% in 2020 compared to 1.76% in 2019. The company’s total capital as a percent of risk-weighted assets was 14.65% at December 31, 2020, compared to 14.36% at December 31, 2019 and 14.90% at September 30, 2020. The company’s tangible common equity to tangible assets ratio3 was 11.21% at December 31, 2020, compared to 12.02% at December 31, 2019 and 11.41% at September 30, 2020.

As announced on January 12, 2021, the board of directors approved a cash dividend for the fourth quarter of $0.34 per share, payable on February 5, 2021, to shareholders of record as of January 25, 2021. The fourth quarter dividend per share of $0.34 represents a 13% increase from the $0.30 dividend per share paid in the third quarter of 2020.

Findlay stated, “Our balance sheet strength is critical to our success. We concluded 2020 with a strong capital position, which was further bolstered by our strong 2020 earnings performance. This robust capital foundation supports our ability to increase the dividend for our shareholders.”

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, although the company may resume repurchases at any time. No shares were repurchased under the plan during the second, third or fourth quarters of 2020. The company continues to evaluate the share repurchase program pursuant to its previously established criteria for execution, which is set to expire on January 31, 2021.

Average total loans for 2020 were $4.42 billion, an increase of $449.9 million, or 11%, versus $3.97 billion for 2019. Included in the 2020 average were $376.8 million in PPP loans. Total loans outstanding grew $583.3 million, or 14%, from $4.07 billion as of December 31, 2019 to $4.65 billion as of December 31, 2020. PPP loans outstanding were $412.0 million as of December 31, 2020. Core loan growth, which excludes PPP loans, of $171.3 million, or 4%, reflects the underlying strength of the economy in our Indiana footprint. On a linked quarter basis, total loans grew $59.2 million, or 1%, from $4.59 billion at September 30, 2020. Core loans grew by $205.1 million offset by PPP loans forgiven and repaid in the amount of $145.8 million.

As of December 31, 2020, 900 loans with an aggregate principal amount of $142 million, representing 37% of the 2,409 total PPP loans originated with an aggregate amount of $570.5 million, were forgiven during the fourth quarter. In addition, the company had submitted an additional 10% of the total PPP loans originated in 2020, totaling $159.3 million, to the Small Business Administration (SBA) for forgiveness as of year-end. As of January 20, 2021, 1,211, or 50%, of the total PPP loans originated in 2020 totaling $180.4 million, were forgiven and $174.1 million, or 31%, had been submitted to the SBA for forgiveness. The company introduced a Fintech solution through a partnership with Numerated to manage the PPP loan portfolio.  Additionally, the company has started accepting and submitting loan applications for the second round of PPP loans.

Findlay noted, “While the success of the PPP impacted our clients tremendously, we were also pleased with another strong quarter of organic loan growth. Clearly, despite its challenges, 2020 created opportunity for many of our clients and we were very pleased to see healthy loan demand as we moved through the third and fourth quarters.”

Average total loans for the fourth quarter of 2020 were $4.62 billion, an increase of $616.3 million, or 15%, versus $4.00 billion for the comparable period of 2019. On a linked quarter basis, average total loans increased by $61.1 million, or 1%, from $4.56 billion for the third quarter of 2020 to $4.62 billion for the fourth quarter of 2020. On a linked quarter basis, average core loans increased by $115.3 million, or 3%, and average PPP loans declined by $54.2 million, or 10%.

Average total deposits for 2020 were $4.65 billion, an increase of $408.1 million, or 10%, versus $4.24 billion for 2019. Importantly, average core deposits increased by 12%, or $506.1 million, during 2020 to $4.6 billion from $4.1 billion in 2019 due to growth in average commercial deposits of $453.5 million, or 37%, and growth in average retail deposits of $148.3 million, or 9%, offset by a decline in public funds of $95.6 million, or 7%.

Total deposits grew $903.0 million, or 22%, from $4.13 billion as of December 31, 2019 to $5.04 billion as of December 31, 2020. In addition, total core deposits, which exclude brokered deposits, increased $1.00 billion, or 25%, from $4.02 billion at December 31, 2019 to $5.02 billion at December 31, 2020 due to growth in commercial deposits of $664.3 million, or 52%, growth in retail deposits of $301.9 million, or 19%, and growth in public fund deposits of $35.3 million, or 3%. The growth in deposits during 2020 was due primarily to an increase of $555.0 million, or 56%, in noninterest bearing demand deposits of $1.5 billion. Commercial and retail customers increased their cash on hand in response to the challenging economic environment. Brokered deposits decreased by $98.5 million, or 87%, from $113.5 million at December 31, 2019 to $15.0 million at December 31, 2020 due to reduced reliance on wholesale funding as a result of core deposit growth.

Findlay added, “The growth in deposits in 2020 created unprecedented liquidity on our balance sheet and provided us with great flexibility in funding the high levels of loan growth we experienced. We ended 2020 with very low reliance on non-core funding tools. As a result, we enter 2021 with a liquidity position that will provide for continued funding of expected loan demand.”

The company’s net interest margin decreased 19 basis points to 3.19% for 2020 compared to 3.38% for 2019. The lower margin in 2020 was impacted by lower yields on loans and securities, partially offset by a lower cost of funds. The Federal Reserve Bank decreased the target Federal Funds Rate by 225 basis points since the second half of 2019, including two Federal Reserve Bank emergency cuts to the Federal Funds Rate during March 2020. The two emergency cuts in March 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 company’s net interest margin was 3.28% in the fourth quarter of 2020 versus 3.30% for the fourth quarter of 2019 and 3.05% during the third quarter 2020. Quarterly net interest margin was impacted by a lower yield on the PPP loan portfolio, offset by fees earned as a result of PPP loan forgiveness and excess liquidity on the balance sheet. The company’s net interest margin excluding PPP loans was 16 basis points lower at 3.12% and reflected an 18 basis point decline from 3.30% for the fourth quarter of 2019. Linked quarter net interest margin excluding PPP loans was 3.17% for the third quarter of 2020. The yield on PPP loans was 3.41% for year ended December 31, 2020, which reflects the combined impact of the 1.00% interest rate on PPP loans and net PPP loan fee accretion.

Net interest income increased $8.0 million, or 5%, to $163.0 million in 2020, versus $155.0 million in 2019, due to significant loan and core deposit growth offset by margin compression. PPP loan interest and fees were $12.8 million during 2020. Net interest income increased $5.8 million, or 15%, to $44.7 million in the fourth quarter of 2020, versus $38.9 million in the fourth quarter of 2019. On a linked quarter basis, net interest income increased by $4.8 million, or 12%, from $39.9 million recorded in the third quarter of 2020. PPP interest and loan fees were $6.5 million in the fourth quarter of 2020, up from $3.3 million in the linked quarter due to PPP loan forgiveness approvals from the SBA and the resulting impact of accelerated PPP loan fee recognition.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021. This law extended relief for troubled debt restructurings and current expected credit losses (CECL) adoption under the CARES Act. The company elected to remain on the incurred loan loss methodology for 2020. The company will adopt the CECL standard during the first quarter of 2021, effective January 1, 2021 and is in the process of re-evaluating and finalizing CECL day 1 impact.

The company recorded a provision for loan losses of $14.8 million in 2020 compared to $3.2 million in 2019, an increase of 362%, or $11.6 million. The company recorded a provision for loan losses of $920,000 in the fourth quarter of 2020, versus $250,000 in the fourth quarter of 2019 and $1.8 million in the third quarter of 2020. The higher provision in 2020 was driven by the potential negative impact to the company’s borrowers from the economic conditions resulting from the COVID-19 pandemic.

The company’s allowance for loan losses as of December 31, 2020 was $61.4 million compared to $50.7 million as of December 31, 2019 and $60.7 million as of September 30, 2020. The allowance for loan losses represented 1.32% of total loans as of December 31, 2020 versus 1.25% as of December 31, 2019 and 1.32% as of September 30, 2020. The company’s loan loss reserve to total loans excluding PPP loans4 was 1.45% as of December 31, 2020. PPP loans are guaranteed by the United States SBA and have not been allocated for within the allowance for loan losses.

Net charge-offs were $4.0 million in 2020 versus $1.0 million in 2019. The increase in net charge-offs in 2020 was primarily due to a $3.7 million charge-off resulting from a single commercial manufacturing borrower recorded in the first quarter of 2020.  Net charge-offs for the fourth quarter of 2020 were $259,000 versus net charge-offs of $226,000 in the fourth quarter of 2019 and net charge-offs of $22,000 during the linked third quarter of 2020. Net charge-offs to average loans were 0.09% in 2020 compared to 0.03% for 2019. Annualized net charge-offs to average loans were 0.02% for the fourth quarters of 2020 and 2019 and 0.00% for the linked third quarter of 2020.

Nonperforming assets decreased $6.6 million, or 35%, to $12.4 million as of December 31, 2020 versus $19.0 million as of December 31, 2019 due to a decrease in nonaccrual loans. On a linked quarter basis, nonperforming assets were $1.4 million, or 10%, lower than the $13.8 million reported as of September 30, 2020. The ratio of nonperforming assets to total assets at December 31, 2020 decreased to 0.21% from 0.38% at December 31, 2019 and decreased from 0.25% at September 30, 2020. Watchlist loans as a percent of total loans, excluding PPP were 6.8% compared to 4.4% as of December 31, 2019 and 5.5% as of September 30, 2020.

“As we entered this crisis in the spring of 2020, we identified at-risk industries that totaled 19% of total loans. As we moved through 2020, it became clear that this was a conservative assessment of risk and we ended the year with identified at-risk industries totaling 3% of total loans. We are pleased to report that our borrowers fared better than our original concerns when the COVID-19 crisis started.” Findlay continued, “The increase in watch-list loans during 2020 reflects the challenges some of our borrowers are experiencing, particularly in the hotel and entertainment industries. We continue to work with these borrowers and believe our long track record of working through credit challenges will be valuable as we continue to support these borrowers.”

The company’s noninterest income increased $1.8 million, or 4%, to $46.8 million in 2020, compared to $45.0 million in 2019. The company’s noninterest income increased by $663,000, or 6%, to $11.8 million for the fourth quarter of 2020, compared to $11.1 million for the fourth quarter of 2019. Noninterest income decreased by $1.3 million, or 10%, from $13.1 million during the linked third quarter of 2020 due to lower interest rate swap fee income during the fourth quarter. For the full year of 2020, noninterest income was positively impacted by increases in interest rate swap fee income generated from commercial lending transactions, mortgage banking income, and wealth advisory fees due to continued growth of client relationships. Offsetting these increases was a decrease in service charges on deposit accounts driven primarily by lower treasury management fees as well as reduced levels of overdraft fee income.

The company’s noninterest expense increased $1.8 million, or 2%, to $91.2 million in 2020 compared to $89.4 million in 2019. The company’s noninterest expense increased $2.8 million, or 13%, to $24.9 million in the fourth quarter of 2020, compared to $22.1 million in the fourth quarter of 2019, and was higher by $1.8 million, or 8%, on a linked quarter basis. Data processing fees increased during 2020 primarily due to the company’s continued investment in customer-focused, technology-based solutions and ongoing cybersecurity and data management enhancements. FDIC insurance and other regulatory fees increased due to the expiration of insurance assessment credits and the impact of PPP loans on balance sheet growth. Salaries and employee benefits increased during 2020 primarily due to an increase to staffing in revenue producing and risk management areas as well as higher health insurance expenses. Professional fees increased due to higher legal expenses, increased fees to accounting firms and professional fees for innovative project implementations. Corporate and business development expenses decreased as in-person trainings and face-to-face customer and prospect meetings were limited due to COVID-19 safety protocols.

The company’s efficiency ratio was 43.5% for 2020 compared to 44.7% for 2019. The company’s efficiency ratio was 44.1% for the fourth quarter of 2020, compared to 44.2% for the fourth quarter of 2019 and 43.6% for the linked third quarter of 2020.

“2020 highlighted the strategic importance of our long-term strategy of continued focus and investment in technology and innovation. Fintech partnerships proved critical to us as we navigated the new banking environment for customer service delivery to our clients,” stated Findlay, “Despite the shift to remote workplaces, our teams continued to provide highly personalized services to our customers through technology. Innovation in technology, products and services and our brand is a marketplace expectation and critical to remaining relevant and competitive. Yet, we look forward to a return to a more normal operating environment when we can spend more time face-to-face with our clients and communities. It’s a hallmark of community banking and we’ll be ready for that when conditions permit. While keeping in contact through technology is great, it does not replicate the personal relationships we have with our clients, each other, and our communities.”

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

COVID-19 Crisis Management

On November 18, 2020, in response to the evolving COVID-19 situation in its markets, the company returned to limited lobby access to all its branch lobbies as well as a remote workplace environment for most non-retail employees.  The company continued to invest in personal protective equipment, protective barriers and enhanced social distancing measures for the safety of bank customers and employees. These investments have totaled approximately $640,000 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 impacted materially by the potential economic impact resulting of the COVID-19 pandemic. The current assessment includes a smaller group of industries compared to the initial list of potentially affected industries disclosed in the company’s April 27, 2020 first quarter, July 27, 2020 second quarter, and October 26, 2020 third quarter news releases. The company’s current list of industries under review represents approximately 3.3%, or $141 million, of the total loan portfolio, excluding PPP loans, versus $765 million, or 18.7%, as of April 27, 2020, $261 million, or 6.6%, as of July 27, 2020 and $228 million, or 5.7%, as of October 26, 2020. The current list of industries under review, along with their respective percentage of the loan portfolio, is hotel and accommodations – 2.3%, entertainment and recreation – 0.6% 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 10% of the bank’s loan portfolio as of December 31, 2020. Agri-business and agricultural loans represented the highest specific industry concentration at 10% 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 December 31, 2020, total deferrals attributable to COVID-19 were $101 million, representing 49 borrowers, or 2% of the total loan portfolio. Total deferrals as of January 20, 2021 represented a decline in deferral balances of 86% from peak levels. Of the $104 million, 23 were commercial loan borrowers representing $101 million in loans, or 2% of total commercial loans, and 25 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 January 20, 2021, nine borrowers with loans outstanding of $23 million were in their second deferral period and 11 borrowers with loans outstanding of $40 million were in their third deferral period, most of which were additional 90-day deferrals.  Additionally, 14 borrowers with loans outstanding of $27 million were in their fourth-deferral period.  Of the fourth deferral borrowers, two represented 82% of the fourth 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, 2020
 
December 31, 2020
 
January 20, 2021
  % change from
Peak
Borrowers
487 384 49 48 -90%
Amount
(in millions)
$737 $653 $101 $104 -86%
% of Total
Loan Portfolio
16%15%2%2%NA 


Total Commercial Loan Deferrals
 Peak
June 17, 2020

 June 30, 2020

December 31, 2020

January 20, 2021
% change from
Peak
Borrowers
351 322 22 23 -93%
Amount
(in millions)
$730 $647 $98 $101 -86%
% of  Commercial
Loan Portfolio
18%16%2%2%NA 


Total Retail Loan Deferrals
 Peak
June 17, 2020

 June 30, 2020

December 31, 2020

January 20, 2021
% change from
Peak
Borrowers
136 62 27 25 -82%
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 began to process PPP loan forgiveness applications for its customers and in November 2020, the SBA began to approve forgiveness applications. 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. This application will also be used for the second round of PPP loan originations and forgiveness. As of December 31, 2020, Lake City Bank had 2,409 PPP loans originated representing $570.5 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 December 31, 2020, the bank has submitted 1,145 loan forgiveness applications to the SBA in the amount of $300 million, which represented 48% of total PPP loans originated. The SBA has approved forgiveness for 900 loans in the amount of $142 million.

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 December 31, 2020 was 43% versus 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 $5.8 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.

           
LAKELAND FINANCIAL CORPORATION
FOURTH QUARTER 2020 FINANCIAL HIGHLIGHTS
 Three Months Ended Twelve Months Ended 
(Unaudited – Dollars in thousands, except per share data)Dec. 31, Sep. 30, Dec. 31, Dec. 31, Dec. 31, 
END OF PERIOD BALANCES2020 2020 2019 2020 2019 
Assets$   5,830,435 $5,551,108 $4,946,745 $   5,830,435 $4,946,745 
Deposits      5,036,805 4,767,954 4,133,819       5,036,805 4,133,819 
Brokered Deposits              15,002 29,703 113,527               15,002 113,527 
Core Deposits (3)      5,021,803 4,738,251 4,020,292       5,021,803 4,020,292 
Loans      4,649,156 4,589,924 4,065,828       4,649,156 4,065,828 
Paycheck Protection Program (PPP) Loans           412,007 557,851 0            412,007 0 
Allowance for Loan Losses              61,408 60,747 50,652               61,408 50,652 
Total Equity           657,184 636,839 598,100            657,184 598,100 
Goodwill net of deferred tax assets                 3,794 3,794 3,789                  3,794 3,789 
Tangible Common Equity (1)           653,390 633,045 594,311            653,390 594,311 
AVERAGE BALANCES          
Total Assets$   5,747,818 $5,520,861 $4,981,989 $   5,424,796 $4,941,904 
Earning Assets      5,501,505 5,282,569 4,748,361       5,184,836 4,656,707 
Investments - available-for-sale           657,990 637,523 610,947            633,957 603,580 
Loans      4,617,912 4,556,812 4,001,640       4,424,472 3,974,532 
Paycheck Protection Program (PPP) Loans           503,041 557,290 0            376,785 0 
Total Deposits      4,959,443 4,737,671 4,308,623       4,650,597 4,242,524 
Interest Bearing Deposits      3,477,431 3,336,268 3,302,593       3,340,696 3,298,406 
Interest Bearing Liabilities      3,568,572 3,433,326 3,336,343       3,437,338 3,390,512 
Total Equity           644,677 630,978 591,193            624,174 562,601 
INCOME STATEMENT DATA          
Net Interest Income$           44,713 $39,913 $38,882 $        163,008 $155,047 
Net Interest Income-Fully Tax Equivalent              45,362 40,523 39,459            165,454 157,176 
Provision for Loan Losses                     920 1,750 250               14,770 3,235 
Noninterest Income              11,782 13,115 11,119               46,843 44,997 
Noninterest Expense              24,912 23,125 22,122               91,205 89,424 
Net Income              24,592 22,776 22,198               84,337 87,047 
Pretax Pre-Provision Earnings (1)              31,583 29,903 27,879            118,646 110,620 
PER SHARE DATA          
Basic Net Income Per Common Share$                 0.97 $0.89 $0.86 $                 3.31 $3.40 
Diluted Net Income Per Common Share                    0.97 0.89 0.86                     3.30 3.38 
Cash Dividends Declared Per Common Share                    0.30 0.30 0.30                     1.20 1.16 
Dividend Payout                 30.93%33.71%34.88%                 36.36%34.32%
Book Value Per Common Share (equity per share issued)                 25.85 25.05 23.34                  25.85 23.34 
Tangible Book Value Per Common Share (1)                 25.70 24.90 23.19                  25.70 23.19 
Market Value – High                 56.28 53.00 50.00                  56.28 50.00 
Market Value – Low                 40.57 39.38 42.00                  30.49 39.78 
Basic Weighted Average Common Shares Outstanding   25,424,307 25,418,712 25,623,016    25,469,242 25,588,404 
Diluted Weighted Average Common Shares Outstanding   25,519,643 25,487,302 25,818,433    25,573,941 25,758,893 
KEY RATIOS          
Return on Average Assets                    1.70%1.64%1.77%                    1.55%1.76%
Return on Average Total Equity                 15.18 14.36 14.90                  13.51 15.47 
Average Equity to Average Assets                 11.22 11.43 11.87                  11.49 11.38 
Net Interest Margin                    3.28 3.05 3.30                     3.19 3.38 
Net Interest Margin, Excluding PPP Loans (1)                    3.12 3.17 3.30                     3.19 3.38 
Efficiency  (Noninterest Expense / Net Interest Income plus Noninterest Income)                 44.10 43.61 44.24                  43.46 44.70 
Tier 1 Leverage (2)                 10.93 11.07 11.67                  10.93 11.67 
Tier 1 Risk-Based Capital (2)                 13.39 13.65 13.21                  13.39 13.21 
Common Equity Tier 1 (CET1) (2)                 13.39 13.65 13.21                  13.39 13.21 
Total Capital (2)                 14.65 14.90 14.36                  14.65 14.36 
Tangible Capital (1) (2)                 11.21 11.41 12.02                  11.21 12.02 
ASSET QUALITY           
Loans Past Due 30 - 89 Days$              1,263 $1,106 $1,471 $              1,263 $1,471 
Loans Past Due 90 Days or More                     116 19 45                      116 45 
Non-accrual Loans              11,986 13,478 18,675               11,986 18,675 
Nonperforming Loans (includes nonperforming TDRs)              12,102 13,497 18,720               12,102 18,720 
Other Real Estate Owned                     316 316 316                      316 316 
Other Nonperforming Assets                           6 0 0                            6 0 
Total Nonperforming Assets              12,424 13,813 19,036               12,424 19,036 
Performing Troubled Debt Restructurings                 5,237 5,658 5,909                  5,237 5,909 
Nonperforming Troubled Debt Restructurings (included in nonperforming loans)                 6,476 6,547 3,188                  6,476 3,188 
Total Troubled Debt Restructurings              11,713 12,205 9,097               11,713 9,097 
Impaired Loans              20,177 22,484 27,763               20,177 27,763 
Non-Impaired Watch List Loans           265,970 198,851 152,421            265,970 152,421 
Total Impaired and Watch List Loans           286,147 221,335 180,184            286,147 180,184 
Gross Charge Offs                     688 305 321                  5,253 1,910 
Recoveries                     429 283 95                  1,239 874 
Net Charge Offs/(Recoveries)                     259 22 226                  4,014 1,036 
Net Charge Offs/(Recoveries) to Average Loans                    0.02%0.00%0.02%                    0.09%0.03%
Loan Loss Reserve to Loans                    1.32%1.32%1.25%                    1.32%1.25%
Loan Loss Reserve to Loans, Excluding PPP Loans (1)                    1.45%1.51%1.25%                    1.45%1.25%
Loan Loss Reserve to Nonperforming Loans              507.42%450.09%270.58%              507.42%270.58%
Loan Loss Reserve to Nonperforming Loans and Performing TDRs              354.17%317.13%205.66%              354.17%205.66%
Nonperforming Loans to Loans                    0.26%0.29%0.46%                    0.26%0.46%
Nonperforming Assets to Assets                    0.21%0.25%0.38%                    0.21%0.38%
Total Impaired and Watch List Loans to Total Loans                    6.15%4.82%4.43%                    6.15%4.43%
Total Impaired and Watch List Loans to Total Loans, Excluding PPP Loans (1)                    6.75%5.49%4.43%                    6.75%4.43%
OTHER DATA          
Full Time Equivalent Employees                     585 571 568                      585 568 
Offices                        50 50 50                         50 50 
           
(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Financial Measures"
(2) Capital ratios for December 31, 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)
 December 31,  December 31,
 2020  2019
 (Unaudited)    
ASSETS    
Cash and due from banks$             74,457  $            68,605
Short-term investments175,470  30,776
Total cash and cash equivalents249,927  99,381
     
Securities available-for-sale (carried at fair value)734,845  608,233
Real estate mortgage loans held-for-sale11,218  4,527
     
Loans, net of allowance for loan losses of $61,408 and $50,6524,587,748  4,015,176
     
Land, premises and equipment, net59,298  60,365
Bank owned life insurance95,227  83,848
Federal Reserve and Federal Home Loan Bank stock13,772  13,772
Accrued interest receivable18,761  15,391
Goodwill4,970  4,970
Other assets54,669  41,082
Total assets$       5,830,435  $      4,946,745
     
     
LIABILITIES    
Noninterest bearing deposits$       1,538,331  $         983,307
Interest bearing deposits3,498,474  3,150,512
Total deposits5,036,805  4,133,819
     
Borrowings    
Federal Home Loan Bank advances75,000  170,000
Miscellaneous borrowings10,500  0
Total borrowings85,500  170,000
     
Accrued interest payable5,959  11,604
Other liabilities44,987  33,222
Total liabilities5,173,251  4,348,645
     
STOCKHOLDERS' EQUITY    
Common stock:  90,000,000 shares authorized, no par value    
25,713,408 shares issued and 25,239,748 outstanding as of December 31, 2020    
25,623,016 shares issued and 25,444,275 outstanding as of December 31, 2019114,927  114,858
Retained earnings529,005  475,247
Accumulated other comprehensive income27,744  12,059
Treasury stock at cost (473,660 shares as of December 31, 2020, 178,741 shares as of December 31, 2019)(14,581) (4,153)
Total stockholders' equity657,095  598,011
Noncontrolling interest89  89
Total equity657,184  598,100
Total liabilities and equity$       5,830,435  $      4,946,745


        
CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)    
 Three Months Ended Twelve Months Ended
 December 31, December 31,
 2020 2019 2020 2019
NET INTEREST INCOME       
Interest and fees on loans       
Taxable$                  45,779 $                 47,639 $               176,538 $              196,733
Tax exempt                          105 231                           647 951
Interest and dividends on securities       
Taxable                      1,554 1,953                       6,973 8,909
Tax exempt                      2,340 1,956                       8,577 7,127
Other interest income                            76 533                           368 1,490
Total interest income                    49,854 52,312                   193,103 215,210
        
Interest on deposits                      5,018 13,017                     29,342 57,148
Interest on borrowings       
Short-term                            48 16                           506 1,311
Long-term                            75 397                           247 1,704
Total interest expense                      5,141 13,430                     30,095 60,163
        
NET INTEREST INCOME                    44,713 38,882                   163,008 155,047
        
Provision for loan losses                          920 250                     14,770 3,235
        
NET INTEREST INCOME AFTER PROVISION FOR       
  LOAN LOSSES                    43,793 38,632                   148,238 151,812
        
NONINTEREST INCOME       
Wealth advisory fees                      1,874 1,833                       7,468 6,835
Investment brokerage fees                          522 387                       1,670 1,687
Service charges on deposit accounts                      2,658 2,926                     10,110 15,717
Loan and service fees                      2,615 2,508                     10,085 9,911
Merchant card fee income                          475 659                       2,408 2,641
Bank owned life insurance income                          629 644                       2,105 1,890
Interest rate swap fee income                          984 844                       5,089 1,691
Mortgage banking income                          966 370                       3,911 1,626
Net securities gains                            70 48                           433 142
Other income                          989 900                       3,564 2,857
Total noninterest income                    11,782 11,119                     46,843 44,997
        
NONINTEREST EXPENSE       
Salaries and employee benefits                    13,717 12,203                     49,413 48,742
Net occupancy expense                      1,515 1,295                       5,851 5,295
Equipment costs                      1,550 1,378                       5,766 5,521
Data processing fees and supplies                      3,128 2,788                     11,864 10,407
Corporate and business development                          769 995                       3,093 4,371
FDIC insurance and other regulatory fees                          483 72                       1,707 638
Professional fees                      1,808 1,157                       5,314 4,644
Other expense                      1,942 2,234                       8,197 9,806
Total noninterest expense                    24,912 22,122                     91,205 89,424
        
INCOME BEFORE INCOME TAX EXPENSE                    30,663 27,629                   103,876 107,385
Income tax expense                      6,071 5,431                     19,539 20,338
NET INCOME$                  24,592 $                 22,198 $                  84,337 $                 87,047
        
BASIC WEIGHTED AVERAGE COMMON SHARES            25,424,307 25,623,016             25,469,242 25,588,404
BASIC EARNINGS PER COMMON SHARE$                      0.97 $                     0.86 $                      3.31 $                     3.40
DILUTED WEIGHTED AVERAGE COMMON SHARES            25,519,643 25,818,433             25,573,941 25,758,893
DILUTED EARNINGS PER COMMON SHARE$                      0.97 $                     0.86 $                      3.30 $                     3.38
        


LAKELAND FINANCIAL CORPORATION
LOAN DETAIL
FOURTH QUARTER 2020
(unaudited, in thousands)
 
 December 31,September 30,December 31,
 202020202019
Commercial and industrial loans:            
Working capital lines of credit loans$                    626,023            13.5 % $         592,560 12.9%$         709,849 17.5%
Non-working capital loans                  1,165,355            25.0 1,256,853 27.3 717,019 17.6 
Total commercial and industrial loans                  1,791,378            38.5 1,849,413 40.2 1,426,868 35.1 
             
Commercial real estate and multi-family residential loans:            
Construction and land development loans                      362,653              7.8 393,101 8.5 287,641 7.1 
Owner occupied loans                      648,019            13.9 619,820 13.5 573,665 14.1 
Nonowner occupied loans                      579,625            12.5 567,674 12.3 571,364 14.0 
Multifamily loans                      304,717              6.5 279,713 6.1 240,652 5.9 
Total commercial real estate and multi-family residential loans                  1,895,014            40.7 1,860,308 40.4 1,673,322 41.1 
             
Agri-business and agricultural loans:            
Loans secured by farmland195,410              4.2 150,503 3.2 174,380 4.3 
Loans for agricultural production234,234              5.0 187,651 4.1 205,151 5.0 
Total agri-business and agricultural loans429,644              9.2 338,154 7.3 379,531 9.3 
             
Other commercial loans                        94,013              2.0 97,533 2.1 112,302 2.8 
Total commercial loans                  4,210,049            90.4 4,145,408 90.0 3,592,023 88.3 
             
Consumer 1-4 family mortgage loans:            
Closed end first mortgage loans                      167,847              3.6 170,671 3.7 177,227 4.4 
Open end and junior lien loans                      163,664              3.5 170,867 3.7 186,552 4.6 
Residential construction and land development loans                        12,007              0.3 11,012 0.3 12,966 0.3 
Total consumer 1-4 family mortgage loans                      343,518              7.4 352,550 7.7 376,745 9.3 
             
Other consumer loans                      103,616              2.2 105,285 2.3 98,617 2.4 
Total consumer loans                      447,134              9.6 457,835 10.0 475,362 11.7 
Subtotal4,657,183          100.0 % 4,603,243 100.0%4,067,385 100.0%
Less:  Allowance for loan losses(61,408)  (60,747  (50,652  
Net deferred loan fees          (8,027)  (13,319  (1,557  
Loans, net$                4,587,748   $      4,529,177   $      4,015,176   
             
             
             
LAKELAND FINANCIAL CORPORATION
DEPOSITS AND BORROWINGS
FOURTH QUARTER 2020
(unaudited, in thousands)
             
 December 31,   September 30,   December 31,   
 2020   2020   2019   
Noninterest bearing demand deposits$                1,538,331   $      1,420,853   $         983,307   
Savings and transaction accounts:            
Savings deposits                      312,702   289,500   234,508   
Interest bearing demand deposits                  2,160,953   1,844,211   1,723,937   
Time deposits:            
Deposits of $100,000 or more                      785,238   965,709   910,134   
Other time deposits                      239,581   247,681   281,933   
Total deposits$                5,036,805   $      4,767,954   $      4,133,819   
FHLB advances and other borrowings                        85,500   85,500   170,000   
Total funding sources$                5,122,305   $      4,853,454   $      4,303,819   
             


 
LAKELAND FINANCIAL CORPORATION
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(UNAUDITED)
 
                     
 Three Months Ended  Three Months Ended  Three Months Ended 
 December 31, 2020  September 30, 2020  December 31, 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)$    4,604,704 $       45,779             3.96% $4,541,608 $42,056 3.68% $3,977,782 $47,639 4.75%
Tax exempt (1)              13,208                  132             3.97  15,204 130 3.40  23,858 288 4.79 
Investments: (1)                    
Available-for-sale           657,990              4,516             2.73  637,523 4,359 2.72  610,947 4,429 2.88 
Short-term investments                 2,334                        1             0.17  8,865 3 0.13  54,439 339 2.47 
Interest bearing deposits           223,269                     75             0.13  79,369 41 0.21  81,335 194 0.95 
Total earning assets$    5,501,505 $       50,503             3.65% $5,282,569 $46,589 3.51% $4,748,361 $52,889 4.42%
Less:  Allowance for loan losses            (61,438)      (59,519)     (50,753)    
Nonearning Assets                    
Cash and due from banks              66,851      61,656      65,294     
Premises and equipment              59,942      60,554      59,850     
Other nonearning assets           180,958      175,601      159,237     
Total assets$    5,747,818      $5,520,861      $4,981,989     
                     
Interest Bearing Liabilities                    
Savings deposits$        297,832 $                 57             0.08% $282,456 $53 0.07% $237,241 $55 0.09%
Interest bearing checking accounts       2,058,069              1,585             0.31  1,827,061 1,405 0.31  1,764,854 5,765 1.30 
Time deposits:                    
In denominations under $100,000           242,846                  792             1.30  254,315 982 1.54  282,683 1,422 2.00 
In denominations over $100,000           878,684              2,584             1.17  972,436 3,501 1.43  1,017,815 5,775 2.25 
Miscellaneous short-term borrowings              16,141                     48             1.18  22,058 51 0.92  3,495 16 1.82 
Long-term borrowings and                    
subordinated debentures              75,000                     75             0.40  75,000 74 0.39  30,255 397 5.21 
Total interest bearing liabilities$    3,568,572 $          5,141             0.57% $3,433,326 $6,066 0.70% $3,336,343 $13,430 1.60%
Noninterest Bearing Liabilities                    
Demand deposits       1,482,012      1,401,403      1,006,030     
Other liabilities              52,557      55,154      48,423     
Stockholders' Equity           644,677      630,978      591,193     
Total liabilities and stockholders' equity$    5,747,818      $5,520,861      $4,981,989     
                     
Interest Margin Recap                    
Interest income/average earning assets  50,503             3.65    46,589 3.51    52,889 4.42 
Interest expense/average earning assets  5,141             0.37    6,066 0.46    13,430 1.12 
Net interest income and margin  $       45,362             3.28%   $40,523 3.05%   $39,459 3.30%


(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 $649,000, $610,000 and $577,000 in the three-month periods ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.
(2)Loan fees are included as taxable loan interest income. Net loan fees attributable to PPP loans were $5.21 million and $1.87 million for the three months ended December 31, 2020 and September 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 loan loss reserve to total 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
 Twelve Months Ended
 Dec. 31, Sep. 30, Dec. 31, Dec 31, Dec. 31,
 2020 2020 2019 2020 2019
Total Loans$4,649,156  $4,589,924 $4,065,828 $4,649,156  $4,065,828 
Less: PPP Loans412,007 557,851 0 412,007 0
Total Loans, Excluding PPP Loans$4,237,149  $4,032,073 $4,065,828 $4,237,149  $4,065,828 
                
Allowance for Loan Losses$61,408  $60,747  $50,652 $61,408  $50,652 
          
Loan Loss Reserve to Total Loans1.32%1.32%1.25%1.32% 1.25%
Loan Loss Reserve to Total Loans, Excluding PPP Loans1.45%1.51%1.25%1.45% 1.25%
                
 Three Months Ended
 Twelve Months Ended
 Dec. 31, Sep. 30, Dec. 31, Dec 31, Dec. 31,
 2020 2020 2019 2020 2019
Total Loans$4,649,156  $4,589,924 $4,065,828 $4,649,156  $4,065,828 
Less: PPP Loans412,007 557,851 0 412,007 0
Total Loans, Excluding PPP Loans$4,237,149  $4,032,073 $4,065,828 $4,237,149  $4,065,828 
                
Total Impaired and Watch List Loans$286,147  $221,335  $180,184 $286,147  $180,184 
                
Total Impaired and Watch List Loans to Total Loans 6.15% 4.82% 4.43% 6.15% 4.43%
Total Impaired and Watch List Loans to Total Loans, Excluding PPP Loans 6.75% 5.49% 4.43% 6.75% 4.43%%
                

Tangible common equity, tangible assets, tangible book value per share, tangible common equity to tangible assets ratio 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 taxes. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred taxes. 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 
  Twelve Months Ended
 Dec. 31,  Sep. 30,  Dec. 31,  Dec 31,  Dec. 31, 
 2020  2020  2019  2020  2019 
Total Equity$        657,184  $636,839  $598,100  $        657,184  $598,100 
Less: Goodwill               (4,970) (4,970) (4,970)                (4,970) (4,970)
Plus: Deferred tax assets related to goodwill                 1,176  1,176  1,181                   1,176  1,181 
Tangible Common Equity           653,390  633,045  594,311             653,390  594,311 
               
Assets$   5,830,435  $5,551,108  $4,946,745  $   5,830,435  $4,946,745 
Less: Goodwill               (4,970) (4,970) (4,970)                (4,970) (4,970)
Plus: Deferred tax assets related to goodwill                 1,176  1,176  1,181                   1,176  1,181 
Tangible Assets      5,826,641  5,547,314  4,942,956        5,826,641  4,942,956 
               
Ending common shares issued   25,424,307  25,419,814  25,623,016     25,424,307  25,623,016 
               
Tangible Book Value Per Common Share$              25.70  $24.90  $23.19  $              25.70  $23.19 
               
Tangible Common Equity/Tangible Assets11.21% 11.41% 12.02% 11.21% 12.02%
               
               
               
Net Interest Income$           44,713  $39,913  $38,882  $        163,008  $155,047 
Plus:  Noninterest income              11,782  13,115  11,119                46,843  44,997 
Pretax Pre-Provision Earnings            (24,912) (23,125) (22,122)             (91,205) (89,424)
               

$           31,583  $29,903  $27,879  $        118,646  $110,620 
               

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 Twelve Months Ended
 Dec. 31,   Sep. 30,   Dec. 31,  Dec. 31,  Dec. 31, 
 2020   2020   2019  2020  2019 
                 
Total Average Earnings Assets$          5,501,505   $5,282,569   $4,748,361  $          5,184,836  $4,656,707 
Less: Average Balance of PPP Loans                  503,041   557,290   0                    376,785  0 
Total Adjusted Earning Assets             4,998,464   4,725,279   4,748,361               4,808,051  4,656,707 
                 
Total Interest Income FTE$                  50,503   $46,589   $52,889  $               195,549  $217,339 
Less: PPP Loan Income                      (6,509)  (3,294)  0                     (12,832) 0 
Total Adjusted Interest Income FTE                     43,994   43,295   52,889                    182,717  217,339 
                 
Adjusted Earning Asset Yield, net of PPP Impact3.50%  3.65%  4.42% 3.80% 4.67%
                 
Total Average Interest Bearing Liabilities$          3,568,572   $3,433,326   $3,336,343  $          3,437,338  $3,390,512 
Less: Average Balance of PPP Loans                  503,041   557,290   0                    376,785  0 
Total Adjusted Interest Bearing Liabilities             4,071,613   3,990,616   3,336,343               3,814,123  3,390,512 
                 
Total Interest Expense FTE$                     5,141   $6,066   $13,430  $                  30,095  $60,163 
Less: PPP Cost of Funds                          (320)  (350)  0                            (956) 0 
Total Adjusted Interest Expense FTE                        4,821   5,716   13,430                       29,139  60,163 
                 
Adjusted Cost of Funds, net of PPP Impact0.38%  0.48%  1.12% 0.61% 1.29%
                 
Net Interest Margin FTE, net of PPP Impact3.12%  3.17%  3.30% 3.19% 3.38%
                 


Contact

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


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