Results

Lakeland Financial Corporation

07/26/2021 | Press release | Distributed by Public on 07/26/2021 06:00

Lakeland Financial Reports Record Second Quarter 2021 Performance (Form 8-K)

Lakeland Financial Reports Record Second Quarter 2021 Performance
Warsaw, Indiana (July 26, 2021) - Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported record quarterly net income of $24.3 million for the three months ended June 30, 2021, an increase of 24% versus $19.7 million for the second quarter of 2020. Diluted earnings per share increased 23% to $0.95 for the second quarter of 2021, versus $0.77 for the second quarter of 2020. On a linked quarter basis, net income increased $1.4 million, or 6%, from the first quarter of 2021, in which the company had net income of $23.0 million, or $0.90, diluted earnings per share. Pretax pre-provision earnings1 were $28.4 million for the second quarter of 2021, a decrease of 4%, or $1.3 million, from $29.6 million for the second quarter of 2020. On a linked quarter basis, pretax pre-provision earnings decreased 4%, or $1.1 million, from $29.5 million for the first quarter of 2021.

The company further reported record net income of $47.3 million for the six months ended June 30, 2021 versus $37.0 million for the comparable period of 2020, an increase of 28%. Diluted earnings per share also increased 28% to $1.85 for the six months ended June 30, 2021 versus $1.44 for the comparable period of 2020. Pretax pre-provision earnings1 were $57.8 million for the six months ended June 30, 2021, versus $57.2 million for the comparable period of 2020, an increase of 1%, or $0.7 million.

David M. Findlay, President and Chief Executive Officer commented, 'We are very pleased with our strong performance in 2021 under challenging conditions. Our record net income for the quarter and first six months of the year reflects strong organic loan and deposit growth, exceptional management of the Paycheck Protection Program and prudent overall balance sheet management. As we transition to the second half of 2021, we look forward to expanding our business development efforts and focusing on growing relationships with clients and prospects.'
Financial Performance - Second Quarter 2021
Second Quarter 2021 versus Second Quarter 2020 highlights:
•Return on average equity of 14.71%, compared to 12.92%
•Return on average assets of 1.58%, compared to 1.45%
•Organic loan growth, excluding PPP loans, of $223.6 million, or 6%
•Core deposit growth of $769.3 million, or 17%
◦Noninterest bearing demand deposit account growth of $317.1 million, or 22%
•Net interest income increase of $4.1 million, or 10%
•Net interest margin of 3.01% compared to 3.10%
•Noninterest income increase of $171,000, or 2%
•Revenue growth of $4.3 million, or 8%
•Noninterest expense increase of $5.6 million, or 26%
•Recovery of a $1.7 million loan charged off in 2009, resulting in $1.7 million reverse provision compared to provision expense of $5.5 million, a decrease of $7.2 million
•Dividend per share increase of 13% to $0.34 from $0.30
•Average total equity increase of $51.7 million, or 8%
•Total risk-based capital ratio improved to 15.04% compared to 14.93%
•Tangible capital ratio of 10.81% compared to 11.35%
1Non-GAAP financial measure - see 'Reconciliation of Non-GAAP Financial Measures'
2Beginning January 1, 2021 calculation is based on the Current Expected Credit Loss methodology (CECL). Prior to January 1, 2021 calculation was based on the incurred loss methodology.
1


Second Quarter 2021 versus First Quarter 2021 highlights:
•Return on average equity of 14.71%, compared to 14.27%
•Return on average assets of 1.58% for both periods
•Organic loan growth, excluding PPP loans, of $81.6 million, or 2%
•Core deposit growth of $164.7 million, or 3%
◦Noninterest bearing demand deposit account growth of $138.9 million, or 9%
•Net interest income decrease of $18,000
•Net interest margin of 3.01% compared to 3.19%
•Noninterest income decrease of $1.2 million, or 10%
•Recovery of a $1.7 million loan charged off in 2009, resulting in $1.7 million reverse provision compared to provision expense of $1.5 million, a decrease of $3.2 million
•Decrease in watch list loans of $10.8 million, or 4% decline
•Noninterest expense decrease of $98,000
•Average total equity increase of $10.7 million, or 2%
•Total risk-based capital declined to 15.04% compared to 15.20%
•Tangible capital ratio was 10.81% compared to 10.77%

As announced on July 13, 2021, the board of directors approved a cash dividend for the second quarter of $0.34 per share, payable on August 5, 2021, to shareholders of record as of July 25, 2021. The second quarter dividend per share of $0.34 is unchanged from the dividend per share paid for the first quarter of 2021 and reflects a 13% increase from the dividend rate a year ago.

On April 13, 2021, the company's board of directors reauthorized and extended the share repurchase program through April 30, 2023. Under the program the company is authorized to repurchase, from time to time as the company deems appropriate, shares of the company's common stock with an aggregate purchase price of up to $30 million. No shares were repurchased under the plan during 2021. Under the program, the company repurchased 289,101 shares, with an average purchase price of $34.66, during the first quarter of 2020.
Average total loans for the second quarter of 2021 were $4.49 billion, an increase of $27.3 million, or 1%, versus $4.46 billion for the second quarter 2020. Average PPP loans were $348.0 million during the second quarter 2021. Excluding PPP loans, average loans were $4.14 billion compared to $4.00 billion for the second quarter of 2020, an increase of $137.0 million, or 3%. On a linked quarter basis, average loans excluding PPP loans decreased by $24.8 million, or 1%. Average total loans including PPP loans decreased $79.5 million, or 2%, from $4.57 billion for the first quarter of 2021.

Total loans, excluding PPP loans, increased by $223.6 million, or 6%, as of June 30, 2021 as compared to June 30, 2020. On a linked quarter basis, total loans excluding PPP loans were $4.16 billion as of June 30, 2021, an increase of $81.6 million, or 2%, as compared to the first quarter of 2021. Total loans outstanding, including PPP loans, decreased by $136.8 million, or 3%, from $4.49 billion as of June 30, 2020 to $4.35 billion as of June 30, 2021. PPP loans outstanding were $194.2 million as of June 30, 2021, which reflects PPP forgiveness and repayments of $535.2 million since the program's inception.

Findlay stated, 'We are pleased to report substantial progress in PPP forgiveness application approvals during the quarter with $228.1 million, or approximately 578 loans, forgiven during the quarter. Approximately 95% of our round one PPP loans have been forgiven by the SBA and 29% of our round two PPP loans have been forgiven as of July 20, 2021. Our lenders look forward to shifting their focus to organic loan growth opportunities in our Lake City Bank footprint. The loan pipeline is healthy and we are optimistic about future loan growth potential.'

1Non-GAAP financial measure - see 'Reconciliation of Non-GAAP Financial Measures'
2Beginning January 1, 2021 calculation is based on the Current Expected Credit Loss methodology (CECL). Prior to January 1, 2021 calculation was based on the incurred loss methodology.

2

Average total deposits were $5.39 billion for the second quarter of 2021, an increase of $690.4 million, or 15%, versus $4.70 billion for the second quarter of 2020. On a linked quarter basis, average total deposits increased by $280.2 million, or 5%. Total deposits increased $751.2 million, or 16%, from $4.64 billion as of June 30, 2020 to $5.39 billion as of June 30, 2021. On a linked quarter basis, total deposits increased by $164.7 million, or 3%, from $5.23 billion as of March 31, 2021.

Core deposits, which exclude brokered deposits, increased by $769.3 million, or 17%, from $4.62 billion at June 30, 2020 to $5.38 billion at June 30, 2021. This increase was due to growth in commercial deposits of $338.9 million, or 19%; growth in retail deposits of $258.1 million, or 15%; and growth in public fund deposits of $172.4 million, or 16%. On a linked quarter basis, core deposits increased by $164.7 million, or 3%, at June 30, 2021 as compared to March 31, 2021. The linked quarter growth resulted from commercial deposit growth of $114.4 million, a 6% increase; public fund growth of $71.2 million, a 6% increase; and retail contraction of $20.9 million, a 1% decrease. PPP loan forgiveness and the first round of stimulus payments to municipalities contributed to the increase in deposits during the second quarter.

Investment securities were $1.1 billion at June 30, 2021, reflecting an increase of $491.3 million, or 78%, as compared to $632.9 million at June 30, 2020. Investment securities increased $283.8 million, or 34%, on a linked quarter basis. Investment securities represent 18% of total assets compared to 12% on June 30, 2020 and 14% on March 31, 2021. The increase in investment securities reflects the deployment of excess liquidity resulting from deposit increases that resulted from PPP and economic stimulus.

Findlay added, 'We have deployed $600 million in excess liquidity to our investment securities portfolio since late 2020 in response to the surge in deposit balances that began in 2020 and has continued into 2021. The unprecedented liquidity of our balance sheet has presented some unique challenges and we have judiciously allocated a portion of that liquidity to the investment portfolio without significant impact to our asset sensitive balance sheet. Our commercial line utilization has improved from 39% in March 2021 to 41% in July, however it is considerably lower than in previous years. During the past eight years, we have averaged 49% commercial line utilization, so the trends in 2020 and 2021 have clearly been created by the impact on our clients of the governmental programs designed to strengthen and stabilize the economy.'

The company's net interest margin decreased 9 basis points to 3.01% for the second quarter of 2021 compared to 3.10% for the second quarter of 2020. The lower margin in the second quarter of 2021 as compared to the prior year period was due to lower yields on loans and securities, partially offset by a lower cost of funds. As a result of the excess liquidity on the company's balance sheet, the mix of earning assets included lower earning assets consisting of balances at the Federal Reserve Bank and the investment securities portfolio. The decline in earning asset yields, and thereby net interest margin, resulted from the Federal Reserve Bank decreases in the target Federal Funds Rate by 150 basis points during the first quarter of 2020, which brought the Federal Funds Rate back to the zero-bound range of 0.00% to 0.25%. Second quarter loan yields were impacted by the lower yield on the PPP loan portfolio, offset by fees earned as a result of PPP loan forgiveness.

The company's net interest margin excluding PPP loans1 was 6 basis points lower at 2.95% for the second quarter of 2021 compared to actual net interest margin of 3.01%, and reflects a 22 basis point decline from net interest margin excluding PPP loans of 3.17% in the second quarter of 2020. Linked quarter net interest margin excluding PPP loans decreased by 11 basis points compared to 3.06% for the first quarter of 2021 due to declining earning asset yields and excess liquidity on the balance sheet. Cost of funds decreased to a historical low of 0.27% for the three-month period ended June 30, 2021 from 0.56% at June 30, 2020 and 0.31% on a linked quarter basis.

Net interest income increased by $4.1 million, or 10%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. On a linked quarter basis, net interest income decreased $18,000 from the first quarter of 2021. PPP loan income was $3.7 million for the three months ended June 30, 2021, compared to $5.2 million during the first quarter of 2021. Net interest income increased by $9.0 million, or 11%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 due primarily to a decrease in interest expense of $10.6 million and an increase in investment securities income of $1.5 million, offset by a $3.1 million decline in loan interest income.

1Non-GAAP financial measure - see 'Reconciliation of Non-GAAP Financial Measures'
2Beginning January 1, 2021 calculation is based on the Current Expected Credit Loss methodology (CECL). Prior to January 1, 2021 calculation was based on the incurred loss methodology.
3


The company adopted CECL during the first quarter of 2021, effective January 1, 2021. The day one impact of adoption was an increase in the allowance for credit losses2 of $9.1 million, with an offset, net of taxes, to beginning stockholders' equity. The company recorded a provision for credit losses2 reversal of $1.7 million in the second quarter of 2021, compared to $5.5 million provision expense in the second quarter of 2020, a decrease of $7.2 million. On a linked quarter basis, the provision2 decreased by $3.2 million from expense of $1.5 million in the first quarter of 2021. The provision reversal in the second quarter of 2021 was driven primarily by a one-time recovery of $1.7 million from a commercial loan relationship that had been partially charged off in 2009. The company's credit loss reserve to total loans2 was 1.65% at June 30, 2021 versus 1.31% at June 30, 2020 and 1.61% at March 31, 2021. The company's credit loss reserve2 to total loans excluding PPP loans1 was 1.72% at June 30, 2021 versus 1.50% at June 30, 2020 and 1.76% at March 31, 2021. PPP loans are guaranteed by the United States Small Business Administration (SBA) and have not been allocated for within the allowance for credit losses2.

'The $1.7 million recovery recorded during the second quarter is a testament to our long-standing approach to working with our borrowers when they encounter challenges. We prudently charged off the loan 12 years ago but continued to do business with the borrower and maintained a meaningful relationship. As a result, the bank was able to work with the borrower to secure this recovery,' commented Findlay.
Net recoveries in the second quarter of 2021 were $1.6 million versus net charge offs of $90,000 in the second quarter of 2020 and net charge offs of $91,000 during the linked first quarter of 2021. Annualized net charge offs (recoveries) to average loans were (0.14%) for the second quarter of 2021 versus 0.01% for the second quarter of 2020, and 0.01% for the linked first quarter of 2021.

Nonperforming assets decreased $3.3 million, or 22%, to $11.8 million as of June 30, 2021 versus $15.1 million as of June 30, 2020. On a linked quarter basis, nonperforming assets decreased $383,000, or 3%, versus the $12.2 million reported as of March 31, 2021. The ratio of nonperforming assets to total assets at June 30, 2021 decreased to 0.19% from 0.28% at June 30, 2020 and decreased from 0.20% at March 31, 2021 on a linked quarter basis. Total individually analyzed and watch list loans increased by $57.1 million, or 31%, to $241.3 million at June 30, 2021 versus $184.2 million as of June 30, 2020. On a linked quarter basis, total individually analyzed and watch list loans decreased by $9.9 million, or 4%, from $251.2 million at March 31, 2021. The decrease in total individually analyzed and watch list loans was due primarily to a decrease in non-individually analyzed watch list credits. Individually analyzed watch list loans decreased by $4.7 million, or 20%, to $19.3 million at June 30, 2021 versus $24.0 million at June 30, 2020. On a linked quarter basis, individually analyzed watch list loans decreased by $872,000, or 4%, from $20.1 million at March 31, 2021.
The company's noninterest income increased $171,000, or 2%, to $11.3 million for the second quarter of 2021, compared to $11.2 million for the second quarter of 2020. Noninterest income was positively impacted by elevated wealth and investment brokerage fees which increased by $538,000, or 25%, for these comparable periods. In addition, service charges on deposit accounts were up $332,000, or 15%, and loan and service fees were up $617,000, or 25%, for these comparable periods due to an increase in economic activity within the company's operating footprint. Offsetting these increases were decreases of $804,000, or 61%, in interest rate swap fee income and $939,000, or 69%, in mortgage banking income. Both interest rate swap arrangements and mortgage banking have seen a decrease in demand during the second quarter of 2021 compared to the second quarter of 2020, and the carrying value of mortgage service rights has been impacted by increased prepayment speeds due to the current rate environment and appreciating single-home values.
Noninterest income decreased by $1.2 million, or 10%, on a linked quarter from $12.6 million. The linked quarter decrease resulted primarily from a decrease in net securities gains of $709,000 and mortgage banking income of $958,000. Offsetting these decreases was a $256,000 increase in interest rate swap fee income during the quarter.

1Non-GAAP financial measure - see 'Reconciliation of Non-GAAP Financial Measures'
2Beginning January 1, 2021 calculation is based on the Current Expected Credit Loss methodology (CECL). Prior to January 1, 2021 calculation was based on the incurred loss methodology.
4

The company's noninterest expense increased $5.6 million, or 26%, to $26.6 million in the second quarter of 2021, compared to $21.1 million in the second quarter of 2020. Salaries and employee benefits increased $4.3 million, or 38%, driven by higher performance-based incentive compensation expense and higher employee health insurance expense. Professional fees increased $786,000, or 75%, driven by expenses related to the company's implementation of Lake City Bank Digital, an innovative digital banking platform, in the first quarter of 2021, as well as an increase in legal and regulatory expense. Data processing fees increased $375,000, or 13%, driven by the company's continued investment in customer focused, technology-based solutions, such as the online PPP origination and forgiveness platform, and ongoing cybersecurity and data management enhancements.
On a linked quarter basis, noninterest expense decreased by $98,000 to $26.6 million. Salaries and employee benefits increased by $1.4 million, or 10%, driven by higher performance-based incentive compensation expense. Offsetting this increase was a planned seasonal decrease of $311,000 in advertising spending and a reduction in equipment costs of $127,000. In addition, the company made a $500,000 contribution to its foundation in the first quarter that did not repeat in the second quarter of 2021.

The company's efficiency ratio was 48.5% for the second quarter of 2021, compared to 41.6% for the second quarter of 2020 and 47.6% for the linked first quarter of 2021. The company's efficiency ratio was 48.0% for the six months ended June 30, 2021 compared to 43.0% in the prior period.
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 of impacted industries has narrowed from year end 2020 and includes only one industry, hotel and accommodation, as compared to the initial list of ten potentially affected industries disclosed in the company's earnings release for the first quarter of 2020. The hotel and accommodation industry represents approximately 2.3%, or $96 million, of the company's total loan portfolio. The original ten industries represented a peak of $765 million, or 18.7%, as of March 31, 2020, excluding PPP loans.

Findlay noted, 'Asset quality metrics have continued to improve during 2021 on nearly every front, and we are cautiously optimistic about overall trends in asset quality. While our borrowers continue to experience supply chain issues and an increase in cost of goods sold, they are generally working through these issues effectively.'

The company's commercial loan portfolio is highly diversified, and no industry sector represents more than 8% of the bank's loan portfolio, net of PPP, as of June 30, 2021. Agri-business and agricultural loans, along with healthcare loans, represented the highest specific industry concentrations, at 8% of total loans in both cases. 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
Loan deferrals peaked on June 17, 2020, at $737 million, which represented 16% of the total loan portfolio. As of June 30, 2021, total deferrals attributable to COVID-19 were $37 million, representing eight borrowers, or 1% of the total loan portfolio. Total deferrals as of July 20, 2021 represented a decline in deferral balances of 96% from peak levels. Of the $28 million, four were commercial loan borrowers representing $28 million in loans, or 1% of total commercial loans, and there were no retail loan deferrals. 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 July 20, 2021, of the total commercial deferrals attributed to COVID-19, $8 million represented a first deferral action, $250,000 represented a second deferral action and $20 million represented a third deferral action. In accordance with Section 4013 of the CARES Act, these deferrals were not considered to be troubled debt restructurings. This provision was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021. The third deferral actions, which are comprised of two borrowers, have been classified as watchlist credits and are adequately reserved for in the allowance for credit losses as of June 30, 2021.

5


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.

Paycheck Protection Program
During the first and second quarter of 2021, the company funded PPP loans totaling $165.1 million for its customers through the second round of the PPP program. In addition, the bank has continued processing forgiveness applications for PPP loans made during the first and second rounds of the PPP program. As of June 30, 2021, Lake City Bank had $194.2 million in PPP loans outstanding, net of deferred fees, consisting of $40.7 million from PPP round one and $153.5 million from PPP round two. Most of the PPP loans are for existing customers and 55% of the number of PPP loans originated are for amounts less than $50,000. As of June 30, 2021, the SBA has approved forgiveness for $513.6 million in PPP loans originated during round one and $5.7 million in PPP loans originated during round two. The company has submitted forgiveness applications on behalf of customers in the amount of $15.2 million for PPP round one and $1.7 million for PPP round two that are awaiting SBA approval.

June 30, 2021
Originated Forgiven
Outstanding (1)
Number Amount Number Amount Number Amount
PPP Round 1 2,409 $ 570,500 2,256 $ 513,626 133 $ 40,746
PPP Round 2 1,192 165,142 180 5,746 1,012 153,466
Total 3,601 $ 735,642 2,436 $ 519,372 1,145 $ 194,212
(1)Outstanding balance includes deferred loan origination fees, net of costs, and any loans repaid by borrowers.

Information regarding Lakeland Financial Corporation may be accessed on the home page of its subsidiary, Lake City Bank, at lakecitybank.com. The company's common stock is traded on the Nasdaq Global Select Market under 'LKFN.' In addition to the results presented in accordance with generally accepted accounting principles in the United States, this earnings release contains certain non-GAAP financial measures. The company believes that providing non-GAAP financial measures provides investors with information useful to understanding the company's financial performance. Additionally, these non-GAAP measures are used by management for planning and forecasting purposes, including tangible common equity, tangible assets, tangible book value per share, tangible common equity to tangible assets ratio and pretax pre-provision earnings. A reconciliation of these and other non-GAAP measures to the most comparable GAAP equivalents is included in the attached financial tables where the non-GAAP measures are presented.
This document contains, and future oral and written statements of the company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the company's management and on information currently available to management, are generally identifiable by the use of words such as 'believe,' 'expect,' 'anticipate,' 'continue,' 'plan,' 'intend,' 'estimate,' 'may,' 'will,' 'would,' 'could,' 'should' or other similar expressions. The company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statements made by the company. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the company undertakes no obligation to update any statement in light of new information or future events. Numerous factors could cause the company's actual results to differ from those reflected in forward-looking statements, including the effects of the COVID-19 pandemic, including its effects on our customers, local economic conditions, our operations and vendors, and the responses of federal, state and local governmental authorities, as well as those identified in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K and quarterly reports on Form 10-Q.

6

LAKELAND FINANCIAL CORPORATION
SECOND QUARTER 2021 FINANCIAL HIGHLIGHTS
Three Months Ended Six Months Ended
(Unaudited - Dollars in thousands, except per share data) Jun. 30, Mar. 31, Jun. 30, Jun. 30, Jun. 30,
END OF PERIOD BALANCES 2021 2021 2020 2021 2020
Assets $ 6,232,914 $ 6,016,642 $ 5,441,092 $ 6,232,914 $ 5,441,092
Deposits 5,394,664 5,229,970 4,643,427 5,394,664 4,643,427
Brokered Deposits 10,004 10,003 28,052 10,004 28,052
Core Deposits (1) 5,384,660 5,219,967 4,615,375 5,384,660 4,615,375
Loans 4,353,709 4,474,631 4,490,532 4,353,709 4,490,532
Paycheck Protection Program (PPP) Loans 194,212 396,723 554,636 194,212 554,636
Allowance for Credit Losses (2) 71,713 71,844 59,019 71,713 59,019
Total Equity 677,471 651,668 620,892 677,471 620,892
Goodwill net of deferred tax assets 3,794 3,794 3,789 3,794 3,789
Tangible Common Equity (3) 673,677 647,874 617,103 673,677 617,103
AVERAGE BALANCES
Total Assets $ 6,171,427 $ 5,887,361 $ 5,454,608 $ 6,030,178 $ 5,210,873
Earning Assets 5,924,801 5,638,202 5,212,985 5,782,293 4,975,358
Investments - available-for-sale 955,242 772,247 621,134 864,250 620,005
Loans 4,487,683 4,567,226 4,460,411 4,527,234 4,259,792
Paycheck Protection Program (PPP) Loans 348,026 402,730 457,757 375,226 228,878
Total Deposits 5,387,185 5,107,019 4,696,832 5,247,878 4,450,463
Interest Bearing Deposits 3,753,499 3,540,974 3,335,189 3,647,826 3,273,815
Interest Bearing Liabilities 3,828,499 3,617,491 3,421,041 3,723,580 3,373,027
Total Equity 663,993 653,329 612,313 658,690 608,293
INCOME STATEMENT DATA
Net Interest Income $ 43,661 $ 43,679 $ 39,528 $ 87,340 $ 78,382
Net Interest Income-Fully Tax Equivalent 44,452 44,366 40,124 88,818 79,567
Provision for Credit Losses (2) (1,700) 1,477 5,500 (223) 12,100
Noninterest Income 11,340 12,557 11,169 23,897 21,946
Noninterest Expense 26,648 26,746 21,079 53,394 43,168
Net Income 24,348 22,983 19,670 47,331 36,969
Pretax Pre-Provision Earnings (3) 28,353 29,490 29,618 57,843 57,160
PER SHARE DATA
Basic Net Income Per Common Share $ 0.96 $ 0.90 $ 0.77 $ 1.86 $ 1.45
Diluted Net Income Per Common Share 0.95 0.90 0.77 1.85 1.44
Cash Dividends Declared Per Common Share 0.34 0.34 0.30 0.68 0.60
Dividend Payout 35.79 % 37.78 % 38.96 % 36.76 % 41.67 %
Book Value Per Common Share (equity per share issued) 26.59 25.58 24.43 26.59 24.43
Tangible Book Value Per Common Share (3) 26.45 25.43 24.28 26.45 24.28
Market Value - High 70.25 77.05 47.49 77.05 49.85
Market Value - Low 57.02 53.03 33.92 53.03 30.49
Basic Weighted Average Common Shares Outstanding 25,473,497 25,457,659 25,412,014 25,465,621 25,517,499
Diluted Weighted Average Common Shares Outstanding 25,602,063 25,550,111 25,469,680 25,596,843 25,594,959
KEY RATIOS
Return on Average Assets 1.58 % 1.58 % 1.45 % 1.58 % 1.43 %
Return on Average Total Equity 14.71 14.27 12.92 14.49 12.22
Average Equity to Average Assets 10.76 11.10 11.23 10.92 11.67
Net Interest Margin 3.01 3.19 3.10 3.10 3.22
Net Interest Margin, Excluding PPP Loans (3) 2.95 3.06 3.17 3.00 3.25
Efficiency (Noninterest Expense / Net Interest Income plus Noninterest Income) 48.45 47.56 41.58 48.00 43.03
Tier 1 Leverage (4) 10.59 10.79 10.84 10.59 10.84
Tier 1 Risk-Based Capital (4) 13.79 13.95 13.68 13.79 13.68
Common Equity Tier 1 (CET1) (4) 13.79 13.95 13.68 13.79 13.68
Total Capital (4) 15.04 15.20 14.93 15.04 14.93
Tangible Capital (3) (4) 10.81 10.77 11.35 10.81 11.35
ASSET QUALITY
Loans Past Due 30 - 89 Days $ 673 $ 739 $ 683 $ 673 $ 683
Loans Past Due 90 Days or More 18 18 19 18 19
Non-accrual Loans 10,709 11,707 14,779 10,709 14,779
Nonperforming Loans (includes nonperforming TDRs) 10,727 11,725 14,798 10,727 14,798
Other Real Estate Owned 1,079 447 316 1,079 316
Other Nonperforming Assets 0 17 0 0 0
Total Nonperforming Assets 11,806 12,189 15,114 11,806 15,114
Performing Troubled Debt Restructurings 5,040 5,111 5,772 5,040 5,772
Nonperforming Troubled Debt Restructurings (included in nonperforming loans) 5,938 6,508 7,582 5,938 7,582
Total Troubled Debt Restructurings 10,978 11,619 13,354 10,978 13,354
Individually Analyzed Loans 19,277 20,149 23,987 19,277 23,987
Non-Individually Analyzed Watch List Loans 241,265 251,183 184,203 241,265 184,203
Total Individually Analyzed and Watch List Loans 260,542 271,332 208,190 260,542 208,190
Gross Charge Offs 267 236 411 503 4,260
Recoveries 1,836 145 321 1,981 527
Net Charge Offs/(Recoveries) (1,569) 91 90 (1,478) 3,733
Net Charge Offs/(Recoveries) to Average Loans (0.14 %) 0.01 % 0.01 % (0.07 %) 0.18 %
Credit Loss Reserve to Loans (2) 1.65 % 1.61 % 1.31 % 1.65 % 1.31 %
Credit Loss Reserve to Loans, Excluding PPP Loans (2) (3) 1.72 % 1.76 % 1.50 % 1.72 % 1.50 %
Credit Loss Reserve to Nonperforming Loans (2) 668.51 % 612.70 % 398.83 % 668.51 % 398.83 %
Credit Loss Reserve to Nonperforming Loans and Performing TDRs (2) 454.82 % 426.70 % 286.92 % 454.82 % 286.92 %
Nonperforming Loans to Loans 0.25 % 0.26 % 0.33 % 0.25 % 0.33 %
Nonperforming Assets to Assets 0.19 % 0.20 % 0.28 % 0.19 % 0.28 %
Total Individually Analyzed and Watch List Loans to Total Loans 5.98 % 6.06 % 4.64 % 5.98 % 4.64 %
Total Individually Analyzed and Watch List Loans to Total Loans, Excluding PPP Loans (3) 6.26 % 6.65 % 5.29 % 6.26 % 5.29 %
OTHER DATA
Full Time Equivalent Employees 600 587 574 600 574
Offices 50 50 50 50 50

(1)Core deposits equals deposits less brokered deposits
(2)Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.
(3)Non-GAAP financial measure - see 'Reconciliation of Non-GAAP Financial Measures'
(4)Capital ratios for June 30, 2021 are preliminary until the Call Report is filed.
7

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30,
2021
December 31,
2020
(Unaudited)
ASSETS
Cash and due from banks $ 57,412 $ 74,457
Short-term investments 515,398 175,470
Total cash and cash equivalents 572,810 249,927
Securities available-for-sale (carried at fair value) 1,124,235 734,845
Real estate mortgage loans held-for-sale 7,005 11,218
Loans, net of allowance for credit losses* of $71,713 and $61,408 4,281,996 4,587,748
Land, premises and equipment, net 59,539 59,298
Bank owned life insurance 96,921 95,227
Federal Reserve and Federal Home Loan Bank stock 13,772 13,772
Accrued interest receivable 17,056 18,761
Goodwill 4,970 4,970
Other assets 54,610 54,669
Total assets $ 6,232,914 $ 5,830,435
LIABILITIES
Noninterest bearing deposits $ 1,743,000 $ 1,538,331
Interest bearing deposits 3,651,664 3,498,474
Total deposits 5,394,664 5,036,805
Borrowings
Federal Home Loan Bank advances 75,000 75,000
Miscellaneous borrowings 0 10,500
Total borrowings 75,000 85,500
Accrued interest payable 3,871 5,959
Other liabilities 81,908 44,987
Total liabilities 5,555,443 5,173,251
STOCKHOLDERS' EQUITY
Common stock: 90,000,000 shares authorized, no par value
25,762,538 shares issued and 25,289,966 outstanding as of June 30, 2021
25,713,408 shares issued and 25,239,748 outstanding as of December 31, 2020 117,796 114,927
Retained earnings 552,063 529,005
Accumulated other comprehensive income 22,271 27,744
Treasury stock at cost (472,572 shares as of June 30, 2021, 473,660 shares as of December 31, 2020) (14,748) (14,581)
Total stockholders' equity 677,382 657,095
Noncontrolling interest 89 89
Total equity 677,471 657,184
Total liabilities and equity $ 6,232,914 $ 5,830,435
*Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.


8

CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
NET INTEREST INCOME
Interest and fees on loans
Taxable $ 42,342 $ 42,649 $ 85,803 $ 88,703
Tax exempt 101 216 205 438
Interest and dividends on securities
Taxable 2,177 1,869 4,012 3,842
Tax exempt 2,870 2,033 5,359 4,039
Other interest income 135 64 223 248
Total interest income 47,625 46,831 95,602 97,270
Interest on deposits 3,890 7,184 8,108 18,383
Interest on borrowings
Short-term 0 45 7 407
Long-term 74 74 147 98
Total interest expense 3,964 7,303 8,262 18,888
NET INTEREST INCOME 43,661 39,528 87,340 78,382
Provision for credit losses* (1,700) 5,500 (223) 12,100
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 45,361 34,028 87,563 66,282
NONINTEREST INCOME
Wealth advisory fees 2,078 1,805 4,256 3,664
Investment brokerage fees 575 310 1,039 727
Service charges on deposit accounts 2,521 2,189 5,012 4,961
Loan and service fees 3,042 2,425 5,818 4,833
Merchant card fee income 766 594 1,388 1,263
Bank owned life insurance income 705 836 1,461 544
Interest rate swap fee income 505 1,309 754 1,962
Mortgage banking income 415 1,354 1,788 1,940
Net securities gains 44 49 797 49
Other income 689 298 1,584 2,003
Total noninterest income 11,340 11,169 23,897 21,946
NONINTEREST EXPENSE
Salaries and employee benefits 15,762 11,424 30,147 22,990
Net occupancy expense 1,427 1,545 2,930 2,932
Equipment costs 1,318 1,430 2,763 2,847
Data processing fees and supplies 3,204 2,829 6,523 5,711
Corporate and business development 699 627 2,208 1,738
FDIC insurance and other regulatory fees 495 403 959 670
Professional fees 1,839 1,053 3,716 2,200
Other expense 1,904 1,768 4,148 4,080
Total noninterest expense 26,648 21,079 53,394 43,168
INCOME BEFORE INCOME TAX EXPENSE 30,053 24,118 58,066 45,060
Income tax expense 5,705 4,448 10,735 8,091
NET INCOME $ 24,348 $ 19,670 $ 47,331 $ 36,969
BASIC WEIGHTED AVERAGE COMMON SHARES 25,473,497 25,412,014 25,465,621 25,517,499
BASIC EARNINGS PER COMMON SHARE $ 0.96 $ 0.77 $ 1.86 $ 1.45
DILUTED WEIGHTED AVERAGE COMMON SHARES 25,602,063 25,469,680 25,596,843 25,594,959
DILUTED EARNINGS PER COMMON SHARE $ 0.95 $ 0.77 $ 1.85 $ 1.44

*Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.


9

LAKELAND FINANCIAL CORPORATION
LOAN DETAIL
(unaudited, in thousands)
June 30,
2021
March 31,
2021
June 30,
2020
Commercial and industrial loans:
Working capital lines of credit loans $ 616,401 14.1 % $ 574,659 12.8 % $ 568,621 12.6 %
Non-working capital loans 886,284 20.3 1,101,805 24.6 1,238,556 27.5
Total commercial and industrial loans 1,502,685 34.4 1,676,464 37.4 1,807,177 40.1
Commercial real estate and multi-family residential loans:
Construction and land development loans 402,583 9.2 370,906 8.3 359,948 8.0
Owner occupied loans 672,903 15.5 669,390 14.9 576,213 12.8
Nonowner occupied loans 606,096 13.9 605,640 13.5 554,572 12.3
Multifamily loans 300,449 6.9 301,385 6.7 290,566 6.4
Total commercial real estate and multi-family residential loans 1,982,031 45.5 1,947,321 43.4 1,781,299 39.5
Agri-business and agricultural loans:
Loans secured by farmland 167,314 3.8 154,826 3.5 153,774 3.4
Loans for agricultural production 179,338 4.1 192,341 4.3 198,277 4.4
Total agri-business and agricultural loans 346,652 7.9 347,167 7.8 352,051 7.8
Other commercial loans 85,356 2.0 86,477 1.9 110,833 2.5
Total commercial loans 3,916,724 89.8 4,057,429 90.5 4,051,360 89.9
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans 169,653 3.9 161,573 3.6 169,897 3.8
Open end and junior lien loans 162,327 3.7 157,492 3.5 174,300 3.9
Residential construction and land development loans 12,505 0.3 9,221 0.2 11,164 0.2
Total consumer 1-4 family mortgage loans 344,485 7.9 328,286 7.3 355,361 7.9
Other consumer loans 100,771 2.3 99,052 2.2 98,667 2.2
Total consumer loans 445,256 10.2 427,338 9.5 454,028 10.1
Subtotal 4,361,980 100.0 % 4,484,767 100.0 % 4,505,388 100.0 %
Less: Allowance for credit losses (1) (71,713) (71,844) (59,019)
Net deferred loan fees (8,271) (10,136) (14,856)
Loans, net $ 4,281,996 $ 4,402,787 $ 4,431,513
(1)Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.
LAKELAND FINANCIAL CORPORATION
DEPOSITS AND BORROWINGS
(unaudited, in thousands)
June 30,
2021
March 31,
2021
June 30,
2020
Noninterest bearing demand deposits $ 1,743,000 $ 1,604,068 $ 1,425,901
Savings and transaction accounts:
Savings deposits 358,568 357,791 274,078
Interest bearing demand deposits 2,333,758 2,261,232 1,774,217
Time deposits:
Deposits of $100,000 or more 740,484 777,460 907,095
Other time deposits 218,854 229,419 262,136
Total deposits $ 5,394,664 $ 5,229,970 $ 4,643,427
FHLB advances and other borrowings 75,000 75,000 110,500
Total funding sources $ 5,469,664 $ 5,304,970 $ 4,753,927

10

LAKELAND FINANCIAL CORPORATION
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
(UNAUDITED)
Three Months Ended
June 30, 2021
Three Months Ended
March 31, 2021
Three Months Ended
June 30, 2020
(fully tax equivalent basis, dollars in thousands) Average Balance Interest Income Yield (1)/
Rate
Average Balance Interest Income Yield (1)/
Rate
Average Balance Interest Income Yield (1)/
Rate
Earning Assets
Loans:
Taxable (2)(3) $ 4,474,844 $ 42,342 3.80 % $ 4,554,183 $ 43,461 3.87 % $ 4,437,843 $ 42,649 3.87 %
Tax exempt (1) 12,839 128 4.00 13,043 131 4.07 22,568 272 4.85
Investments: (1)
Available-for-sale 955,242 5,811 2.44 772,247 4,984 2.62 621,134 4,442 2.88
Short-term investments 2,305 0 0.00 2,206 1 0.18 79,446 29 0.15
Interest bearing deposits 479,571 135 0.11 296,523 87 0.12 51,994 35 0.27
Total earning assets $ 5,924,801 $ 48,416 3.28 % $ 5,638,202 $ 48,664 3.50 % $ 5,212,985 $ 47,427 3.66 %
Less: Allowance for credit losses (4) (72,222) (70,956) (56,005)
Nonearning Assets
Cash and due from banks 68,798 70,720 57,157
Premises and equipment 59,848 59,278 60,815
Other nonearning assets 190,202 190,117 179,656
Total assets $ 6,171,427 $ 5,887,361 $ 5,454,608
Interest Bearing Liabilities
Savings deposits $ 359,484 $ 71 0.08 % $ 330,069 $ 61 0.07 % $ 264,250 $ 59 0.09 %
Interest bearing checking accounts 2,428,524 1,700 0.28 2,182,164 1,495 0.28 1,842,373 1,544 0.34
Time deposits:
In denominations under $100,000 224,025 545 0.98 235,271 648 1.12 271,064 1,216 1.80
In denominations over $100,000 741,466 1,574 0.85 793,470 2,014 1.03 957,502 4,365 1.83
Miscellaneous short-term borrowings 0 0 0.00 1,517 7 1.87 10,852 45 1.67
Long-term borrowings and subordinated debentures 75,000 74 0.40 75,000 73 0.39 75,000 74 0.40
Total interest bearing liabilities $ 3,828,499 $ 3,964 0.42 % $ 3,617,491 $ 4,298 0.48 % $ 3,421,041 $ 7,303 0.86 %
Noninterest Bearing Liabilities
Demand deposits 1,633,686 1,566,045 1,361,643
Other liabilities 45,249 50,496 59,611
Stockholders' Equity 663,993 653,329 612,313
Total liabilities and stockholders' equity $ 6,171,427 $ 5,887,361 $ 5,454,608
Interest Margin Recap
Interest income/average earning assets 48,416 3.28 48,664 3.50 47,427 3.66
Interest expense/average earning assets 3,964 0.27 4,298 0.31 7,303 0.56
Net interest income and margin $ 44,452 3.01 % $ 44,366 3.19 % $ 40,124 3.10 %
(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 $791,000, $687,000 and $596,000 in the three-month periods ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively.
(2)Loan fees are included as taxable loan interest income. Net loan fees attributable to PPP loans were $2.76 million and $4.15 million for the three months ended June 30, 2021 and March 31, 2021, 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.
(4)Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.

11

Reconciliation of Non-GAAP Financial Measures
The allowance for credit losses (1) to loans, excluding PPP loans and total individually analyzed 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 (1).
A reconciliation of these non-GAAP measures is provided below (dollars in thousands).
Three Months Ended
June 30,
2021
March 31,
2021
June 30,
2020
Total Loans $ 4,353,709 $ 4,474,631 $ 4,490,532
Less: PPP Loans 194,212 396,723 554,636
Total Loans, Excluding PPP Loans 4,159,497 4,077,908 3,935,896
Allowance for Credit Losses (1) $ 71,713 $ 71,844 $ 59,019
Credit Loss Reserve to Total Loans (1) 1.65 % 1.61 % 1.31 %
Credit Loss Reserve to Total Loans, Excluding PPP Loans (1) 1.72 % 1.76 % 1.50 %
Six Months Ended
June 30,
2021
March 31,
2021
June 30,
2020
Total Loans $ 4,353,709 $ 4,474,631 $ 4,490,532
Less: PPP Loans 194,212 396,723 554,636
Total Loans, Excluding PPP Loans 4,159,497 4,077,908 3,935,896
Total Individually Analyzed and Watch List Loans $ 260,542 $ 271,332 $ 208,190
Total Individually Analyzed and Watch List Loans to Total Loans 5.98 % 6.06 % 4.64 %
Total Individually Analyzed and Watch List Loans to Total Loans, Excluding PPP Loans 6.26 % 6.65 % 5.29 %

(1)Beginning January 1, 2021 calculation is based on the current expected credit loss methodology. Prior to January 1, 2021 calculation was based on the incurred loss methodology.
12

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 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 Six Months Ended
Jun. 30,
2021
Mar. 31,
2021
Jun. 30,
2020
Jun. 30,
2021
Jun. 30,
2020
Total Equity $ 677,471 $ 651,668 $ 620,892 $ 677,471 $ 620,892
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 673,677 647,874 617,103 673,677 617,103
Assets $ 6,232,914 $ 6,016,642 $ 5,441,092 $ 6,232,914 $ 5,441,092
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 6,229,120 6,012,848 5,437,303 6,229,120 5,437,303
Ending common shares issued 25,473,437 25,473,437 25,412,014 25,473,437 25,412,014
Tangible Book Value Per Common Share $ 26.45 $ 25.43 $ 24.28 $ 26.45 $ 24.28
Tangible Common Equity/Tangible Assets 10.81 % 10.77 % 11.35 % 10.81 % 11.35 %
Net Interest Income $ 43,661 $ 43,679 $ 39,528 $ 87,340 $ 78,382
Plus: Noninterest income 11,340 12,557 11,169 23,897 21,946
Minus: Noninterest expense (26,648) (26,746) (21,079) (53,394) (43,168)
Pretax Pre-Provision Earnings $ 28,353 $ 29,490 $ 29,618 $ 57,843 $ 57,160

13

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 Six Months Ended
Jun. 30,
2021
Mar. 31,
2021
Jun. 30,
2020
Jun. 30,
2021
Jun. 30,
2020
Total Average Earnings Assets $ 5,924,801 $ 5,638,202 $ 5,212,985 $ 5,782,293 $ 4,975,358
Less: Average Balance of PPP Loans (348,026) (402,730) (457,757) (375,226) (228,878)
Total Adjusted Earning Assets 5,576,775 5,235,472 4,755,228 5,407,067 4,746,480
Total Interest Income FTE $ 48,416 $ 48,664 $ 47,427 $ 97,080 $ 98,455
Less: PPP Loan Income (3,652) (5,166) (3,029) (8,818) (3,029)
Total Adjusted Interest Income FTE 44,764 43,498 44,398 88,262 95,426
Adjusted Earning Asset Yield, net of PPP Impact 3.22 % 3.37 % 3.76 % 3.29 % 4.04 %
Total Average Interest Bearing Liabilities $ 3,828,499 $ 3,617,491 $ 3,421,041 $ 3,617,491 $ 3,373,027
Less: Average Balance of PPP Loans (348,026) (402,730) (457,757) (375,226) (228,878)
Total Adjusted Interest Bearing Liabilities 3,480,473 3,214,761 2,963,284 3,242,265 3,144,149
Total Interest Expense FTE $ 3,964 $ 4,298 $ 7,303 $ 8,262 $ 18,888
Less: PPP Cost of Funds (162) (248) (285) (465) (285)
Total Adjusted Interest Expense FTE 3,802 4,050 7,018 7,797 18,603
Adjusted Cost of Funds, net of PPP Impact 0.27 % 0.31 % 0.59 % 0.29 % 0.79 %
Net Interest Margin FTE, net of PPP Impact 2.95 % 3.06 % 3.17 % 3.00 % 3.25 %

###
14