Lakeland Financial Corporation — Q1 2021 Form 10-Q
Business context and period. The Indiana-based bank holding company, whose principal subsidiary is Lake City Bank, reported unaudited results for the three months ended March 31, 2021. Comparisons are with Q1 2020 for income and cash flow, and December 31, 2020 for balance-sheet changes. Amounts below are in millions unless stated otherwise.
Financial performance and position
- Earnings: Net income rose 32.9% to $23.0 million from $17.3 million; diluted EPS was $0.90 versus $0.67. Pretax, pre-provision earnings, a non-GAAP measure, increased 7.1% to $29.5 million.
- Income and margins: Net interest income increased 12.4% to $43.7 million; noninterest income increased 16.5% to $12.6 million. Fully tax-equivalent net interest margin declined to 3.19% from 3.35%; excluding PPP loans, it was 3.06%. The efficiency ratio rose to 47.56% from 44.51%.
- Credit costs: Provision for credit losses was $1.5 million, down from $6.6 million. Net charge-offs were $91,000 versus $3.6 million. The allowance was $71.8 million, or 1.61% of total loans (1.76% excluding PPP loans).
- Cash flow and liquidity: Operating cash flow was $23.9 million, compared with $19.5 million. Cash and cash equivalents increased $252.0 million from year-end to $501.9 million. Deposits rose $193.2 million to $5.230 billion; management attributed growth in part to PPP proceeds and government stimulus deposits.
- Balance sheet and debt: Total assets increased 3.2% to $6.017 billion. Gross loans declined $172.4 million to $4.485 billion, including a $159.2 million decrease in loans excluding PPP. Borrowings fell $10.5 million to $75.0 million; the remaining FHLB advance is a 0.39% fixed-rate borrowing due in 2030. Total equity was $651.7 million, down $5.5 million.
- Capital: Management reported the Company and Bank remained “well-capitalized.” Preliminary March 31 ratios included Bank CET1 of 13.56% and Tier 1 capital to average assets of 10.54%.
Material changes and notable items
- Net income benefited chiefly from the year-over-year $5.1 million reduction in provision expense, alongside higher net interest and noninterest income; noninterest expense increased 21.1% to $26.7 million.
- Q1 2021 noninterest income included $753,000 in securities gains from portfolio repositioning. Available-for-sale securities had a $12.6 million after-tax unrealized loss in other comprehensive income, and accumulated other comprehensive income declined to $15.1 million.
- The Company adopted CECL effective January 1, 2021. Adoption increased the allowance by $9.1 million and reduced beginning retained earnings by $7.0 million after tax; prior-year credit-loss figures use the incurred-loss method and are not directly comparable.
- PPP loans outstanding were $396.7 million at quarter-end. SBA had approved $291.2 million of first-round forgiveness; $189.3 million of forgiveness applications awaited approval. PPP income was $5.2 million for the quarter.
Outlook, commentary and risks
- The filing provides no formal earnings or financial guidance. Management said future results remain exposed to evolving COVID-19 effects and that PPP forgiveness timing and low-rate loans may affect net interest margin.
- COVID-19 deferrals had declined from a peak of $737 million to $85.0 million across 26 borrowers, about 2% of loans. All remained on accrual, with management stating contractual cash flows were considered collectible. Hotel and accommodation loans made up a notable portion of the repeat-deferral group.
- Management identified interest-rate changes, borrower credit deterioration, economic conditions and CECL estimates as key uncertainties. The company’s modeled 12-month net interest income increased 6.08% under a 100-basis-point rise and decreased 1.85% under a 25-basis-point fall; results depend on assumptions about rates and customer behavior.
- In the Interlogic Outsourcing bankruptcy matter, debtors disclosed potential claims against the Bank. The Company said a loss was neither probable nor estimable and that it would defend itself if a claim is filed.
- The board reauthorized a share repurchase program of up to $30 million through April 30, 2023; the program does not require repurchases. The filing reported no purchases under the program during Q1.
Important facts for investors to verify
- How CECL assumptions, economic forecasts and portfolio performance affect the allowance and future provision expense.
- Whether COVID-19 deferrals—particularly commercial real estate exposure to hotels and accommodations—remain current and collectible.
- The pace of PPP forgiveness and runoff, and its effect on loan balances, fee income and net interest margin.
- Whether deposit growth and excess liquidity persist, and how funding costs and asset yields evolve as interest rates change.
- Developments in the Interlogic bankruptcy matter and any change in the Company’s assessment of potential loss.