Lakeland Financial Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Lakeland Financial is an Indiana bank holding company operating Lake City Bank, with 53 offices across 15 Indiana counties. Consolidated assets were $6.52 billion at year-end.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net income | $93.8 million | $103.8 million |
| Diluted earnings per share | $3.65 | $4.04 |
| Net interest income | $197.0 million | $202.9 million |
| Net interest margin | 3.31% | 3.40% |
| Provision for credit losses | $5.9 million | $9.4 million |
| Total assets | $6.52 billion | $6.43 billion |
| Total loans, gross | $4.92 billion | $4.71 billion |
| Total deposits | $5.72 billion | $5.46 billion |
| Total borrowings | $50.0 million | $297.0 million |
| Operating cash flow | $114.0 million | $169.3 million |
- Return on average assets was 1.45%, versus 1.62%; return on average equity was 15.93%, versus 17.40%.
- Noninterest income was $49.9 million, up 19.1%, including $6.3 million of wire-fraud insurance and other recoveries. Noninterest expense was $130.7 million, up 18.6%, including the $18.1 million fraud loss.
- Management’s non-GAAP core operational profitability was $101.6 million, down 2.2%; core diluted EPS was $3.95, also down 2.2%. These measures exclude the fraud loss, related recoveries and specified compensation adjustments.
- Net charge-offs were $6.5 million, or 0.13% of average loans, compared with $4.5 million, or 0.10%. The allowance for credit losses was $72.0 million, 1.46% of loans, versus $72.6 million and 1.54%.
- Nonperforming loans were $15.7 million, or 0.32% of loans, versus $17.1 million, or 0.36%. Watch-list loans rose to $183.1 million (3.72% of loans) from $161.0 million (3.42%).
- Regulatory capital ratios remained above well-capitalized thresholds: consolidated total risk-based capital was 15.47%, CET1 was 14.21%, and Tier 1 leverage was 11.82%. The tangible capital ratio was 9.91%; management’s adjusted measure excluding the AFS securities valuation effect was 11.99%.
- Operating, investing and financing cash flows were $114.0 million, negative $54.9 million and negative $37.5 million, respectively. Cash and cash equivalents increased $21.5 million to $151.8 million.
Material changes versus 2022
- Net income fell 9.7%. Higher deposit and borrowing costs drove net interest income down 2.9%, despite loan growth and higher loan yields. Deposit interest expense increased sharply as customers shifted toward interest-bearing accounts and deposit competition intensified.
- Average noninterest-bearing deposits declined 19.9%; period-end deposits nevertheless increased 4.8%, supported by commercial and public-fund balances. Retail deposits declined 7.2%, and brokered deposits rose to 2.4% of deposits from 0.3%.
- Loans grew 4.4%; commercial real estate and multifamily represented 49.5% of the loan portfolio. Securities declined 10.1%, while borrowings declined $247.0 million.
- Available-for-sale securities had $174.8 million of gross unrealized losses at year-end, compared with $215.5 million in 2022. AFS fair value improved $40.7 million during 2023; the after-tax accumulated AOCI loss was still $154.5 million.
- Cash dividends declared rose to $1.84 per share from $1.60; the dividend payout ratio increased to 50.41% from 39.60%.
Outlook, risks and unusual items
- Management expects continued loan growth, disciplined credit management, investment in employees and technology, and targeted branch expansion; two new Indianapolis-market offices are planned within 24 months. No specific earnings or margin guidance is provided.
- Management says the balance sheet became more neutral to interest-rate changes. Its model estimated a 6.07% reduction in 12-month net interest income under an immediate 300-basis-point rate decline and a 1.74% increase under a 300-basis-point rise; actual results may differ, and the model depends on assumptions.
- The June 2023 international wire fraud caused an $18.1 million loss. After $6.3 million in recoveries and compensation adjustments, management reported a $10.4 million pretax impact, or $7.8 million after tax ($0.30 diluted EPS). The filing describes controls and insurance but does not establish that all exposure has been recovered.
- Key risks include deposit pricing and outflows, public-fund concentration (27.3% of deposits), interest-rate sensitivity, commercial real estate and commercial-credit exposure, inflation and recession, cyber and operational incidents, regulatory changes and rising FDIC assessments. The Bank did not exceed cited supervisory CRE concentration indicators.
- A bankruptcy trustee’s litigation related to a former treasury-management client remains pending against the Bank and four individual representatives. The Company says a material loss is neither probable nor estimable; the filing also cautions that outcomes could affect a future reporting period.
- Available liquidity sources were reported at $3.4 billion at year-end. The $150.5 million of available Bank Term Funding Program capacity was scheduled to expire in March 2024. The $50 million FHLB advance outstanding at year-end matured January 5, 2024.
Most important facts for investors to verify
- Subsequent deposit levels, mix, pricing and public-fund retention, including any changes in brokered funding or borrowing needs.
- Quarterly net interest margin and earnings sensitivity as rates and deposit costs change.
- Credit trends: watch-list and classified loans, CRE and multifamily performance, charge-offs, modifications and allowance adequacy.
- Fraud recovery status, any additional losses, and the status and potential financial impact of the pending bankruptcy litigation.
- Realized and unrealized securities losses, available liquidity and collateral availability, and capital ratios after dividends and balance-sheet changes.
- Progress on the planned branch openings and whether growth and expense trends support management’s stated plans.