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| LKFN > SEC Filings for LKFN > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
OVERVIEW
Lakeland Financial Corporation is the holding company for Lake City Bank. The Company is headquartered in Warsaw, Indiana and operates 43 offices in 12 counties in northern Indiana. The Company earned $3.9 million for the first three months of 2009, versus $5.2 million in the same period of 2008, a decrease of 26.2%. Net income was positively impacted by a $2.5 million increase in net interest income. Offsetting this positive impact was an increase of $3.4 million in the provision for loan losses, an increase of $1.3 million in noninterest expense and a decrease of $199,000 in noninterest income. Basic earnings per common share for the first three months of 2009 were $0.29 per share, versus $0.43 per share for the first three months of 2008. Diluted earnings per common share reflect the potential dilutive impact of stock options granted under the stock option plan. Diluted earnings per common share for the first three months of 2009 were $0.29 per share, versus $0.42 for the first three months of 2008.
RESULTS OF OPERATIONS
Net Interest Income
For the three-month period ended March 31, 2009, net interest income totaled $17.0 million, an increase of 17.3%, or $2.5 million, versus the first three months of 2008. This increase was primarily due to a $344.6 million, or 18.0%, increase in average earning assets to $2.256 billion.
The Company's net interest margin was 3.12% in both the first quarters of 2009 and 2008. On a linked quarter basis the margin improved from 2.98% in the fourth quarter of 2008.
Given the Company's mix of interest earning assets and interest bearing liabilities at March 31, 2009, the Company would generally be considered to have a relatively neutral balance sheet structure. The Company's balance sheet structure would normally be expected to produce a stable or declining net interest margin in a declining rate environment. As the Company's balance sheet has become more neutral in structure, management believes that future rate movements will have less impact on net interest margin than historically, although other factors such as deposit mix, market deposit rate pricing and non-bank deposit products could have a dramatic impact on net interest margin. The Company's mix of deposits has shifted to more reliance on certificates of deposits, specifically public fund deposits and brokered deposits, and corporate and public fund money market and repurchase agreements, which generally carry a higher interest rate cost than other types of interest bearing deposits.
During the first three months of 2009, loan interest income decreased by $2.6 million, or 10.4%, to $22.9 million, versus $25.5 million during the first three months of 2008. The decrease was driven by a 153 basis point decrease in the tax equivalent yield on loans to 5.0%, versus 6.6% in the first three months of 2008, somewhat offset by a $280.0 million, or 17.9%, increase in average daily loan balances.
The average daily securities balances for the first three months of 2009 increased $55.5 million, or 16.6%, to $389.2 million, versus $333.7 million for the same period of 2008. During the same periods, income from securities increased by $1.1 million, or 26.8%, to $5.1 million versus $4.0 million during the first three months of 2008. The increase was primarily the result of the increase in average daily securities balances, as well as a 44 basis point increase in the tax equivalent yield on securities, to 5.6%, versus 5.1% in the first three months of 2008.
Total interest expense decreased $4.1 million, or 27.6%, to $10.9 million for the three-month period ended March 31, 2009, from $15.1 million for the comparable period in 2008. The decrease was primarily the result of a 124 basis point decrease in the Company's daily cost of funds to 2.0%, versus 3.3% for the same period of 2008.
On an average daily basis, total deposits (including demand deposits) increased $393.9 million, or 26.0%, to $1.909 billion for the three-month period ended March 31, 2009, versus $1.515 billion during the same period in 2008. On an average daily basis, noninterest bearing demand deposits were $217.7 million for the three-month period ended March 31, 2009, versus $217.8 million for the same period in 2008. On an average daily basis, interest bearing transaction accounts increased $119.6 million, or 28.1%, to $546.0 million for the three-month period ended March 31, 2009, versus the same period in 2008. When comparing the three months ended March 31, 2009 with the same period of 2008, the average daily balance of time deposits, which pay a higher rate of interest compared to demand deposit and transaction accounts, increased $277.2 million, primarily as a result of increases in brokered time deposits. The rate paid on time deposit accounts decreased 148 basis points to 3.1% for the three-month period ended March 31, 2009, versus the same period in 2008.
Due to strong loan growth and additional relationship opportunities, the Company continued to focus on public fund deposits as a core funding strategy. In addition, the Company has increased its usage of brokered certificates of deposits as a result of loan growth and overall liquidity and funding management. On an average daily basis, total brokered certificates of deposit increased $184.9 million to $229.2 million for the three-month period ended March 31, 2009, versus $44.3 million for the same period in 2008. On an average daily basis, total public fund certificates of deposit decreased $73.2 million to $219.3 million for the three-month period ended March 31, 2009, versus $292.5 million for the same period in 2008. Public fund deposits are highly variable primarily due to the timing differences between when real estate property taxes are collected versus when those tax revenues are spent, as well as the intense competition for these funds.
During the first quarter of 2009, the Company began using the Federal Reserve Bank's Term Auction Facility (TAF). Average daily balances of borrowings under the facility were $4.0 million during the three months ended March 31, 2009. The interest rate was 0.25% during the quarter. There were no outstanding TAF borrowings in any prior fiscal quarter. The Company intends to increase its usage of the TAF program due to the favorable pricing structure and the overall terms of the program.
As a result of the unprecedented activity in the financial markets during the second half of 2008 and continuing into 2009, the Company reviewed its liquidity plan and has taken several actions designed to provide for an appropriate funding strategy in this unsettled environment. These actions include: actively communicating with correspondent banks who provide federal fund lines to ensure availability of these funds; expanded use of brokered certificate of deposits, which have been readily available to the Company at competitive rates; increased allocation of collateral at the Federal Reserve Bank for borrowings under their programs; increased usage of FHLB advances at advantageous rates and an increased focus on attractive core deposit programs offered by the Company.
The following tables set forth consolidated information regarding average balances and rates:
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