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| LKFN > SEC Filings for LKFN > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-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 $8.3 million for the first six months of 2009, versus $10.0 million in the same period of 2008, a decrease of 17.1%. Net income was positively impacted by a $6.5 million increase in net interest income. Offsetting this positive impact was an increase of $5.3 million in the provision for loan losses, an increase of $3.9 million in noninterest expense and a decrease of $149,000 in noninterest income. Basic earnings per common share for the first six months of 2009 were $0.58 per share, versus $0.82 per share for the first six months of 2008. Diluted earnings per common share reflect the potential dilutive impact of stock options, stock awards and warrants. Diluted earnings per common share for the first six months of 2009 were $0.58 per share, versus $0.81 for the first six months of 2008. Basic and diluted earnings per share for the first six months of 2009 were impacted by $1.1 million in dividends and accretion of discount on preferred stock.
Net income for the second quarter of 2009 was $4.5 million, a decrease of 7.1% versus $4.8 million for the comparable period of 2008. The decrease was driven by a $2.5 million increase in noninterest expense, as well as a $1.9 million increase in the provision for loan losses. Offsetting these negative impacts was an increase of $4.0 million in net interest income as well as an increase of $50,000 in noninterest income. Basic earnings per share for the second quarter of 2009 were $0.29 per share, versus $0.39 per share for the second quarter of 2008. Diluted earnings per share for the second quarter of 2009 were $0.29 per share, versus $0.39 per share for the second quarter of 2008. Basic and diluted earnings per share for the second quarter of 2009 were impacted by $800,000 in dividends and accretion of discount on preferred stock.
RESULTS OF OPERATIONS
Net Interest Income
For the six-month period ended June 30, 2009, net interest income totaled $36.6 million, an increase of 21.8%, or $6.5 million, versus the first six months of 2008. This increase was primarily due to a $315.7 million, or 16.1%, increase in average earning assets to $2.28 billion. In addition, the Company's net interest margin improved to 3.29% for the six month period ended June 30, 2009, versus 3.13% for the comparable period in 2008. For the three-month period ended June 30, 2009, net interest income totaled $19.5 million, an increase of 26.1%, or $4.0 million, versus the second quarter of 2008. This increase was primarily due to a 30 basis point increase in the Company's net interest margin to 3.45%, versus 3.15% for the second quarter of
Given the Company's mix of interest earning assets and interest bearing liabilities at June 30, 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. In addition, during the first quarter of 2009, the Company began using the Federal Reserve Bank's Term Auction Facility and has increased its usage through the second quarter. Because of the favorable pricing structure and general terms of the program, the Company may consider further increases in usage in the future.
During the first six months of 2009, total interest and dividend income decreased by $1.8 million, or 3.1%, to $56.8 million, versus $58.6 million during the first six months of 2008. This decrease was primarily the result of a decrease in the tax equivalent yield on average earning assets. The tax equivalent yield on average earning assets decreased by 98 basis points to 5.1% for the six-month period ended June 30, 2009 versus the same period of 2008. During the second quarter of 2009, total interest and dividend income decreased by $182,000, or 0.6%, to $28.8 million, versus $29.0 million during the second quarter of 2008. This decrease was primarily the result of a decrease in the tax equivalent yield on average earning assets. The tax equivalent yield on average earning assets decreased by 77 basis points to 5.1% for the second quarter of 2009 versus the same period of 2008.
During the first six months of 2009, loan interest income decreased by $3.2 million, or 6.5%, to $46.6 million, versus $49.9 million during the first six months of 2008. The decrease was driven by a 122 basis point decrease in the tax equivalent yield on loans to 5.0%, versus 6.3% in the first six months of 2008, somewhat offset by a $265.8 million, or 16.6%, increase in average daily loan balances. During the second quarter of 2009, loan interest income decreased by $572,000, or 2.3%, to $23.8 million, versus $24.4 million during the second quarter of 2008. The decrease was driven by a 93 basis point decrease in the tax equivalent yield on loans to 5.0%, versus 6.0% in the second quarter of 2008, somewhat offset by a $251.3 million, or 15.3%, increase in average daily loan balances.
The average daily securities balances for the first six months of 2009 increased $42.5 million, or 12.1%, to $392.5 million, versus $350.0 million for the same period of 2008. During the same periods, income from securities increased by $1.5 million, or 17.6%, to $10.1 million versus $8.6 million during the first six months of 2008. The increase was primarily the result of the increase in average daily securities balances, as well as a 23 basis point increase in the tax equivalent yield on securities, to 5.5%, versus 5.3% in the first six months of 2008. The average daily securities balances for the second quarter of 2009 increased $29.4 million, or 8.0%, to $395.7 million, versus $366.3 million for the same period of 2008. During the second quarter of 2009, income from securities was $5.0 million, an increase of $438,000, or 9.5%, versus the second quarter of 2008. The
Total interest expense decreased $8.4 million, or 29.3%, to $20.2 million for the six-month period ended June 30, 2009, from $28.6 million for the comparable period in 2008. The decrease was primarily the result of a 114 basis point decrease in the Company's daily cost of funds to 1.9%, versus 3.0% for the same period of 2008. Total interest expense decreased $4.2 million, or 31.2%, to $9.3 million for the second quarter of 2009, versus $13.5 million for the second quarter of 2008. The decrease was primarily the result of a 106 basis point decrease in the Company's daily cost of funds to 1.7%, from 2.8% for the same period of 2008.
On an average daily basis, total deposits (including demand deposits) increased $346.7 million, or 22.6%, to $1.881 billion for the six-month period ended June 30, 2009, versus $1.534 billion during the same period in 2008. The average daily balances for the second quarter of 2009 increased $299.9 million, or 19.3%, to $1.853 billion from $1.553 billion during the second quarter of 2008. On an average daily basis, noninterest bearing demand deposits were $220.0 million for the six-month period ended June 30, 2009, versus $218.2 million for the same period in 2008. The average daily noninterest bearing demand deposit balances for the second quarter of 2009 were $222.2 million, versus $218.5 million for the second quarter of 2008. On an average daily basis, interest bearing transaction accounts increased $84.1 million, or 18.6%, to $537.0 million for the six-month period ended June 30, 2009, versus the same period in 2008. Average daily interest bearing transaction accounts increased $48.6 million, or 10.1%, to $528.1 million for the second quarter of 2009, versus $479.5 million for the second quarter of 2008. When comparing the six months ended June 30, 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 $262.2 million, primarily as a result of increases in brokered time deposits. The rate paid on time deposit accounts decreased 150 basis points to 2.9% for the six-month period ended June 30, 2009, versus the same period in 2008. During the second quarter of 2009, the average daily balance of time deposits increased $247.5 million, and the rate paid decreased 152 basis points to 2.7%, versus the second quarter of 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 $129.4 million to $187.8 million for the six-month period ended June 30, 2009, versus $58.4 million for the same period in 2008. During the second quarter of 2009, average daily brokered certificates of deposit were $146.9 million, versus $72.5 million during the second quarter of 2008. On an average daily basis, total public fund certificates of deposit decreased $50.9 million to $211.9 million for the six-month period ended June 30, 2009, versus $262.7 million for the same period in 2008. During the second quarter of 2009, average daily public fund certificates of deposit were $204.5 million, versus $233.0 million during the second quarter of 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. The Company is also a member of the Certificate of Deposit Account Registry Service (CDARS) deposit program. The program is a convenient way for participating customers to enjoy full FDIC insurance coverage on large certificates of deposit, and consists of a network of financial institutions which exchange funds. The average daily balances of CDARS certificates of deposit were $79.1 million and $87.2 million, respectively, in the six months and three months ended June 30, 2009. There were no CDARS deposits in the six months and three months ended June 30, 2008.
Average daily balances of borrowings were $313.4 million during the six months ended June 30, 2009, versus $381.6 million during the same period of 2008, and the rate paid on borrowings decreased 168 basis points to 1.4%. The decrease in average borrowings was driven by decreases of $53.5 million in notes payable, $34.5 million in securities sold under agreements to repurchase and $33.5 million in federal funds purchased. During the second quarter of 2009 the average daily balances of borrowings decreased $75.1 million to $342.4 million, versus $417.5 million for the same period of 2008, and the rate paid on borrowings decreased 153 basis points to 1.2%. On an average daily basis, total deposits (including demand deposits) and purchased funds increased 14.5% and 11.4%, respectively, when comparing the six-month and three-month periods ended June 30, 2009 versus the same period in 2008.
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 $43.2 million and $101.9 million, respectively, during the six months and three months ended June 30, 2009. The interest rate was 0.25% during both periods. There were no outstanding TAF borrowings prior to the first quarter of 2009. As discussed previously, the Company may consider further increases in usage in the future.
As a result of the unprecedented instability 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; participation in the Certificate of Deposit Account Registry Service (CDARS) deposit program and an increased focus on attractive core deposit programs offered by the Company. The Company will continue to carefully monitor its liquidity planning and will make any necessary adjustments during this environment
The following tables set forth consolidated information regarding average balances and rates:
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