Lakeland Financial (LKFN) - 2025 Q2 - Quarterly Results

Financial Performance Overview Lakeland Financial reported strong Q2 and YTD 2025 results, with significant growth in net income and diluted EPS driven by robust net interest income expansion Second Quarter 2025 Performance Summary Lakeland Financial reported a record net income of $27.0 million for the second quarter of 2025, a 20% increase year-over-year, driven by a 14% expansion in net interest income. Diluted earnings per share also grew by 20% to $1.04. On a linked-quarter basis, net income saw a significant 34% increase Q2 2025 Key Financial Metrics (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change ($ million) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $27.0 million | $22.5 million | +$4.4 million | +20% | | Diluted EPS | $1.04 | $0.87 | +$0.17 | +20% | | Net Interest Income | - | - | - | +14% | Q2 2025 Key Financial Metrics (vs. Q1 2025) | Metric | Q2 2025 | Q1 2025 | Change ($ million) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $27.0 million | $20.1 million | +$6.9 million | +34% | | Diluted EPS | $1.04 | $0.78 | +$0.26 | +33% | - Adjusted core operational profitability, a non-GAAP measure, improved by 41% to $27.0 million for Q2 2025 compared to $19.2 million in Q2 2024[2] - Management highlighted strong earnings momentum driven by double-digit growth in net interest income, alongside healthy loan and deposit growth[4] Year-to-Date 2025 Performance Summary For the first six months of 2025, net income increased by 2% to $47.1 million compared to the same period in 2024. Diluted earnings per share also rose by 2% to $1.82. Pretax pre-provision earnings grew by 3% to $67.0 million Six Months Ended June 30 Key Financial Metrics | Metric | 2025 ($ million) | 2024 ($ million) | Change ($ million) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Income | $47.1 million | $46.0 million | +$1.1 million | +2% | | Diluted EPS | $1.82 | $1.78 | +$0.04 | +2% | | Pretax Pre-Provision Earnings | $67.0 million | $64.7 million | +$2.2 million | +3% | Detailed Financial Analysis This section provides an in-depth analysis of the company's capital management, loan and deposit portfolios, net interest margin, asset quality, investment portfolio, and noninterest income and expense Capital Management The company's capital position strengthened, with all capital ratios significantly exceeding 'well capitalized' regulatory thresholds. The board approved a 4% year-over-year increase in the quarterly cash dividend to $0.50 per share and repurchased $1.7 million of common stock during the quarter Capital Ratios | Ratio | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :--- | :--- | :--- | :--- | | Total Capital to Risk-Weighted Assets | 15.86% | 15.53% | 15.77% | | Tangible Common Equity to Tangible Assets (Non-GAAP) | 10.15% | 9.91% | 10.09% | - The quarterly cash dividend was increased by 4% to $0.50 per share compared to the second quarter of 2024[8] - The company repurchased 30,300 shares for $1.7 million during Q2 2025, with $28.3 million remaining under the current repurchase program[9] - Management's capital priority is to support organic loan growth in Indiana markets, while also continuing dividend growth and opportunistic share repurchases[10] Loan Portfolio Analysis Average total loans grew 4% year-over-year to $5.23 billion. Growth was primarily in commercial real estate, multi-family residential, and consumer mortgages, which was partially offset by contractions in commercial & industrial and agricultural loans. Commercial line of credit utilization improved to its highest rate since 2020 Year-over-Year Loan Portfolio Changes (June 30, 2024 to June 30, 2025) | Loan Category | Change ($ million) | Change (%) | | :--- | :--- | :--- | | Commercial Real Estate & Multi-family | +$177.0 | +7% | | Consumer 1-4 Family Mortgage | +$46.2 | +10% | | Other Consumer | +$6.0 | +6% | | Commercial and Industrial | -$32.5 | -2% | | Agri-business and Agricultural | -$21.6 | -6% | - Commercial line of credit usage increased to 44% as of June 30, 2025, up from 41% a year ago, marking the highest utilization rate since 2020[14][15] - The company has limited exposure to commercial office space, with loans in this sector representing only 2% of total loans[14] Deposit Portfolio Analysis Total deposits grew 7% year-over-year to $6.18 billion, driven by an 8% increase in core deposits. Public funds were the primary growth driver, increasing 17% annually. Core deposits now constitute 98% of total deposits, up from 97% a year ago Deposit Composition as of June 30, 2025 | Deposit Type | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Retail | $1,755,750 | 28.4% | | Commercial | $2,256,620 | 36.6% | | Public funds | $2,014,047 | 32.6% | | Core deposits | $6,026,417 | 97.6% | | Brokered deposits | $150,416 | 2.4% | | Total | $6,176,833 | 100.0% | - Year-over-year, core deposits grew by $423.9 million (8%), with public funds deposits growing by $286.5 million (17%)[17][18] - Deposits not covered by FDIC insurance or the Indiana Public Deposit Insurance Fund were 27% of total deposits, an improvement from 29% a year ago[24] Net Interest Margin and Income Net interest margin (NIM) expanded significantly by 25 basis points year-over-year to 3.42%, primarily due to a 49 basis point reduction in funding costs. This drove a 14% increase in net interest income to $54.9 million for the quarter. A loan prepayment fee contributed 3 basis points to the quarterly NIM Net Interest Margin Analysis (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.42% | 3.17% | +25 bps | | Earning Asset Yield | 5.83% | 6.07% | -24 bps | | Funding Costs (% of avg. earning assets) | 2.41% | 2.90% | -49 bps | - Net interest income increased by 14% YoY to $54.9 million and by 4% on a linked-quarter basis[28] - The easing of monetary policy that began in September 2024 drove the reduction in funding costs and subsequent NIM expansion[25] - The cumulative deposit beta of 50% has outpaced the loan beta of 29% in the current rate-easing cycle, benefiting net interest margin[27] Asset Quality Asset quality showed significant improvement following the resolution of a large nonperforming industrial credit. The company took a $28.6 million charge-off on this loan, which was fully allocated. As a result, nonperforming assets decreased by 46% year-over-year to $31.1 million, and the ratio of nonperforming assets to total assets fell to 0.45% from 0.88% - A provision for credit losses of $3.0 million was recorded, a decrease from $8.5 million in Q2 2024 and $6.8 million in Q1 2025[30] - The company recognized a charge-off of $28.6 million during the quarter related to a previously disclosed nonperforming industrial loan, which is expected to be fully resolved in Q3 2025[30] Asset Quality Metrics Improvement | Metric | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :--- | :--- | :--- | :--- | | Nonperforming Assets ($ million) | $31.1 million | $57.6 million | $57.9 million | | Nonperforming Assets to Total Assets | 0.45% | 0.88% | 0.84% | | Watch List Loans to Total Loans | 3.67% | 5.31% | 4.13% | Investment Portfolio Overview The total investment securities portfolio remained stable at $1.13 billion, representing 16% of total assets. The portfolio's tax-equivalent adjusted effective duration was 5.9 years. The company expects to receive approximately $54.5 million in cash flows from the portfolio during the remainder of 2025 - Total investment securities were $1.13 billion at June 30, 2025, largely unchanged from the prior year[35] - The portfolio's effective duration was 5.9 years, down from 6.5 years a year ago[35] Noninterest Income Noninterest income for Q2 2025 was $11.5 million, a 44% decrease from Q2 2024. The decline was entirely due to a $9.0 million net gain on Visa shares recorded in the prior-year period. Excluding this item, adjusted core noninterest income was flat year-over-year. On a linked-quarter basis, noninterest income grew 5%, driven by bank-owned life insurance and mortgage banking income - The significant year-over-year decrease in noninterest income was caused by a one-time $9.0 million gain on Visa shares in Q2 2024[36] - Adjusted core noninterest income (non-GAAP) was essentially flat, increasing by less than 1% compared to Q2 2024[36] - On a linked-quarter basis, noninterest income increased by 5%, with notable growth in bank-owned life insurance income (+223%) and mortgage banking income[38] - Assets under management in the Wealth Advisory area reached nearly $3.0 billion at quarter-end[39] Noninterest Expense Noninterest expense decreased 9% year-over-year to $30.4 million, driven by a $4.5 million legal accrual in Q2 2024. Excluding this, adjusted core noninterest expense rose 6%, primarily due to higher salaries and technology investments. The efficiency ratio improved to 45.9% from 48.5% in the prior-year quarter - The year-over-year decrease in noninterest expense was due to a $4.5 million legal accrual recorded in Q2 2024[40] - Adjusted core noninterest expense (non-GAAP) increased by 6% YoY, driven by a 6% rise in salaries and benefits and a 9% increase in data processing fees[40] Efficiency Ratio | Period | Efficiency Ratio | | :--- | :--- | | Q2 2025 | 45.9% | | Q2 2024 | 48.5% | | Q1 2025 | 51.4% | Financial Statements and Tables This section provides a comprehensive overview of the company's financial position and performance through selected financial highlights, consolidated balance sheets, income statements, and detailed portfolio breakdowns Financial Highlights This section provides a summary table of key financial data, including end-of-period balances, average balances, income statement data, per-share data, key ratios, and asset quality metrics for the second quarter of 2025 compared to previous periods Selected Financial Highlights (as of June 30, 2025) | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :--- | :--- | :--- | :--- | | Total Assets | $6,964.3M | $6,851.2M | $6,568.8M | | Total Loans | $5,226.8M | $5,223.2M | $5,052.3M | | Total Deposits | $6,176.8M | $5,960.2M | $5,763.5M | | Total Equity | $710.0M | $694.5M | $654.6M | | Net Income | $27.0M | $20.1M | $22.5M | | Diluted EPS | $1.04 | $0.78 | $0.87 | | Return on Average Assets | 1.57% | 1.20% | 1.37% | | Return on Average Equity | 15.52% | 11.70% | 14.19% | | Net Interest Margin | 3.42% | 3.40% | 3.17% | Consolidated Balance Sheets This section presents the company's consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing assets, liabilities, and stockholders' equity Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,964,301 | $6,678,374 | | Loans, net | $5,160,275 | $5,031,988 | | Total Deposits | $6,176,833 | $5,900,966 | | Total Liabilities | $6,254,314 | $5,994,463 | | Total Stockholders' Equity | $709,898 | $683,822 | Consolidated Statements of Income This section provides the unaudited consolidated statements of income for the three and six months ended June 30, 2025, and June 30, 2024, detailing revenues, expenses, and net income Income Statement Summary - Three Months Ended June 30 (in thousands) | Account | 2025 | 2024 | | :--- | :--- | :--- | | Net Interest Income | $54,876 | $48,296 | | Provision for credit losses | $3,000 | $8,480 | | Noninterest Income | $11,486 | $20,439 | | Noninterest Expense | $30,432 | $33,333 | | Net Income | $26,966 | $22,549 | Loan Detail This table provides a detailed breakdown of the company's loan portfolio by category as of June 30, 2025, March 31, 2025, and June 30, 2024 Loan Portfolio Composition (June 30, 2025) | Loan Category | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial and industrial | $1,493,762 | 28.6% | | Commercial real estate & multi-family | $2,680,389 | 51.2% | | Agri-business and agricultural | $339,435 | 6.5% | | Consumer 1-4 family mortgage | $516,068 | 9.9% | | Other consumer loans | $103,880 | 2.0% | | Total Commercial Loans | $4,609,028 | 88.1% | | Total Consumer Loans | $619,948 | 11.9% | Deposits and Borrowings This section details the composition of the company's deposits and borrowings as of June 30, 2025, compared to previous quarters Funding Sources (June 30, 2025, in thousands) | Source | Amount | | :--- | :--- | | Noninterest bearing demand deposits | $1,261,740 | | Savings and transaction accounts | $4,125,679 | | Time deposits | $789,414 | | Total deposits | $6,176,833 | | FHLB advances and other borrowings | $6,200 | | Total funding sources | $6,183,033 | Average Balance Sheet and Net Interest Analysis This table presents a detailed analysis of the company's average balance sheet, interest income, interest expense, and net interest margin on a fully tax-equivalent basis for the second quarter of 2025 and comparative periods Net Interest Margin Calculation (Q2 2025) | Metric | Average Balance (in thousands) | Yield/Rate | | :--- | :--- | :--- | | Total earning assets | $6,570,607 | 5.83% | | Total interest bearing liabilities | $4,886,943 | 3.24% | | Net interest margin | - | 3.42% | Reconciliation of Non-GAAP Financial Measures This section provides reconciliations of GAAP financial measures to non-GAAP adjusted core performance measures, offering enhanced transparency into the company's underlying operational results Reconciliation of Tangible Common Equity and Pretax Pre-Provision Earnings This section provides a reconciliation of GAAP measures to non-GAAP measures, including tangible common equity, tangible assets, tangible book value per share, and pretax pre-provision earnings. These measures are adjusted for goodwill and other intangible assets Tangible Common Equity Reconciliation (June 30, 2025, in thousands) | Item | Amount | | :--- | :--- | | Total Equity (GAAP) | $709,987 | | Less: Goodwill | ($4,970) | | Plus: DTA Related to Goodwill | $1,167 | | Tangible Common Equity (Non-GAAP) | $706,184 | Pretax Pre-Provision Earnings Reconciliation (Q2 2025, in thousands) | Item | Amount | | :--- | :--- | | Net Interest Income | $54,876 | | Plus: Noninterest Income | $11,486 | | Minus: Noninterest Expense | ($30,432) | | Pretax Pre-Provision Earnings (Non-GAAP) | $35,930 | Reconciliation of Adjusted Core Performance Measures This section reconciles reported GAAP results to adjusted core performance measures, which exclude the impact of non-routine items such as the net gain on Visa shares and a legal accrual from the prior year. These adjustments provide insight into the company's core business performance Core Operational Profitability Reconciliation (Q2 2024, in thousands) | Item | Amount | | :--- | :--- | | Earnings Before Income Taxes (GAAP) | $26,922 | | Less: Net Gain on Visa Shares | ($9,011) | | Plus: Legal Accrual | $4,537 | | Adjusted Earnings Before Income Taxes | $22,448 | | Tax Effect | ($3,261) | | Core Operational Profitability (Non-GAAP) | $19,187 |