Lakeland Financial (LKFN) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls assessment Financial Statements The unaudited consolidated financial statements for Q1 2023 show a slight decrease in total assets, a modest increase in net income, and the adoption of new accounting standards with no material impact - The financial statements are unaudited and prepared for interim reporting, and should be read in conjunction with the 2022 Annual Report on Form 10-K[19] - The company adopted ASU 2022-02, eliminating the accounting guidance for Troubled Debt Restructurings (TDRs) and enhancing disclosure for loan modifications to borrowers in financial difficulty, effective January 1, 2022, for TDR reporting and January 1, 2023, for vintage disclosures. The adoption did not have a material impact[20] Consolidated Balance Sheets As of March 31, 2023, total assets slightly decreased to $6.41 billion, while total equity increased to $602.0 million, driven by improved accumulated other comprehensive income Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total cash and cash equivalents | $153,521 | $130,282 | | Securities available-for-sale, at fair value | $1,108,281 | $1,185,528 | | Loans, net | $4,683,713 | $4,637,790 | | Total assets | $6,411,529 | $6,432,371 | | Total deposits | $5,517,728 | $5,460,620 | | Total borrowings | $200,000 | $297,000 | | Total liabilities | $5,809,523 | $5,863,484 | | Total equity | $602,006 | $568,887 | Consolidated Statements of Income Q1 2023 net income rose 2.7% to $24.3 million, driven by a 14.8% increase in net interest income, despite higher credit loss provisions and noninterest expenses Income Statement Summary (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Interest Income | $51,519 | $44,880 | | Provision for credit losses | $4,350 | $417 | | Net Interest Income After Provision | $47,169 | $44,463 | | Total noninterest income | $10,314 | $10,687 | | Total noninterest expense | $29,434 | $26,969 | | Net income | $24,278 | $23,642 | | Diluted EPS | $0.94 | $0.92 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q1 2023 was $45.8 million, a significant turnaround from a $86.1 million loss in Q1 2022, driven by net income and reduced unrealized securities losses Comprehensive Income (Loss) Summary (in thousands) | Component | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $24,278 | $23,642 | | Other comprehensive income (loss), net of tax | $21,553 | $(109,780) | | Comprehensive income (loss) | $45,831 | $(86,138) | Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased to $602.0 million by March 31, 2023, primarily due to net income and positive other comprehensive income, partially offset by dividends - Key drivers of the change in stockholders' equity in Q1 2023 were net income (+$24.3M), other comprehensive income (+$21.6M), and cash dividends (-$11.7M)[15] - Cash dividends declared and paid were $0.46 per share in Q1 2023, compared to $0.40 per share in Q1 2022[15] Consolidated Statements of Cash Flows Q1 2023 saw a net increase of $23.2 million in cash and cash equivalents, driven by positive cash from investing and operating activities, partially offset by financing outflows Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $27,443 | $47,704 | | Net cash from investing activities | $50,360 | $(329,219) | | Net cash from financing activities | $(54,564) | $73,299 | | Net change in cash and cash equivalents | $23,239 | $(208,216) | Notes to the Consolidated Financial Statements The notes provide detailed information on the securities and loan portfolios, credit quality, borrowings, fair value measurements, and a significant legal contingency - The company consists of Lakeland Financial Corporation, its wholly-owned subsidiary Lake City Bank, and LCB Risk Management, a captive insurance company. All significant inter-company balances are eliminated[18] - The company is transitioning from LIBOR to an alternative reference rate for its remaining LIBOR-based loans, with a target completion before June 30, 2023[23] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 2.7% increase in Q1 2023 net income to $24.3 million, driven by higher net interest income and margin expansion, despite increased credit loss provisions and noninterest expenses - Net income for Q1 2023 was $24.3 million, an increase of 2.7% from Q1 2022, with diluted EPS up 2.2% to $0.94[112] - Pretax pre-provision earnings (a non-GAAP measure) increased 13.3% to $32.4 million in Q1 2023, up from $28.6 million in Q1 2022[112] - The tangible common equity to tangible assets ratio was 9.34% at March 31, 2023, up from 8.79% at December 31, 2022. Excluding the impact of securities market value adjustments, the adjusted ratio was 11.56%[114] Results of Operations Q1 2023 operating results show strong net interest income growth and margin expansion, offset by a sharp increase in credit loss provisions and higher noninterest expenses Key Performance Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net interest margin | 3.54 % | 2.93 % | | Efficiency ratio | 47.60 % | 48.53 % | | Net charge offs to average loans | 0.49 % | 0.06 % | | Pretax pre-provision earnings (non-GAAP) | $32,399 | $28,598 | Financial Condition Total assets slightly decreased to $6.41 billion, while the loan portfolio grew, nonperforming assets remained low, and total equity increased, maintaining a well-capitalized status - Total assets decreased by $20.8 million during Q1 2023, driven by decreases in available-for-sale securities, noninterest bearing deposits, and borrowings, which were offset by increases in loans and interest bearing deposits[138] - Nonperforming assets increased slightly to $17.9 million, representing 0.28% of total assets at March 31, 2023, compared to 0.27% at year-end 2022[147] - Uninsured deposits were 29% of total deposits as of March 31, 2023, down from 30% at December 31, 2022[161] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulation analysis showing asset sensitivity where a 100 basis point rate increase boosts net interest income by 2.82% - The company's primary market risk exposure is interest rate risk, managed by the Asset and Liability Committee under a policy approved by the Board's Corporate Risk Committee[171] Net Interest Income Sensitivity Analysis (as of March 31, 2023) | Rate Shock Scenario | Change in Net Interest Income (%) | | :--- | :--- | | +300 bps | +8.47% | | +200 bps | +5.62% | | +100 bps | +2.82% | | -100 bps | -3.74% | | -200 bps | -8.09% | | -300 bps | -13.12% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023[176] - No material changes were made to the Company's internal control over financial reporting during the first quarter of 2023[177] PART II. OTHER INFORMATION This section details legal proceedings, updates on risk factors, equity transactions, and other required disclosures Legal Proceedings The company is involved in various legal proceedings, including a lawsuit from a bankruptcy trustee, which management believes will not materially impact its financial position - The company is defending against a lawsuit from a bankruptcy trustee for a former client, which also names four officers and one director. A motion to dismiss was heard on April 17, 2023[109][110] - Management does not believe the outcome of pending legal matters will be material to the company's consolidated financial position, but cannot rule out a material impact on results for a particular future period[180] Risk Factors No material changes to the company's risk factors have been reported since the Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported since the Form 10-K for the year ended December 31, 2022[181] Unregistered Sales of Equity Securities and Use of Proceeds The board reauthorized a $30 million share repurchase program through April 2025, though no public repurchases occurred in Q1 2023 - The board reauthorized a share repurchase program for up to $30 million, effective through April 30, 2025[183] - No shares were repurchased under the publicly announced plan in Q1 2023. However, 2,800 shares were purchased for the directors' deferred compensation plan[184] Defaults Upon Senior Securities No defaults upon senior securities were reported - There were no defaults upon senior securities[185] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[185] Other Information No other information was reported under this item - No other information was reported under this item[186] Exhibits The report includes various exhibits, such as CEO and CFO certifications and the Interactive Data File (XBRL) - Exhibits filed include CEO/CFO certifications and the Interactive Data File[186]