LakeLand Financial (LKFN) stock valuation

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LakeLand Financial (LKFN) equity valuation presentation for a Student Managed Investment Fund.

LakeLand Financial (LKFN) equity valuation presentation for a Student Managed Investment Fund.

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  • 1. Presented By: Tim Barnes Brant Macquoid Chris StarkeyLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 2. Lakeland Financial (LKFN) Market Cap: 416.2 Million Chairman and CEO, Michael KubackiLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 3. Last Price $25.10 Market Cap 416.2 Million Fiscal Year End December 31 Last Earnings 01/24/2012 Announcement Next Earnings 04/25/2012 Announcement Number of Analyst 6 Dividend Yield 2.43% % of Institutional 64.59% Ownership Chief Financial Officer, David Findlay,Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 4. Lubbock size equivalent Bank Total Assets Total Deposits Plains Capital $5.7 Billion $4.2 Billion Lake City Bank $2.9 Billion $2.3 Billion American State $2.75 Billion $2.2 Billion City Bank $1.9 Billion $1.73 Billion First United $994 Million $863 Million Lubbock National $711 Million $621 Million First Bank & Trust $473 Million $372 MillionLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 5.  Warsaw is the “Orthopedic Capital of the World” with an $11 Billion local industry. Warsaw home to 3 of the world’s 5 largest orthopedics manufacturers: DePuy, Zimmer, Biomet. Warsaw is home to the largest spinal-implant manufacturing facility. Collectively the area’s orthopedics companies represent more than 40% of the world orthopedics manufacturing market Source: Lilly Endowment Inc. 2010 annual report. share.
  • 6. LakeLand Financial Value Drivers 1. Economic Moat as “Orthopedic Capital of the World” 2. 21 years of record earnings 3. Lowest efficiency rating among all Midwest banks 4. Dominant Market share winner in previous decade (206.05% market share growth), expansion into the larger South Bend and Indianapolis markets 5. Named to the prestigious KBW Bank Honor Roll of High Performing BanksLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 7. KBW Bank Honor Roll On April 3rd 2012 Lakeland Financial announced that Keefe, Bruyette, and Woods Inc. (KBW) had recognized Lakeland for inclusion in the KBW Bank Honor Roll. Of the estimated 6,453 banks in the United States only the top 45 are included in the KBW Bank Honor Roll. In order to be eligible for the KBW Bank Honor Roll, banks must have: 1. No annual loss reported in net income per share before xo over the past 10 years. 2. 2011 annual reported net income per share before xo equal to or greater than peak net income per share over the past 10 years. 3. Consecutive increases in net income per share before xo items since 2009.Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 8. Lakeland Financial Peers • Old National Bancorp (ONB) Market Cap: $1.2B Headquartered in Evansville, Indiana • 1st Source Corporation (SRCE) Market Cap: $568M Headquartered in South Bend, Indiana • German American Bancorp (GABC) Market Cap: $235M Headquartered in Jasper, IndianaLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 9. Lakeland Financial Peers Fundamentals Stock P/E P/B ROA ROE NIM Efficiency Operating Ratio Margin Peer 13.13 1.31 .87% 10.73% 3.91% 64.13% 33.76% Average Lakeland 13.13 1.53 1.10% 11.79% 3.54% 46.99% 45.21% Financial (LKFN) Old 16.39 1.17 .91% 7.58% 4.09% 74.15% 26.52% National Bank (ONB) 1st Source 11.48 1.08 1.09% 9.54% 3.69% 65.73% 37.62% (SCRE) German 11.46 1.43 1.25% 14.01% 4.35% 58.52% 25.71% American Bank (GABC)Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 10. Porters 5 Forces: LakeLand FinancialLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 11. Piotroski Trend Analysis
  • 12. Risk Factors from Management Discussions1. Adverse economic conditions that affect growth rate and ability of our customers to repay their loans.2. Further increased regulation, which would increase our regulatory expenses.3. Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.4. Interest rate shifts may reduce net interest income • When interest rates rise, the rate of interest we pay on our liabilities rises more quickly than the rate of interest that we receive on our interest bearing assets, which may cause our profits to decrease.5. Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.6. Any changes in Indiana’s Public Deposit Insurance Fund could require us to find alternative, higher-cost funding sources to replace public fund deposits. • 19% of our deposits are concentrated in public funds from a small number of municipalities and government agencies.
  • 13. Source: FDIC Statistics
  • 14. Source: FDIC Statistics
  • 15. Source: FDIC Statistics
  • 16. Lake City Bank Source: FDIC Statistics
  • 17. Source: FDIC Statistics
  • 18. Source: FDIC Statistics
  • 19. Source: FDIC Statistics
  • 20. Lake City Bank
  • 21. A ratio of expenses to revenues. Banks desire a lower efficiencyratio because this means that the bank is making more than it is spending.
  • 22. Charting Dividend Yield
  • 23. Default Risk and 5 Yr CDS Spreads(bp)Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 24. CAMELS Rating SystemC – Capital AdequacyA – Asset QualityM – Management QualityE – EarningsL – LiquidityS – Sensitivity to Market RiskBank supervisory authorities assign each banka score on a scale of 1(best) to 5(worst) foreach factor.This ranking helps supervisory authoritiesidentify banks that are at risk of failure. Thisrating is kept extremely private and onlyrevealed to top levels of bankmanagement, for fear that a bad rating couldcause a “run on the bank” scenario. Source: frbs.org
  • 25. CAMELS Rating Criteria Quality Level LakeLand Financial Equity-to-Total Assets > 5% 9.45%Capital Adequacy Basel Ratio >9.5% 13.57% Loan Loss provisions to gross loan < 1% .64% portfolio Reserve for loan losses to gross < 3% 2.39% loan portfolio Loan write-offs to gross loan < .5% .25% Asset Quality portfolio Reserve for loan losses to non- >1% 1.35% performing loans Non-performing loans to total >2% 1.3% assets Experienced N/A Management Net interest income to total assets >3% 3.18% Efficiency Ratio < 60% 47% Earnings ROA >1% 1.10% ROE >15% 11.79% Liquid Assets to total deposits >20% 16.51% Liquid Assets to total assets >30% N/A Liquidity Loans to total assets < 65% 77.30% Gap Analysis [RSA – RSL] N/A -10.23% Sensitivity Source: Analyst of Waymond Grier
  • 26. Management’s commentary from 10-K on managing interest rate risk • Company’s cumulative repricing Gap ratio for the next 12 months was -10.23% of earning assets. • As of December 31, 2011, the Company’s investment in mortgage backed securities represented approximately 82% of total securities, with 75% of the securities consisting of Collateralized Mortgage Obligations (“CMOs”) and mortgage pools issued by Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie Mae, Fannie Mae and Freddie Mac securities are each guaranteed by their respective agencies as to principal and interest. • As of December 31, 2011, the securities in the Available For Sale portfolio had approximately a 1.06 year duration with approximately a negative 5.51% return in the event of a 300 basis points upward movement, 1.21% return if there is no change in rates and a 3.43% return in the event of a 300 basis point downward movement in rates.Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 27. 10.00% Interest Rate with Lakeland Financial Gap Ratio Overlay 5.00% 0.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -5.00% Gap Ratio -10.00% -15.00% -20.00% Gap ratio = (Rate-sensitive assets – Rate-sensitive liabilities) Average earning assetsLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 28. 5.00% 0.00% Net Interest Margin vs. Gap Ratio 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -5.00% Gap Ratio -10.00% NIM -15.00% -20.00%Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 29. Loans/Securities Over 1 Year 65.00% 60.00% 55.00% LKFN Loans/Securities Over 1 year Axis Title Peer Group 50.00% ONB L/S Over 1 year SRCE L/S over 1 year 45.00% GABC L/S over 1 year 40.00% 35.00% 2007 2008 2009 2010 2011Lake City Bank 1-888-522-2265 www.lakecitybank.com Source: www.ffiec.gov/ubpr.htm
  • 30. Loans/Securities Over 3 years 55.00% 50.00% 45.00% 40.00% LKFN Loans/Securities Over 3 years 35.00% Axis Title Peer Group ONB L/S Over 3 years 30.00% SRCE L/S over 3 years GABC L/S over 3 years 25.00% 20.00% 15.00% 10.00% 2007 2008 2009 2010 2011Lake City Bank 1-888-522-2265 www.lakecitybank.com Source: www.ffiec.gov/ubpr.htm
  • 31. Largest weight in sensitive assets and liabilities in Year 1Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 32. Financials GraphicLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 33. Income Statement (1 of 2) *Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 34. Income Statement (2 of 2) 3 4 5Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 35. Balance Sheet 5Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 36. Balance Sheet 6Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 37. Balance Sheet (Common Size)Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 38. Loan PortfolioLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 39. Loan Portfolio*Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 40. SecuritiesLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 41. Deposits and Borrowed FundsLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 42. CapitalLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 43. Cash Flow Statement (1 of 2)Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 44. Cash Flow Statement (2 of 2) 7Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 45. Valuation Metrics • Price to Earnings • Price to BookLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 46. DuPont Analysis • Asset Turnover • Operating Margin • Financial LeverageLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 47. Dividend CoverageLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 48. Profitability Ratio’s • Return on Capital • Return on Assets • Return on EquityLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 49. Capital Ratio’s • Tier 1 Capital Ratio • Common Equity to Total AssetsLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 50. Liquidity • Deposits/Assets • Total Loans/Total DepositsLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 51. Analyst RecommendationLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 52. Earnings SurpriseLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 53. Revenue SurpriseLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 54. Institutional HoldersLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 55. 6 - Month vs. IndustryLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 56. 2 - Year vs. IndustryLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 57. 5 - Year vs. IndustryLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 58. 6 - Month vs. PeersLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 59. 2 - Year vs. PeersLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 60. 5 - Year vs. PeersLake City Bank 1-888-522-2265 www.lakecitybank.com
  • 61. Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 62. Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 63. Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 64. Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 65. Presentation Appendix
  • 66. Relative stability throughout recession
  • 67. Management Commentary• http://beta.fool.com/robertdcoleman/2012/01/30/too-small-fail-3-commercial-banks-will-outperform- /1453/?source=eogyholnk0000001 LKFN) represents another regional bank success story. The company, which was founded almost a century and a half ago and serves the Midwest region, is still valued at only 1.5 times book value after posting a 52 week price performance of 22%. More encouraging than the stock’s performance in the market is the fact that Lakeland has grown its EPS around 5% over the past five years and is projected to grow its EPS another 10% over the next 3-5 years. LKFN also pays a strong dividend (2.4% yield) and carries $104.5 million in cash. Lake City Bank
  • 68. Management Commentary• "In the past five years, loans have grown by $880 million, or 65%. This loan growth has not been the result of acquisition or entry into new markets. Rather, its resulted from targeted growth in our core Indiana markets by great client relationship teams. Weve remained committed to contributing to Indianas economic stability throughout this challenging period and look forward to continuing to play a role in our states future economic growth.“ - President and CFO David Findlay• The Companys net interest margin was 3.38% in the fourth quarter of 2011 versus 3.62% for the fourth quarter of 2010 and 3.48% in the linked third quarter of 2011. The year-over-year margin decline resulted primarily from reduced yields in the investment portfolio and slightly lower commercial loan yields as interest rates continue to be at historic lows. For the year ended December 31, 2011, the Companys net interest margin was 3.54% versus 3.73% for the comparable period in 2010.• http://finance.yahoo.com/news/Lake-City-Bank-Net-Income-pz-1996656220.html?x=0 Lake City Bank
  • 69. Lake City Bank 1-888-522-2265 www.lakecitybank.com
  • 70. Lake City Bank 1-888-522-2265 www.lakecitybank.com