Lakeland Financial Corporation · NASDAQ:LKFN
Lakeland Financial — Q1 2023 Earnings Presentation
66 slides from Lakeland Financial's earnings presentation, 2023
Slide 1: A Proven History of Shareholder Value Creation
Lakeland Financial Corporation A Proven History of Shareholder Value Creation And Commitment to Our Communities 1st Quarter 2023 LKFN LISTED
Slide 2: David M. Findlay and Lisa M. O'Neill
David M. Findlay President & Chief Executive Officer david.findlay@lakecitybank.com (574) 267-9197 Lisa M. O’Neill Executive Vice President & Chief Financial Officer lisa.oneill@lakecitybank.com (574) 267-9125 2
Slide 3: Forward-Looking Information
Forward-Looking Information This presentation contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts and
Slide 4: Long Term Success for Shareholders
Long Term Success for Shareholders 12 Institutions (including LKFN) LTM ROE >13% Consecutive Increases in PTPP 17 Institutions Income Since 2012(3) Profitable for the Last 169 Institutions 10 Years(2) Exchange Traded Depositories with Assets Between $1B and 200 Institutions $10B(1) Source: S&P Capit
Slide 5: Strong Capital Structure
Strong Capital Structure Tangible Book Value(1) Per Share $35.00 $29.87 * Reserves Tangible 8.3% $30.00 Common Equity 91.7% $23.36 $25.00 $20.00 $15.00 Key Ratios and Per Share Data as of March 31, 2023 TCE/Tangible Assets 9.34% $10.00 Adj. TCE/Adj. Tangible Assets 11.56% $5.00 Total Risk-Based 15.2
Slide 6: Lake City Bank Today
Lake City Bank Today • A long-term and consistent organic growth story • Headquartered in Warsaw, Indiana • 53 branch offices - $6.4 billion banking assets - $2.9 billion trust, retirement and investment brokerage assets • Focused on execution – “blocking and tackling” • Continued growth potential 6
Slide 7: 32 Years of Organic Growth
32 Years of Organic Growth Record Net Income for 32 of 34 Years (000’s) $103,817 $120,000 $100,000 Compound Annual Growth 1991 – 2022 • Loans = 11% • Deposits = 10% $80,000 • Net Income = 12% • Earnings Per Share = 12% $60,000 $40,000 $20,000 $2,707 $0 1993 2010 1991 1992 1994 1995 1996 1997 1998 19
Slide 8: Established Market Presence
Established Market Presence Organic Growth Potential in Mature and Expanding Markets 8
Slide 9: Strong Regional and Statewide Economy
Strong Regional and Statewide Economy Indiana Unemployment Rate is Lower Than the National Average 14.0% 13.0% 12.0% Unemployment 10.0% 8.7% 8.0% 8.1% 11.9% 7.0% 6.6% 6.0% 9.0% 9.0% 5.8% 5.2% 6.9% 4.9% 5.6% 4.0% 4.4% 5.1% 4.1% 4.1% 4.7% 3.9% 4.3% 3.8% 4.1% 11.3% 3.8% 3.5% 9.0% 8.8% 6.5% 5.2% 4.6% 3.
Slide 10: Lake City Bank Balance Sheet Dynamics
Lake City Bank Balance Sheet Dynamics 1. Capital Strength 2. Diversified Deposit Composition 3. Liquidity Availability 4. Investment Securities Portfolio 5. Asset Liability Management 10
Slide 11: Capital Strength
Capital Strength Our Above Peer Profitability Has Contributed to our Strong Capital Foundation • Lake City Bank has significantly higher levels of capital than the minimum required by the regulators for “Well- Capitalized” status • A strong capital foundation has been maintained for a long period of
Slide 12: Fortress Balance Sheet in Excess of Regulatory Capital Requirements
Fortress Balance Sheet in Excess of Regulatory Capital Requirements LKFN Performance Exceeds Minimums Required to be “Well-Capitalized” Proxy Peer Average RBC Q4’22 14.4% 16.0% 15.2% 15.1% 15.0% 14.0% 13.3% 13.0% 12.0% 11.0% Well Capitalized Threshold 10.0% for Consolidated Risk-Based Capital 10.0%
Slide 13: Lake City Bank Capital Adequacy
Lake City Bank Capital Adequacy Capital Strength Grows in March 2023 Non-GAAP Non-GAAP Non-GAAP Adjusted March 31, Well- Capital AOCI and Excess Capital Regulatory Ratio 2023 Capitalized Cushion HTM Capital Ratios with Description * Actual threshold (in 000’s) Losses- after AOCI AOCI and after tax a
Slide 14: Impact of "Banking Crisis" on Lake City Bank
Impact of “Banking Crisis” on Lake City Bank Deposits Have Been Stable Since Banking Crisis Emerged • Deposit activity reflects customary fluctuations for this time of year • Daily monitoring of liquidity position, large depositor fluctuation report, uninsured deposit balances, and significant daily
Slide 15: Deposit Composition Continues To Remain Stable In 2023
Deposit Composition Continues To Remain Stable In 2023 Runoff of PPP and Economic Stimulus Deposits Impacts Demand Deposit Balances Brokered Brokered Deposits Deposits $160,658 $10,027 3% 0% Total Retail Total Retail Total $1,894,707 $1,934,787 Commercial Total 34% 36% $2,085,934 Commercial 38% $2,1
Slide 16: Diversified Deposit Base
Diversified Deposit Base Deposits Are Not Concentrated to Any Industry or Client • Deposit composition has remained stable with commercial deposits increasing as a percent of total deposits • Lake City Bank had 129,532 deposit accounts at March 31, 2023. 126,804, or 98%, of those accounts are less t
Slide 17: Pre-Pandemic Deposit Comparison
Pre-Pandemic Deposit Comparison Deposit Composition Has Remained Stable in 2022 versus 2019 Brokered Brokered Deposits Deposits $10,027 $114,109 0% 3% Total Total Total Retail Commercial Commercial $1,934,787 $1,276,047 $2,085,934 36% 31% Total Retail 38% $1,617,133 39% Total Public Total Public Fun
Slide 18: Checking Accounting Trends by Deposit Sector
Checking Accounting Trends by Deposit Sector Commercial and Retail Accounts Grow by Double Digits (000) $2,500,000 Checking Account Average Balances by Deposit Type (000) Public $2,000,000 Commercial Retail Funds $1,997,092 Checking Account Balances $1,953,969 3/31/23 $133 $16 $5,790 $1,500,000 Pre-
Slide 19: Uninsured deposits % of Deposits
Deposits (000) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2013 $2,547 2014 $2,874 2015 $3,184 Total Deposits 2016 $3,581 2017 $4,010 2018 $4,045 2019 $4,136 2020 $5,037 2021 $5,736 $5,461 57% 2022 30% Uninsured Deposits % of Total Deposits Jan 2023 $5,390 Feb 2023 $5,542 3/16 $5,523 3/17 $5,522 3/
Slide 20: Liquidity Overview
Liquidity Overview • Available liquidity is stable and has remained unchanged at $3.0 billion since year end • Sources of liquidity are varied and represent wholesale funding and brokered deposits • In December 2022, loan growth and deposit outflows contributed to a need of wholesale funding, primar
Slide 21: Liquidity Preparedness
Liquidity Preparedness Additional Loan March 31, 2023 Collateral Available for (000) Liquidity Availability Used Unused/ Available Pledge Secured/Committed Borrowings: Federal Home Loan Bank-Indianapolis(1) $ 506,702 $ 200,000 $ 306,702 $ -- Federal Reserve Bank Discount Window 1,150,910 -- 1,150,91
Slide 22: Investment Securities Overview
Investment Securities Overview Excess Liquidity Deployed to Investment Security Portfolio Over Two Years • Excess liquidity of $1 billion deployed to investment portfolio during 2020-2022 • Investment portfolio longer duration offsets shorter duration of loan portfolio for interest rate risk managem
Slide 23: Investment Portfolio Analysis
Investment Portfolio Analysis Linked Quarter Comparison 3/31/2023 12/31/2022 Weighted Market % of Weighted Market % of Maturity Value Total Maturity Value Total US Govt REMICS 6.17 108,021 9% 5.97 114,355 9% US Govt Pools 7.85 376,440 31% 7.34 377,953 29% US Agencies 9.24 127,995 11% 8.82 126,961 10
Slide 24: Investment Security Portfolio Cashflows
Investment Security Portfolio Cashflows Nearly $400 million of Principal and Interest Cash Flows Expected from 2023-2026 (000) 40,000,000 Investment Portfolio has generated $111 million in cash 35,000,000 flow and proceeds from sales through March 31, 2023 9,992,888 30,000,000 25,000,000 8,878,244 6
Slide 25: Investment Portfolio
Investment Portfolio Investment Portfolio Decreasing in Size as a Percentage of Total Assets 25% US Govt Treas 0.27% 20% 21% 20% MV Investments as a % of Assets 19% US Govt US Govt Remics Agencies 15% 8.83% 10.46% US Govt Pools 14% 14% 13% 30.76% 10% 12% 12% 12% 12% HTM Municipals 5% 9.44% 0% AFS Mu
Slide 26: Projected Impact of Rising/Falling Rates
Projected Impact of Rising/Falling Rates 15.00% Asset Sensitive Balance Sheet 10.00% 8.47% 5.62% 5.00% 2.82% 1.42% 0.71% 0.00% -0.88% -1.81% -5.00% -3.74% -8.09% -10.00% -13.12% -15.00% -20.00% NII - Rates Dn NII - Rates Dn NII - Rates Dn NII - Rates Dn NII - Rates Dn NII - Rates Up NII - Rates Up N
Slide 27: Evolution of Deposit and Loan Betas
Evolution of Deposit and Loan Betas FED Tightening in 2022-2023 Has Been More Aggressive Than Past Cycles • NIM expanded 102 basis points from 4Q21 through 4Q22 due to asset sensitive balance sheet and lagged deposit rate increases • Total cumulative deposit beta of 34% from March 2022 to March 2023
Slide 28: Interest Rate Sensitivity
Interest Rate Sensitivity Asset Sensitivity Generated From Commercial Loan Portfolio • Cost of deposits and purchased funds increased due to loan growth, deposit FHLB/Other mix shift from DDA, and increased $1,037,638 25% competition for deposits • Fixed rate loans have shorter, average 1 Mo. LIBOR
Slide 29: Shareholder Value Strategy
Shareholder Value Strategy 1. Commercial Banking Focus 2. High Quality Team Members 3. Proven Organic Growth Experience 4. Focus on Core Deposit Funding 5. Commitment to Technology 29
Slide 30: Commercial Banking Focus
Commercial Banking Focus Experienced Relationship Driven Team • 39 credit “smart” commercial bankers • Average 23 years in banking & 13 years at Lake City Bank • We live where we lend • Face to face calling matters and is a team effort • We understand our clients’ needs • Deep organizational structu
Slide 31: Credit Process
Credit Process Commercial Banking Focus • Our credit discipline has never changed • We have a centralized committee structure • We are in-market lender to in-market clients • Character matters – we lend to people first • We focus on management/cash flow • Structure is important and is disciplined •
Slide 32: Corporate Social Responsibility
Corporate Social Responsibility Over 150 Years of Focusing on Our Customers, Employees and Our Communities • Supporting our communities since 1872 • Caring for and building a diverse and inclusive team • Delivering loan products to our communities • Developing strong cybersecurity controls to protec
Slide 33: Lake City Bank Culture
Lake City Bank Culture High Quality Team Members • Our culture is our greatest asset and we will preserve it • Lake City University drives our culture • Diversity, Equity and Inclusion are ongoing initiatives that create a culture of belonging • Our community involvement is real and critical to our
Slide 34: Mature Market Deposit Performance
Mature1 Market Deposit Performance Organic Growth 2012 - 2022 $3,000 $2,509 $2,501 $2,500 $2,373 Lake City Bank has grown $2,000 deposits by 102% over the $1,500 last ten-year period. $1,000 $596 $509 $500 $486 $328 $93 $0 -$210 -$500 -$1,000 -$1,162 -$1,500 Lake City Bank 1st Source JPM Chase PNC S
Slide 35: Organic Growth: Indianapolis Market Opportunity
Organic Growth Indianapolis Market Opportunity Indianapolis Market Banks Share of Market Deposit Market Share 1. JPM Chase 24% 2. PNC 14% 3. Merchants Bank 10% 3% 4. Fifth Third 8% 5. Huntington National 7% 6. BMO Harris 5% 7. Bank of America 5% 8. First Internet Bank 5% 9. National Bank of Indy 4%
Slide 36: A Strong Environment for Growth and Expansion
A Strong Environment for Growth and Expansion • Indiana #1 manufacturing state in the country(1) • Manufacturing jobs increased 0.5% or 537,600 from February ‘22 to February ‘23(2) • U.S. Census Bureau announced Indiana’s population grew by 4.7% between 2010 and 2020 • Indiana unemployment at 3.1% a
Slide 37: Commitment to Technology and Cyber Risk Management
Commitment to Technology and Cyber Risk Management Innovation and Competitive Technology is a Focus • Fintech partnerships play a significant role in our technology stack and enable delivery of innovative solutions to our customers • Investments in Lake City Bank Digital, a Q2 product implemented in
Slide 38: Channel Utilization Over Three Year Horizon
Channel Utilization Over Three Year Horizon Mobile Channel Engagement Continues to Accelerate Total Total Three Channel Transactions % of Transactions % of Year Type 2020(1) Total 2023(1) Total Change Branch Transactions 2,254,349 18% 2,064,323 15% (8)% ATM/ITM 947,292 7% 857,780 6% (9)% Online Logi
Slide 39: Customer Composition and Digital Adoption
Customer Composition and Digital Adoption Digital Platform Upgrade in March of 2021 Positively Impacting Digital Adoption Across All Generations Customer Composition and Digital Adoption Over Three Years Generation Customer Breakdown 3/31/23 3/31/22 3/31/21 Gen Z (1996 - Current) 17% 52% 49% 45% Mil
Slide 40: Financial Performance
Financial Performance
Slide 41: Income Performance Metrics
Income Performance Metrics LKFN Performance Exceeds National and Indiana Peers and Maintains Strong Capital Levels ROAE and ROATE LTM Peer Data1 2.50% National Indiana 20.00% ROAE 13.7% 14.7% ROATE 17.0% 17.2% 2.30% 17.52% 18.00% 16.64% 16.92% 2.10% 15.57% 17.40% 16.81% 16.00% 16.51% 14.27% 1.90% 15
Slide 42: Net Income and EPS
Net Income and EPS Record Profitability in 2022 $4.50 $103,817 $100,000 $95,733 $4.00 $87,047 $4.04 $84,337 $80,411 $3.74 $3.50 $80,000 $3.38 $3.30 $3.00 Net Income $3.13 EPS $60,000 $2.50 $40,000 $2.00 $23,642 $24,278 $1.50 $20,000 $1.00 $0.92 $0.94 $0 $0.50 2018 2019 2020 2021 2022 YTD 2022 YTD 20
Slide 43: Pretax Pre-Provision Earnings/Average Assets
Pretax Pre-Provision Earnings Significant Growth in Net Interest Income Offset by Decline in Noninterest Income $160,000 6.00% Pretax Pre-Provision Earnings/Average Assets $140,000 $134,539 5.00% $118,646 Pretax Pre-Provision Earnings $120,000 $118,521 $110,620 $105,344 4.00% $100,000 $80,000 3.00%
Slide 44: Average Loans
Average Loans Average Loan Growth of $425 million or 10% for 2023 $5,000,000 $4,725,427 $4,424,472 $4,421,094 $4,427,166 120% $4,500,000 $3,974,532 $4,000,000 $3,843,912 110% $3,500,000 100% Loans to Deposit Ratio $3,000,000 Loans 94% 94% 95% 90% $2,500,000 $2,000,000 86% 80% 83% $1,500,000 77% 70%
Slide 45: Line of Credit Utilization
25% 45% 55% 65% 75% 85% 95% 35% $1,715 $1,612 3,327 Outstanding $1,655 $1,611 3,266 52% 51% $1,664 $1,806 3,470 $1,696 $1,737 3,433 Available $1,616 $1,797 3,413 $1,669 $1,738 3,407 $1,630 $1,785 3,416 48% 49% 47% 49% 48% % Line Usage $1,593 $1,835 3,429 46% PPP Round 1 $1,637 $1,785 3,423 48% $1,47
Slide 46: Line of Credit Utilization vs. Commercial DDA
Line of Credit Utilization vs. Commercial DDA DDA Deposit Balances Remain Elevated in 2022 (000’s) 60% $1,600,000 PPP PPP Round 1 Round 2 $1,400,000 55% 54% 52% 52% 52% 52% 51% 51% 51% $1,200,000 50% 50% 50% 49% 49% 48% 48% 48% Line of Credit Utilization 47% $1,000,000 Commercial DDA 46% 45% $800,00
Slide 47: Loan Portfolio Breakdown
Loan Portfolio Breakdown C&I Drives Lending Business Other Residential Agri-business - Agriculture Commercial Mortgage $392,982 $132,284 $221,616 Commercial RE - Construction 8% 3% 5% $591,812 Home Equity 12% $175,907 4% Installment - Other Consumer $110,127 Commercial RE - Multifamily 2% $217,274 4
Slide 48: Top 10 Industry Concentrations
Top 10 Industry Concentrations Loan Portfolio is Diversified- Commercial Office Space Represents 0.71% of Loans Automobile Dealers Restaurants Hotels $122,308 $99,964 $99,501 3% Nondepository Credit 2% 2% Intermediation $98,152 Senior Living 2% $154,627 3% Misc. Durable Goods Merchant Wholesalers $9
Slide 49: Average Deposits
Average Deposits Deposit Surge During Pandemic Abates in 2023 (000’s) 150% $6,000,000 $5,717,358 140% $5,357,284 $5,487,593 Deposits as a Percent of Total Funding 130% $5,000,000 $4,650,597 $4,093,894 $4,242,524 120% $4,000,000 110% Deposits 100% $3,000,000 98% 98% 99% 100% 97% 96% 90% $2,000,000 80
Slide 50: Deposit Breakdown
Deposit Breakdown Deposit Costs Rise in Response to Rising Competition and Interest Rate Environment Brokered Deposits Cost of Deposits $160,658 3.00% 3% 2.50% 1.84% 2.00% 1.19% 1.35% 1.50% 1.10% 0.98% 1.00% 0.63% 0.48% 0.50% 0.54% 0.72% 0.63% 0.63% 0.50% 0.28% 0.00% 2011 2012 2013 2014 2015 2016 20
Slide 51: Public Fund Deposit Trends
$1,000,000 $1,400,000 $1,600,000 $0 $400,000 $600,000 $800,000 $1,200,000 $200,000 $629,892 $604,907 $1,235,687 $649,271 $575,833 $1,225,991 $638,349 $510,528 $1,149,765 $731,445 $518,786 $1,2351,119 Checking and MMA $752,745 $537,537 $1,291,170 $780,046 $444,194 $1,225,127 $721,203 $528,485 $1,250,
Slide 52: Net Interest Income
Net Interest Income Growth in Net Interest Income Impacted by Higher Rates and Growth in Loans (000’s) $250,000 5.00% $202,887 Net Interest Margin, fully tax equivalent Net Interest Income $200,000 4.50% $178,088 $163,008 $151,271 $155,047 $150,000 4.00% 3.54% 3.43% 3.38% 3.40% $100,000 3.50% 3.19%
Slide 53: Asset Quality: Nonperforming Assets
Asset Quality Watchlist Loans as a Percentage of Total Loans at Historic Lows 5.00% 14.00% Watch List Loans to Total Loans excluding PPP 4.00% Nonperforming Assets to Total Assets 12.00% 3.00% 10.00% 8.86% 8.17% 8.06% 7.46% 8.00% 2.00% 6.64% 6.75% 5.75% 5.50% 6.00% 4.64% 4.77% 4.50% 4.43% 4.28% 1.00
Slide 54: Asset Quality: Allowance for Credit Losses
Asset Quality Allowance for Credit Losses Represents Strong Coverage 0.60% 2.70% 2.39% 2.28% 2.40% ACL to Total Loans, excluding PPP 0.50% 2.15% Net Chargeoffs to Average Loans 1.92% 2.10% 0.40% 1.80% 0.30% 1.67% 1.50% 1.59% 1.59% 1.54% 1.50% 1.42% 1.45% 0.20% 1.20% 1.26% 1.23% 1.24% 1.25% 0.90% 0.1
Slide 55: Noninterest Income
Noninterest Income Growth in Fee Generating Lines of Business is Offset by Volatile Market Driven Activity (000’s) $50,000 60% $46,843 $44,997 $44,720 $45,000 $40,302 $41,862 50% $40,000 Non-Interest Income as % of Total Revenue Non-Interest Income $35,000 40% $30,000 $25,000 30% $20,000 19% 17% 20%
Slide 56: Total Revenue
Total Revenue Revenue Growth Benefited by Core Loan Growth and Rising Rates (000’s) $300,000 $244,749 $250,000 $222,808 $209,851 $200,044 $200,000 $191,573 $150,000 $100,000 $61,833 $55,567 $50,000 $0 2018 2019 2020 2021 2022 YTD 2022 YTD 2023 2023 YOY Increase 11% 56
Slide 57: Non-Interest Expense
Non-Interest Expense Disciplined Operating Expense Management (000’s) $120,000 $110,210 $104,287 $100,000 $91,205 $89,424 $86,229 $80,000 $60,000 $40,000 $29,434 $26,969 $20,000 $0 2018 2019 2020 2021 2022 YTD 2022 YTD 2023 2023 YOY Increase 9% 57
Slide 58: Efficiency Ratio
Efficiency Ratio Revenue Growth Outpaces Expense Growth Constant investment in technology and facilities 70% 60% 50% 51% 52% 50% 50% 48% 47% 48% 40% 46% 45% 45% 45% 43% 30% 20% 10% 0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD 2023 58
Slide 59: Stable Healthy Dividend
Stable Healthy Dividend Growth in Dividend Reflects Strength of Capital 5.00% $1.70 $1.60 4.50% $1.50 $1.36 4.00% $1.30 $1.20 $1.16 Dividend Yield Dividend per Share 3.50% $1.10 $1.00 2.94% 3.00% $0.90 2.40% 2.25% 2.24% 2.20% 2.50% $0.70 2.19% $0.50 $0.46 2.00% 1.70% $0.40 $0.30 1.50% $0.10 1.00% 20
Slide 60: LKFN Shareholder Value
LKFN Shareholder Value Total Return Performance from 12/31/00 to 3/31/23 3,500.00 3,000.00 2,532.50% 2,500.00 2,000.00 1,500.00 1,000.00 378.46% 500.00 117.73% 0.00 100.95% (500.00) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 LKF
Slide 61: Investment Highlights
Investment Highlights • Proven History of Organic Growth • Disciplined and Focused Strategy • Strong Internal Culture • Consistent Execution • Service Excellence Drives Shareholder Value 61
Slide 62: Supplemental Information
Supplemental Information
Slide 63: Commercial Loans by County
Commercial Loans by County Commercial Customers in 46 Indiana Counties and 22 Other States Other IN Counties (1) Marshall 18% 4% Outside IN 6% Marion 13% Allen 16% Hamilton 9% Kosciusko Elkhart Commercial Loans 11% 15% St. Joseph Outstanding as of 8% 3/31/2023 $4.8 billion March 31, 2023 (000’s) (1)
Slide 64: Larger Market Organic Expansion
Larger Market Organic Expansion Organic Growth State LCB LCB Deposit Rank County Primary City Population* Entry Market Share** # of Branches 22. Kosciusko Warsaw 80,106 1872 60% 12 6. Elkhart Elkhart 206,921 1990 23% 11 5. St. Joseph South Bend 272,212 1997 9% 4 3. Allen Fort Wayne 388,608 1999 13%
Slide 65: Mature Market Strength and Growth
Mature Market Strength and Growth Organic Growth (millions)1 2022 2012 2022 # of Deposits Share Deposits Share Increase Offices 1. 1st Source $5,051 18.67% $2,550 14.77% 98.08% 53 2. Lake City Bank $4,978 18.40% $2,469 14.30% 101.62% 52 3. JPM Chase $3,896 14.40% $1,523 8.82% 155.81% 20 4. PNC $1,84
Slide 66: Lake City Bank
5 Qvake City Bank LAKECITYBANK.COM