Lakeland Financial Corporation · NASDAQ:LKFN
Lakeland Financial — Q4 2019 Earnings Presentation
45 slides from Lakeland Financial's earnings presentation, January 2020
Slide 1: Lakeland Financial Corporation – 4th Quarter 2019
Lakeland Financial Corporation A Proven History of Shareholder Value Creation And Commitment to Our Communities 4th Quarter 2019 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 with respect to the financial condition, results of oper
Slide 4: Top Banks
TOP 25 BANKS Profitability Capital Adequacy Asset Quality Core Core Tang Common NPAS/ Ncos/ Rank Company Name wo ES ee oe es 1 RBB Bancorp RBB CA 1,691 1.84 4 12.99 23 14.09 10 0.21 18 -0.05 16 54.0 2 Bank of the Ozarks OZRK AR 21,276 2 3 12.06 40 13.38 13 0.24 23 0.07 132 133.5 3 Live Oak Bancshare
Slide 5: Long Term Success for Shareholders
Long Term Success for Shareholders 3 Institutions (including LKFN) LTM ROE >15% Consecutive Increases in Net 11 Institutions Income Since 2009(3) Profitable for the Last 85 Institutions 10 Years(2) Exchange Traded Depositories 169 Institutions with Assets Between $1B and $5B(1) Source: S&P Global Ma
Slide 6: Strong Capital Structure
Strong Capital Structure Tangible Book Value(1) Per Share Subordinated $23.19 Debt Tangible 0.0% $25.00 Reserves Common Equity 8.0% 92.0% $20.00 $15.00 Key Ratios and Per Share Data as of $10.00 December 31, 2019 TCE/Tangible Assets 12.02% $5.00 $1.21 Total Risk-Based 14.36% Leverage 11.67% $0.00 19
Slide 7: Lake City Bank Today
Lake City Bank Today • A long-term and consistent organic growth story • Headquartered in Warsaw, Indiana • 50 branch offices - $5.0 billion banking assets - $2.5 billion trust and investment assets • Focused on execution – “blocking and tackling” • Continued growth potential 7
Slide 8: A Quarter Century of Organic Growth
A Quarter Century of Organic Growth Record Net Income for 30 of 31 Years (000’s) $87,047 $100,000 $90,000 Compound Annual Growth 1991 – 2019 • Loans = 11% $80,000 • Deposits = 10% $70,000 • Net Income = 13% Net Income $60,000 • Earnings Per Share = 13% $50,000 $40,000 $30,000 $20,000 $2,707 $10,000
Slide 9: Established Market Presence
Established Market Presence Organic Growth Potential in Mature and Developing Markets Market Data Warsaw – 1872 22 offices Elkhart – 1990 11 offices South Bend – 1997 4 offices Fort Wayne – 1999 7 offices Indianapolis – 2011 6 offices 9
Slide 10: Strong Regional and Statewide Economy
Strong Regional and Statewide Economy Indiana Employment Trends Versus National Averages 10.0% 9.4% 9.3% 8.0% 8.2% Unemployment 7.4% 6.0% 6.6% 10.1% 9.6% 5.5% 8.7% 8.0% 4.8% 4.0% 4.4% 6.6% 3.9% 5.7% 3.7% 3.3% 4.5% 3.8% 3.7% 2.0% 3.2% 3.2% 10.4% 6.5% 4.2% 9.9% 9.0% 8.0% 5.5% 3.6% 3.0% 3.0% 3.0% 0.0%
Slide 11: 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 11
Slide 12: Experienced Relationship Driven Team
Commercial Banking Focus Experienced Relationship Driven Team • 39 credit “smart” commercial bankers • Average 20 years in banking & 9 years at Lake City Bank • We live where we lend • Face to face calling matters and is a team effort • We understand our client needs • Deep organizational structure
Slide 13: Credit Process
Commercial Banking Focus Credit Process • We are in-market lender to in-market clients • Character matters – we lend to people first • Our credit discipline has never changed • We focus on management/cash flow • We have a centralized committee structure • Structure is important • Orientation towards
Slide 14: Lake City Bank Culture
High Quality Team Members Lake City Bank Culture • Our culture is our greatest asset and we will preserve it • Lake City University drives our culture • Our community involvement is real and critical to our strategy • Our culture has not been diluted by acquisition 14
Slide 15: Organic Growth 2009 - 2019: Mature Market Deposit Performance
Organic Growth 2009 - 2019 Mature Market Deposit Performance 1 $2,150 $2,003 $1,650 $1,376 Lake City Bank has grown $1,171 deposits by 115% over the last $1,150 ten-year period. $704 $650 $212 $167 $141 $150 $14 -$71 -$219 -$350 Lake City Bank 1st Source JPM Chase Flagstar First Merchants Star Fifth
Slide 16: Indianapolis Market Opportunity
Organic Growth Indianapolis Market Opportunity Indianapolis Market Banks Share of Market Deposit Market Share 1. JPM Chase 22% 2. PNC 14% 3. Fifth Third 9% 4. Huntington National 7% 12% 5. First Internet Bank 7% 6. BMO Harris 7% 7. KeyBank 6% 8. Bank of America 6% 9. Merchants Bank 5% 10. National B
Slide 17: A Strong Environment for Growth and Expansion
A Strong Environment for Growth and Expansion • #1 manufacturing state in the country(1) • CNBC named Indiana as #1 state for infrastructure • K-12 funding increased $1 billion since 2017 • Net population in-migration in 2019 • Economic expansion of 1.25% in 2019(2) (1) Based on per capita populatio
Slide 18: Core Deposits Fund Organic Loan Growth
Core Deposit Funding Core Deposits Fund Organic Loan Growth • Deposit Strategy Committee created in 2014 • We focus on core deposit growth in retail, commercial and public funds • We capitalize on market disruption in our footprint to grow deposits • We emphasize checking account relationship produc
Slide 19: Innovative and Competitive Technology is a Focus
Commitment to Technology and Cyber Risk Management Innovative and Competitive Technology is a Focus • Technology partnership with FIS is strong – User Planning Council and Strategic Planning Advisory Council • Fintech partnerships play a growing role in our technology strategy • Mobile banking appli
Slide 20: Technology Focused Solutions
Commitment to Technology and Cyber Risk Management Technology Focused Solutions 20
Slide 21: Financial Performance
Financial Performance (take City Bank
Slide 22: Income Performance Metrics
Income Performance Metrics LKFN Performance Exceeds National and Indiana Peers ROE and ROTE LTM Peer Data1 2.50% 20.00% National Indiana ROE 10.0% 11.5% 2.30% 18.00% ROTE 11.6% 12.8% 16.64% 2.10% 15.57% 16.51% 16.00% ROE and ROTE 1.90% 15.47% 12.98% 12.83% 14.00% 12.45% 12.61% 1.70% ROA 12.77% 1.76%
Slide 23: Net Income and EPS
Net Income and EPS (000’s) Record Net Income and EPS $100,000 $4.00 $90,000 $87,047 $80,411 $3.50 $80,000 $3.38 $70,000 $3.00 $3.13 $60,000 $57,330 $52,084 $2.50 Net Income $50,000 $46,367 $43,805 EPS $2.23 $2.00 $40,000 $2.05 $30,000 $1.84 $1.50 $1.74 $20,000 $1.00 $10,000 $0 $0.50 2014 2015 2016 2
Slide 24: Average Loans
Average Loans (000’s) Commercial Emphasis Drives Growth $3,974,532 $4,000,000 $3,843,912 150% $3,610,908 140% $3,500,000 $3,225,635 130% $3,000,000 $2,885,568 $2,650,678 120% Loans to Deposit Ratio $2,500,000 110% Loans $2,000,000 100% 95% 96% 90% $1,500,000 93% 93% 94% 94% 80% $1,000,000 70% $500,0
Slide 25: Loan Breakdown
Loan Breakdown C&I Drives Lending Business Agri-business - Other Residential Commercial RE - Agriculture Commercial Mortgage Construction $379,531 $112,302 $177,227 $287,641 9% 3% 4% Home Equity 7% $186,552 5% Commercial RE - Installment - Other Multifamily Consumer $240,652 $111,583 6% 3% Commercia
Slide 26: Average Deposits
Average Deposits Core Deposits* Grow by 5% or $201 Million Year-over-Year (000’s) $4,500,000 $4,242,524 150% $4,093,894 $4,000,000 $3,757,209 140% Deposits as a Percent of Total Funding $3,477,816 $3,500,000 130% $3,088,598 120% $3,000,000 $2,797,929 110% Deposits $2,500,000 97% 98% 95% 97% 95% 97%
Slide 27: Deposit Breakdown
Deposit Breakdown Deposit Growth Key to Franchise Value CDARS Brokered CDs Brokered $582 $24,499 MMA 0% 1% $89,028 Cost of Deposits 2% 2.00% 1.35% 1.19% 0.98% 1.10% 1.00% 0.63% 0.48% 0.50% 0.54% 0.72% Total 0.00% Commercial 2011 2012 2013 2014 2015 2016 2017 2018 2019 $1,276,047 31% Total Retail $1,
Slide 28: Net Interest Income
Net Interest Income Loan Growth Driving Growth in Income (000’s) $160,000 $151,271 $155,047 6.00% $135,892 $140,000 5.50% $118,481 $120,000 5.00% $105,927 Net Interest Income Net Interest Margin $102,303 $100,000 4.50% $80,000 4.00% 3.43% 3.38% 3.32% 3.33% $60,000 3.20% 3.18% 3.50% $40,000 3.00% $20
Slide 29: Interest Rate Sensitivity
Interest Rate Sensitivity Impact of FOMC Accommodative Policy on Commercial Loans: • 88% of loan portfolio consists FHLB/Other $380,670 of commercial loans 10% • Fixed rate commercial loans Fixed Rate have average terms of 5 years 1 Month LIBOR $1,261,073 $957,454 26% 35% • 19% of variable rate loan
Slide 30: Asset Quality: Nonperforming Assets to Total Assets
Asset Quality Nonperforming Levels Reflect Economic Strength of Markets 5.00% 14.00% Impaired and Watch List Loans to Total Loans Nonperforming Assets to Total Assets 4.00% 12.00% 3.00% 10.00% 8.86% 8.17% 8.06% 7.46% 8.00% 2.00% 6.64% 5.75% 5.39% 6.00% 4.64% 4.77% 4.28% 4.50% 4.43% 1.00% 0.50% 0.41%
Slide 31: Asset Quality: Net Chargeoffs to Average Loans
Asset Quality 0.60% Strong Reserve Coverage 2.70% 2.39% 2.28% 2.40% 0.50% 2.15% Loan Loss Reserve to Total Loans 2.10% Net Chargeoffs to Average Loans 0.40% 1.59% 1.92% 1.80% 0.30% 1.67% 1.50% 1.42% 0.20% 1.20% 1.26% 1.23% 1.24% 1.25% 1.03% 0.90% 0.10% 0.03% 0.03% 0.43% 0.42% 0.54% 0.25% 0.20% 0.11%
Slide 32: Current Expected Credit Losses (CECL) Standard
Current Expected Credit Losses (CECL) Standard Implementation Impact • Estimate 8% to 13% increase in allowance • Anticipate lower impact due to predominately commercial loan portfolio • Amount is impacted by multiple factors: economic environment assumptions portfolio credit quality other key
Slide 33: Non-Interest Income
Non-Interest Income Fee-Based Revenue Drives Increases (000’s) $50,000 60% Non-Interest Income as % of Total Revenue $44,997 $45,000 $40,302 50% $40,000 $36,009 $35,000 $32,864 Non-Interest Income $31,479 40% $30,053 $30,000 $25,000 30% $20,000 23% 23% 20% $15,000 22% 22% 22% 21% $10,000 10% $5,000
Slide 34: Non-Interest Expense
Non-Interest Expense Disciplined Approach to Cost Structure While Continuing to Invest in the Future (000’s) $100,000 $89,424 $90,000 $86,229 $79,267 $80,000 $72,978 $68,206 $70,000 $66,166 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2014 2015 2016 2017 2018 2019 2019 YOY Growth 4% 34
Slide 35: Efficiency Ratio
Efficiency Ratio Revenue Growth is Primary Driver of Low Efficiency Ratio Constant investment in technology and facilities 60% Indianapolis Michigan Road Indianapolis North and and Fort Wayne Indianapolis South Bend Downtown Indianapolis Fishers and Downtown Greenwood Indianapolis Expansion Clearwat
Slide 36: Stable Healthy Dividend
Stable Healthy Dividend Significant Increase in Dividend Reflects Strength of Balance Sheet Dividend Payout Ratio of 34% $1.30 4.00% $1.16 $1.10 3.50% $1.00 $0.90 $0.85 3.00% Dividend per Share Dividend Yield $0.73 $0.70 $0.63 2.50% $0.55 2.40% $0.50 2.25% 2.00% 2.10% 1.95% 1.99% 1.77% $0.30 1.50% $
Slide 37: LKFN Shareholder Value
LKFN Shareholder Value Total Return Performance from 12/31/00 to 12/31/19 2,000.00 1,818.65% 1,500.00 1,000.00 500.00 256.68% 123.60% 0.00 112.70% (500.00) LKFN S&P 500 SNL U.S. Bank S&P 500 Bank Source: SNL database 37
Slide 38: Investment Highlights
Investment Highlights • Proven History of Organic Growth • Disciplined and Focused Strategy • Strong Internal Culture • Consistent Execution • Service Excellence Drives Shareholder Value 38
Slide 39: Supplemental Information
Supplemental Information (take City Bank
Slide 40: Larger Market Organic Expansion
Organic Growth Larger Market Organic Expansion State LCB LCB Deposit Rank County Primary City Population* Entry Market Share** # of Branches 20. Kosciusko Warsaw 79,344 1872 59% 12 6. Elkhart Elkhart 205,560 1990 21% 9 5. St. Joseph South Bend 270,771 1997 8% 4 3. Allen Fort Wayne 375,351 1999 14% 5
Slide 41: Mature Market Strength and Growth
Organic Growth Mature Market Strength and Growth (millions)1 2019 2019 2009 # of Deposits Share Deposits Share Increase Offices 1. 1st Source $4,053 19.62% $2,677 17.16% 51.40% 53 2. Lake City Bank $3,739 18.10% $1,736 11.13% 115.38% 50 3. JPM Chase $2,655 12.85% $1,484 9.51% 78.91% 23 4. PNC $1,432
Slide 42: Commercial Banking Target Opportunities
Organic Growth Commercial Banking Target Opportunities Growth Potential in Every Market Elkhart/South Bend 2,220 Warsaw Fort Wayne 313 1,878 Indianapolis 6,555 Companies with Revenue of $1 to $50 million in Lake City Bank footprint by county Source: 2017 Hoover’s 42
Slide 43: Investment Portfolio – Source of Liquidity
Investment Portfolio – Source of Liquidity CMCL CMO 17.0% 6.08% Investments as a % of Assets 16.0% US Govt Remics 15.0% 17.16% Taxable 14.0% 15.1% Municipals 13.0% 14.1% 0.33% US Govt Pools 30.22% 12.0% 12.9% 12.3% 11.0% 11.8% 11.5% 12.0% Exempt Municipals 10.0% 46.21% 2013 2014 2015 2016 2017 2018
Slide 44: Projected Impact of Rising/Falling Rates
Projected Impact of Rising/Falling Rates Asset Sensitive Balance Sheet 14.00% 11.63% 12.00% 10.00% 7.98% 8.00% 6.00% 4.11% 4.00% 2.07% 2.00% 1.03% 0.00% -2.00% -1.26% -4.00% -2.58% -6.00% -5.73% -8.00% NII - Rates NII - Rates NII - Rates NII - Rates NII - Rates NII - Rates NII - Rates NII - Rates Do
Slide 45: LAKECITYBANK.COM
(800) 827-4522 LAKECITYBANK.COM