Lakeland Financial Corporation · NASDAQ:LKFN
Lakeland Financial — Q4 2018 Earnings Presentation
42 slides from Lakeland Financial's earnings presentation, January 2019
Slide 1: A Proven History of Shareholder Value Creation
Lakeland Financial Corporation A Proven History of Shareholder Value Creation And Commitment to Our Communities 4th Quarter 2018 LKFN LISTED
Slide 2: Presenter contacts
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%(4) Consecutive Increases in Net Income Since 13 Institutions 2009(3) Profitable for the Last 10 Years(2) 75 Institutions Exchange Traded Depositories with Assets Between $1B and $5B(1) 168 Institutions Source: S&P Global
Slide 6: Strong Capital Structure
Strong Capital Structure Subordinated Debt Tangible Book Value+ Per Share 5.2% $25.00 Tangible $20.47 Reserves Common 8.1% Equity $20.00 86.7% $15.00 Key Ratios and Per Share Data $10.00 as of December 31, 2018 TCE /Tangible Assets 10.63% $5.00 Total Risk-Based 14.20% $1.21 Leverage 11.44% $0.00 Boo
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 - $4.9 billion banking assets - $1.8 billion trust 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 29 of 30 Years $80,411 (000’s) $90,000 Compound Annual Growth 1991 – 2018 $80,000 • Loans = 12% $70,000 • Deposits = 11% $60,000 • Net Income = 13%(1) Net Income $50,000 • Earnings Per Share = 13%(1) $40,000 $30,000 $20,000 $2,707 $10,000 $0
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 12.0% 10.0% 9.4% 9.3% Unemployment 8.0% 8.2% 7.4% 10.1% 9.6% 6.6% 6.0% 8.7% 8.0% 5.5% 6.6% 4.8% 5.7% 4.0% 4.4% 4.5% 10.4% 3.9% 3.8% 3.7% 3.7% 9.9% 9.0% 8.0% 6.5% 5.5% 4.2% 3.6% 3.2% 3.3% 2.9% 2.0% 2009 2010 2011
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 • 42 credit “smart” commercial bankers • Average 22 years in banking & 11 years at Lake City Bank • We live where we lend • Face to face calling matters and is a teamwork effort • We understand our client needs • Deep organizational struc
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 • 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 2008 - 2018: Mature Market Deposit Performance
Organic Growth 2008 - 2018 Mature Market Deposit Performance (millions) 1 $2,150 $1,734 $1,650 $1,408 $1,314 Lake City Bank has grown deposits by 108% over the last $1,150 $988 ten-year period. $650 $157 $155 $150 $22 -$2 -$71 -$350 -$294 Lake City Bank 1st Source Wells Fargo JPM Chase First Merchan
Slide 16: Indianapolis Market Opportunity
Organic Growth Indianapolis Market Opportunity Indianapolis Market Banks Share of Market Deposit Market Share 1. JPM Chase 24% 2. PNC 16% 3. Fifth Third 9% 4. Huntington National 7% 12% 5. First Internet Bank of IN 6% 6. BMO Harris 6% 7. Bank of America 5% 8. KeyBank 4% 9. National Bank of Indy 4% 1
Slide 17: Core Deposits Fund Organic Loan Growth
Core Deposit Funding Core Deposits Fund Organic Loan Growth • Deposit Strategy Committee created in 2014 • Focus is on core deposit growth in retail, commercial and public funds • Asset sensitive balance sheet supports competitive rate strategy • Emphasis is on checking account relationship products
Slide 18: Technology Innovation is Critical
Commitment to Technology and Cyber Risk Management Technology Innovation is Critical • Technology partnership with FIS is strong – User Planning Council • Fintech partnerships exist and play a growing role in our technology strategy • Mobile banking applications adoption accelerating in Retail and C
Slide 19: Financial Performance
Financial Performance (take City Bank
Slide 20: Income Performance Metrics
Income Performance Metrics LKFN Performance Exceeds National and Indiana Peers ROE and ROTE LTM Peer Data1 18.00% National Indiana 16.64% 1.90% ROE 10.44% 10.99% ROTE 12.14% 12.36% 16.00% 16.51% 1.70% 12.76% 12.98% 12.83% 1.69% 14.00% ROE and ROTE 12.45% 12.61% 1.50% 12.77% 12.72% 12.00% 12.50% 12.5
Slide 21: Net Income and EPS
Net Income and EPS (000’s) Record Net Income and EPS $90,000 $80,411 $3.30 $80,000 $3.13 $2.80 $70,000 $60,000 $57,330 $52,084 $2.30 $50,000 $46,367 $43,805 $2.23 Net Income $38,839 $2.05 $1.80 EPS $40,000 $1.84 $1.74 $30,000 $1.55 $1.30 $20,000 $0.80 $10,000 $0 $0.30 2013 2014 2015 2016 2017(1) 201
Slide 22: Average Loans
Average Loans (000’s) Commercial Emphasis Drives Growth $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 $2,343,422 $2,500,000 110% Loans $2,000,000 100% 95% 96% 90% $1,500,000 93% 93% 93% 94% 80% $1,000,000 70% $500,0
Slide 23: Loan Breakdown
Loan Breakdown C&I Drives Lending Business Agri-business - Other Residential Commercial RE - Agriculture Commercial Mortgage Construction $370,513 $95,657 $185,822 $266,805 9% 2% 5% Home Equity 7% $187,030 5% Commercial RE - Multifamily Installment - Other $195,604 Consumer 5% $102,290 3% Commercial
Slide 24: Average Deposits
Average Deposits (000’s) Core Deposits* Fund Organic Loan Growth $4,500,000 150% $4,093,894 $4,000,000 $3,757,209 140% Deposits as a Percent of Total Funding $3,477,816 130% $3,500,000 $3,088,598 120% $3,000,000 $2,797,929 $2,505,340 110% Deposits $2,500,000 95% 97% 97% 97% 93% 95% 100% $2,000,000 9
Slide 25: Deposit Breakdown
Deposit Breakdown Deposit Growth Key to Franchise Value CDARS Brokered CDs Brokered $3,120 $151,855 MMA 0% 4% $13,033 Cost of Deposits 0% 2.00% 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 $1,075,420 27% Total Retail $1,588,225
Slide 26: Net Interest Income
Net Interest Income Loan Growth Driving Growth in Income (000’s) $160,000 $151,271 5.00% $135,892 $140,000 4.50% $118,481 $120,000 $105,927 Net Interest Income Net Interest Margin $102,303 4.00% $100,000 $90,439 3.43% $80,000 3.32% 3.33% 3.50% 3.26% 3.20% 3.18% $60,000 3.00% $40,000 2.50% $20,000 $0
Slide 27: Asset Sensitive Balance Sheet
Asset Sensitive Balance Sheet Floating Rate Commercial Loan Portfolio Drives Asset Sensitivity • 88% of loan portfolio consists of commercial loans – 65% of commercial loans are variable rate (prime, 30 day libor and FHLB indices) – The majority of fixed rate commercial loans have terms of 5 years o
Slide 28: 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% 5.20% 5.39% 6.00% 4.64% 4.77% 4.28% 4.50% 1.00% 0.46% 0.48%
Slide 29: Asset Quality: Net Chargeoffs to Average Loans
Asset Quality 0.60% Strong Reserve Coverage 2.70% 2.39% 2.40% 0.50% 2.15% Loan Loss Reserve to Total Loans 2.28% 2.10% Net Chargeoffs to Average Loans 0.40% 1.92% 1.80% 1.59% 0.30% 1.67% 1.50% 1.42% 0.20% 1.03% 1.20% 1.26% 1.23% 1.24% 1.04% 0.90% 0.10% 0.03% 0.21% 0.43% 0.42% 0.54% 0.25% 0.20% 0.11%
Slide 30: Non-Interest Income
Non-Interest Income (000’s) Stable, Fee-Based Strategy Drives Increases $45,000 50% Non-Interest Income as % of Total Revenue $40,110 $40,000 45% $36,009 $35,000 40% $32,864 $30,737 $31,479 $30,053 35% Non-Interest Income $30,000 30% $25,000 25% $20,000 26% 23% 23% 20% 22% 22% 21% $15,000 15% $10,00
Slide 31: Non-Interest Expense
Non-Interest Expense Disciplined Approach to Cost Structure While Continuing to Invest in the Future (000’s) $100,000 $90,000 $86,037 $79,267 $80,000 $72,978 $66,166 $68,206 $70,000 $62,778 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 2013 2014 2015 2016 2017 2018 2018 YOY Growth 9% 31
Slide 32: 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 Expansion Clearwater Expansion
Slide 33: Stable Healthy Dividend
Stable Healthy Dividend Significant Increase in Dividend Reflects Strength of Balance Sheet Dividend Payout Ratio of 32% 4.00% $1.10 $1.00 3.50% $0.90 $0.85 3.00% Dividend per Share $0.73 Dividend Yield $0.70 $0.63 2.50% $0.55 $0.50 $0.49 2.25% 2.00% 2.28% 2.10% 1.99% 1.95% $0.30 1.77% 1.50% $0.10 1
Slide 34: LKFN Shareholder Value
LKFN Shareholder Value Total Return Performance from 12/31/00 to 1/23/19 2,000.00 1,500.00 1,597.31% 1,000.00 500.00 185.81% 0.00 83.70% 69.40% (500.00) LKFN S&P 500 SNL U.S. Bank S&P 500 Bank Source: SNL database 34
Slide 35: Investment Highlights
Investment Highlights • Proven History of Organic Growth • Disciplined and Focused Strategy • Strong Internal Culture • Consistent Execution • Service Excellence Drives Shareholder Value 35
Slide 36: Supplemental Information
Supplemental Information (take City Bank
Slide 37: 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 79,206 1872 57% 12 6. Elkhart Elkhart 205,032 1990 21% 9 5. St. Joseph South Bend 270,434 1997 8% 4 3. Allen Fort Wayne 372,877 1999 11% 5
Slide 38: Mature Market Strength and Growth
Organic Growth Mature Market Strength and Growth (millions)1 2018 2018 2008 # of Deposits Share Deposits Share Increase Offices 1. 1st Source $3,797 18.09% $2,389 16.39% 58.94% 52 2. Lake City Bank $3,340 15.91% $1,606 11.01% 107.97% 49 3. JPM Chase $2,465 11.74% $1,477 10.13% 66.89% 24 4. Wells Far
Slide 39: 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 39
Slide 40: Investment Portfolio – Source of Liquidity
Investment Portfolio – Source of Liquidity Agencies Treasuries 0.74% 17.0% Investments as a % of Assets 0.17% 16.0% CMCL CMO US Govt Remics 6.52% 26.12% 15.0% 14.0% 15.1% Taxable 13.0% 14.1% Municipals 0.34% US Govt Pools 12.0% 12.9% 29.45% Exempt 11.0% 11.8% 11.5% 12.0% Municipals 10.0% 36.66% 2013
Slide 41: Projected Impact of Rising Rates
Projected Impact of Rising Rates Asset Sensitive Balance Sheet 20.00% 16.58% 15.00% 11.13% 10.00% 5.61% 5.00% 2.82% 1.42% 0.00% -5.00% -7.11% -10.00% NII - Rates NII - Rates Up NII - Rates Up NII - Rates Up NII - Rates Up NII - Rates Up Down 100 25 50 100 200 300 Graph presents 12 month projected ne
Slide 42: LAKECITYBANK.COM
(800) 827-4522 LAKECITYBANK.COM