Lakeland Financial Corporation · NASDAQ:LKFN
Lakeland Financial — Q4 2022 Earnings Presentation
54 slides from Lakeland Financial's earnings presentation, January 2023
Slide 1: Lakeland Financial Corporation: A Proven History of Shareholder Value Creation
Lakeland Financial Corporation A Proven History of Shareholder Value Creation And Commitment to Our Communities 4th Quarter 2022 LKFN LISTED
Slide 2: Celebrating 150 Years of Community
1872/2022 CELEBRATING 150 YEARS OF COMMUNITY
Slide 3: 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 3
Slide 4: 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 5: Bank Director's 2021 Scorecard
Bank Director’s 2021 Scorecard 5
Slide 6: Long Term Success for Shareholders
Long Term Success for Shareholders 10 Institutions (including LKFN) LTM ROE >13% Consecutive Increases in PTPP 23 Institutions Income Since 2012(3) Profitable for the Last 157 Institutions 10 Years(2) Exchange Traded Depositories with Assets Between $1B and $10B(1) 205 Institutions Source: S&P Capit
Slide 7: Strong Capital Structure
Strong Capital Structure Tangible Book Value(1) Per Share $35.00 $29.50* Reserves Tangible 8.3% $30.00 Common Equity 91.7% $22.13 $25.00 $20.00 $15.00 Key Ratios and Per Share Data as of December 31, 2022 TCE/Tangible Assets 8.79% $10.00 Adj. TCE/Adj. Tangible Assets 11.30% $5.00 Total Risk-Based 15
Slide 8: Lake City Bank Today
Lake City Bank Today Sesquicentennial •A long-term and consistent organic growth story •Headquartered in Warsaw, Indiana •52 branch offices - $6.4 billion banking assets - $2.8 billion trust, retirement and investment brokerage assets •Focused on execution – “blocking and tackling” •Continued growth
Slide 9: Net Income: 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% Net Income • Earnings Per Share = 12% $60,000 $40,000 $20,000 $2,707 $0 1993 2010 1991 1992 1994 1995 1996 1
Slide 10: Established Market Presence
Established Market Presence Organic Growth Potential in Mature and Expanding Markets 10
Slide 11: 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% 10.0% Unemployment 8.0% 7.4% 11.9% 6.6% 6.0% 6.4% 5.5% 8.0% 4.8% 4.0% 4.4% 6.6% 3.9% 3.9% 5.7% 3.7% 3.7% 3.3% 4.8% 4.5% 3.8% 3.7% 2.0% 3.2% 3.2% 3.0% 11.3% 2.1% 8.0% 6.5% 5.5% 4.2% 3.
Slide 12: 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
Slide 13: Commercial Banking Focus
Commercial Banking Focus Experienced Relationship Driven Team • 39 credit “smart” commercial bankers • Average 23 years in banking & 12 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 14: 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 15: Corporate Social Responsibility
Corporate Social Responsibility 150 Year History of Focusing on Our Customers, Employees and Our Communities • Supporting our communities since 1872 • Building and caring for our team • Delivering loan products to our communities • Supporting financial literacy in our footprint • Protecting our cust
Slide 16: 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 ongoing initiatives • Our community involvement is real and critical to our strategy • Our culture has not been dil
Slide 17: 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 last ten-year period. $1,500 $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 18: 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 19: 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 4.2% from June ‘21 to June ‘22(2) • U.S. Census Bureau announced Indiana’s population grew by 4.7% between 2010 and 2020 • Indiana unemployment at 3.0% as of November 2022(
Slide 20: Core Deposit Funding Strategy
Core Deposit Funding Strategy Core Deposit Growth Impacted by Excess Liquidity in Economy • Deposit surge from PPP funding and stimulus starting to abate • DDA balances increase by 13% from 2019 to 2022 – Retail checking account balance growth of 18% over two years – Commercial checking account bala
Slide 21: 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 growing role in our technology stack • Investments in Lake City Bank Digital, a Q2 product implemented in 2021 • Technology partnership with FIS is strong – User Planning
Slide 22: 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 2019(1) Total 2022(1) Total Change Branch Transactions 2,279,975 18% 2,034,409 14% (11)% ATM/ITM 944,785 7% 858,320 6% (9)% Online Log
Slide 23: Customer Composition and Digital Adoption
Customer Composition and Digital Adoption December 2022 Customer Composition and Digital Adoption Over Three Years Generation Customer Breakdown 12/31/22 12/31/21 12/31/20 Gen Z (1996 - Current) 16% 52% 47% 44% Millennial (1977 - 1995) 25% 61% 58% 55% Gen X (1965 - 1976) 19% 51% 48% 44% Baby Boomer
Slide 24: Financial Performance
Financial Performance 1872/2022
Slide 25: Income Performance Metrics
Income Performance Metrics LKFN Performance Exceeds National and Indiana Peers and Maintains Strong Capital Levels 2.50% 20.00% ROAE and ROATE LTM Peer Data1 National Indiana 2.30% ROAE 14.5% 14.6% 17.52% ROATE 16.2% 16.9% 18.00% 16.64% 2.10% 15.57% 17.40% 16.00% 16.51% 14.27% 1.90% 15.47% 13.59% RO
Slide 26: Net Income and EPS
Net Income and EPS Record Profitability in 2022 (000’s) $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 $3.13 Net Income $60,000 $57,330 EPS $2.50 $40,000 $2.23 $2.00 $1.50 $20,000 $1.00 $0 $0.50 2017(1) 2018 2019 2020 2021 2022 Net Income Di
Slide 27: Pretax Pre-Provision Earnings
Pretax Pre-Provision Earnings Significant Growth in Net Interest Income Offset by Decline in Noninterest Income (000’s) $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 $92,63
Slide 28: Evolution of Deposit Beta
Evolution of Deposit Beta FED Tightening in 2022 Has Been More Aggressive Than Past Cycles • Total deposit beta for 2022 of 25% has lagged past FED tightening cycle of 45% • Fourth quarter deposit beta transitioned to a historical deposit beta of 46% from 25% in the third quarter • Deposit betas are
Slide 29: Interest Rate Sensitivity
Interest Rate Sensitivity Asset Sensitivity Slightly Reduced • Every 25 basis point move up in the federal funds rate is expected to FHLB/Other $937,662 improve margin by 2-3 basis points • Fixed rate loans have shorter, 22% 1 Month LIBOR average original terms of 5 years Fixed Rate $460,589 11% $1,
Slide 30: Average Loans
Average Loans Organic Average Loan Growth ex PPP of $236 million or 6% for 2022 (000’s) $5,000,000 $4,424,472 $4,421,094 $4,427,166 120% $4,500,000 $3,974,532 $4,000,000 $3,843,912 110% $3,610,908 $3,500,000 100% Loans to Deposit Ratio $3,000,000 96% Loans 94% 94% 95% 90% $2,500,000 $2,000,000 80% 8
Slide 31: Line of Credit Utilization
25% 45% 55% 65% 75% 85% 95% 35% $1,753 $1,514 3,267 54% Outstanding $1,715 $1,612 3,327 $1,655 $1,611 3,266 52% 51% $1,664 $1,806 3,470 Available $1,696 $1,737 3,433 $1,616 $1,797 3,413 $1,669 $1,738 3,407 % Line Usage $1,630 $1,785 3,416 48% 49% 47% 49% 48% $1,593 $1,835 3,429 46% PPP $1,637 $1,785
Slide 32: 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 33: Loan Portfolio Breakdown
Loan Portfolio Breakdown C&I Drives Lending Business Other Residential Agri-business - Agriculture Commercial Mortgage $432,088 $113,593 $212,742 Commercial RE - Construction 9% 2% 5% $517,664 Home Equity 11% $175,575 4% Installment - Other Consumer Commercial RE - Multifamily $107,324 $197,232 2% 4
Slide 34: Top Industry Concentrations
Top 10 Industry Concentrations Loan Portfolio is Diversified Hotels Plastics Product Durable Goods Merchant $100,299 Manufacturing Wholesalers 2% $93,793 $94,170 2% 2% Self-Storage Automobile Dealers $92,237 $122,820 2% 3% Restaurants $96,564 Nursing Homes & Assisted Living 2% $184,996 4% RV Industr
Slide 35: Average Deposits
Average Deposits Deposit Growth Slows in 2022 Compared to 2021 (000’s) $7,000,000 150% 140% $6,000,000 $5,717,358 Deposits as a Percent of Total Funding $5,357,284 130% $5,000,000 $4,650,597 120% $4,093,894 $4,242,524 110% $4,000,000 $3,757,209 Deposits 100% $3,000,000 98% 98% 99% 100% 95% 97% 90% $
Slide 36: Deposit Breakdown
Deposit Breakdown Deposit Costs Rise in Response to Rising Interest Rate Environment Brokered Deposits Cost of Deposits $10,027 3.00% 0% 2.50% 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 2017 2018 2019 2020 2021
Slide 37: Public Fund Deposit Trends
$1,000,000 $1,400,000 $1,600,000 $200,000 $400,000 $600,000 $800,000 $0 $1,200,000 $629,892 $604,907 $1,235,687 $649,271 $575,833 $1,225,991 $638,349 $510,528 $1,149,765 Checking $731,445 $518,786 $1,2351,119 $752,745 $537,537 $1,291,170 $780,046 $444,194 $1,225,127 $721,203 $528,485 $1,250,576 CDs
Slide 38: Investment Portfolio
Investment Portfolio Investment Portfolio Provides Liquidity to Fund Loan Growth 25.0% US Govt Treas US Govt Agencies 0.23% 20.0% 9.79% 21.4% 20.2% MV Investments as a % of Assets US Govt Remics 15.0% 8.82% US Govt Pools 14.1% 13.6% 29.15% 12.9% 12.3% 10.0% 11.8% 11.5% 12.0% HTM Municipals 8.56% 5.0
Slide 39: Net Interest Income
Net Interest Income Growth in Net Interest Income Impacted by Higher Rates and Growth in Loans (000’s) $250,000 6.00% 5.50% Net Interest Margin, fully tax equivalent $202,887 Net Interest Income $200,000 $178,088 5.00% $163,008 $151,271 $155,047 $150,000 $135,892 4.50% 4.00% $100,000 3.43% 3.38% 3.3
Slide 40: Asset Quality: Watchlist Loans
Asset Quality Watchlist Loans as a Percentage of Total Loans at Historic Lows 5.00% 14.00% 4.00% 12.00% Watch List Loans to Total Loans excluding PPP Nonperforming Assets to Total Assets 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 41: 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% 1.42% 1.45% 0.20% 1.20% 1.26% 1.23% 1.24% 1.25% 0.90% 0.10% 0.2
Slide 42: 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 $36,009 Non-Interest Income $35,000 40% $30,000 $25,000 30% $20,000 20%
Slide 43: 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 $171,932 $150,000 $100,000 $50,000 $0 2017 2018 2019 2020 2021 2022 2022 YOY Increase 10% 43
Slide 44: 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 $79,267 $80,000 $60,000 $40,000 $20,000 $0 2017 2018 2019 2020 2021 2022 2022 YOY Increase 6% 44
Slide 45: Efficiency Ratio
Efficiency Ratio Revenue Growth Outpaces Expense Growth Constant investment in technology and facilities 70% 60% 50% 51% 52% 50% 50% 48% 47% 40% 46% 45% 45% 45% 43% 30% 20% 10% 0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 45
Slide 46: 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 $1.30 4.00% $1.20 $1.16 $1.10 Dividend Yield Dividend per Share $1.00 3.50% $0.90 $0.85 3.00% $0.70 2.40% 2.50% 2.25% 2.24% 2.19% $0.50 1.77% 2.00% $0.30 1.70% $0.10 1.50% 2017 2018 2019 2020
Slide 47: LKFN Shareholder Value
LKFN Shareholder Value Total Return Performance from 12/31/00 to 12/31/22 3,500.00 3,000.00 2,966.62% 2,500.00 2,000.00 1,500.00 1,000.00 345.10% 500.00 131.10% 130.55% 0.00 (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 LK
Slide 48: Investment Highlights
Investment Highlights •Proven History of Organic Growth •Disciplined and Focused Strategy •Strong Internal Culture •Consistent Execution •Service Excellence Drives Shareholder Value 48
Slide 49: Supplemental Information
Supplemental Information 1872/2022
Slide 50: Commercial Loans by County
Commercial Loans by County Commercial Customers in 46 Indiana Counties and 22 Other States Other IN Counties (1) Marshall 19% 4% Outside IN 6% Marion 13% Allen 16% Hamilton 8% Commercial Loans Kosciusko Elkhart Outstanding as of 10% 15% 12/31/2022 St. Joseph 9% $4.2 billion December 31, 2022 (000’s)
Slide 51: 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 52: 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 53: Projected Impact of Rising/Falling Rates
Projected Impact of Rising/Falling Rates 15.00% Asset Sensitive Balance Sheet 10.00% 8.76% 5.80% 5.00% 2.89% 1.45% 0.73% 0.00% -0.85% -1.79% -5.00% -3.76% -10.00% -8.31% -13.25% -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 54: aa avexx
aa avexx IW2Xy, 1872/2022 (888) 522-2265 LAKECITYBANK.COM