LakeLand Financial (LKFN) stock valuation

Lake City Bank 1-888-522-2265 www.lakecitybank.com

Presented By:

Tim Barnes Brant Macquoid Chris Starkey


Lakeland Financial (LKFN)

Market Cap: 416.2 Million

Chairman and CEO, Michael Kubacki


Last Price $25.10

Market Cap 416.2 Million

Fiscal Year End December 31

Last Earnings Announcement

01/24/2012

Next Earnings Announcement

04/25/2012

Number of Analyst 6

Dividend Yield 2.43%

% of Institutional Ownership

64.59%

Chief Financial Officer, David Findlay,


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 Million

Lubbock size equivalent

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 share. Source: Lilly Endowment Inc. 2010 annual report.


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 Banks


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.


Lakeland Financial

Peers

• Old National Bancorp (ONB)

Market Cap: $1.2BHeadquartered in Evansville, Indiana

• 1st Source Corporation (SRCE)Market Cap: $568MHeadquartered in South Bend, Indiana

• German American Bancorp (GABC)Market Cap: $235MHeadquartered in Jasper, Indiana


Lakeland Financial

Peers Fundamentals

Stock P/E P/B ROA ROE NIM Efficiency Ratio

Operating Margin

Peer Average

13.13 1.31 .87% 10.73% 3.91% 64.13% 33.76%

LakelandFinancial (LKFN)

13.13 1.53 1.10% 11.79% 3.54% 46.99% 45.21%

Old National Bank (ONB)

16.39 1.17 .91% 7.58% 4.09% 74.15% 26.52%

1st Source(SCRE)

11.48 1.08 1.09% 9.54% 3.69% 65.73% 37.62%

German American Bank (GABC)

11.46 1.43 1.25% 14.01% 4.35% 58.52% 25.71%


Porters 5 Forces: LakeLand Financial

Piotroski Trend Analysis

Risk Factors from Management Discussions

1. 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.

Source: FDIC Statistics

Source: FDIC StatisticsLake City Bank

Source: FDIC Statistics

Lake City Bank

A ratio of expenses to revenues. Banks desire a lower efficiency ratio because this means that the bank is making more than it is spending.

Charting Dividend Yield


Default Risk and 5 Yr CDS Spreads(bp)

Source: frbs.org

CAMELS Rating SystemC – Capital AdequacyA – Asset QualityM – Management QualityE – EarningsL – LiquidityS – Sensitivity to Market Risk

Bank supervisory authorities assign each bank a score on a scale of 1(best) to 5(worst) for each factor.

This ranking helps supervisory authorities identify banks that are at risk of failure. This rating is kept extremely private and only revealed to top levels of bank management, for fear that a bad rating could cause a “run on the bank” scenario.

Criteria Quality Level LakeLand Financial

Equity-to-Total Assets > 5% 9.45%

Basel Ratio >9.5% 13.57%

Loan Loss provisions to gross loan portfolio

< 1% .64%

Reserve for loan losses to gross loan portfolio

< 3% 2.39%

Loan write-offs to gross loan portfolio

< .5% .25%

Reserve for loan losses to non-performing loans

>1% 1.35%

Non-performing loans to total assets

>2% 1.3%

Experienced N/A

Net interest income to total assets >3% 3.18%

Efficiency Ratio < 60% 47%

ROA >1% 1.10%

ROE >15% 11.79%

Liquid Assets to total deposits >20% 16.51%

Liquid Assets to total assets >30% N/A

Loans to total assets < 65% 77.30%

Gap Analysis [RSA – RSL] N/A -10.23%Source: Analyst of WaymondGrier

CAMELS Rating

Capital Adequacy

Asset Quality

Management

Earnings

Liquidity

Sensitivity


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.


-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Interest Rate with Lakeland Financial Gap Ratio Overlay

Gap Ratio

Gap ratio = (Rate-sensitive assets – Rate-sensitive liabilities) Average earning assets


-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Net Interest Margin vs. Gap Ratio

Gap Ratio

NIM


35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

65.00%

2007 2008 2009 2010 2011

Axi

s Ti

tle

Loans/Securities Over 1 Year

LKFN Loans/Securities Over 1 year

Peer Group

ONB L/S Over 1 year

SRCE L/S over 1 year

GABC L/S over 1 year

Source: www.ffiec.gov/ubpr.htm


10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

2007 2008 2009 2010 2011

Axi

s Ti

tle

Loans/Securities Over 3 years

LKFN Loans/Securities Over 3 years

Peer Group

ONB L/S Over 3 years

SRCE L/S over 3 years

GABC L/S over 3 years

Source: www.ffiec.gov/ubpr.htm


Largest weight in sensitive assets and liabilities in Year 1


Financials Graphic


Income Statement (1 of 2)

*


Income Statement (2 of 2)

3

4

5


Balance Sheet

5


Balance Sheet

6


Balance Sheet (Common Size)


Loan Portfolio


Loan Portfolio*


Securities


Deposits and Borrowed Funds


Capital


Cash Flow Statement (1 of 2)


Cash Flow Statement (2 of 2)

7


Valuation Metrics

• Price to Earnings

• Price to Book


DuPont Analysis• Asset Turnover

• Operating Margin

• Financial Leverage


Dividend Coverage


Profitability Ratio’s• Return on Capital

• Return on Assets

• Return on Equity


Capital Ratio’s• Tier 1 Capital Ratio

• Common Equity to Total Assets


Liquidity• Deposits/Assets

• Total Loans/Total Deposits


Analyst Recommendation


Earnings Surprise


Revenue Surprise


Institutional Holders


6 - Month vs. Industry


2 - Year vs. Industry


5 - Year vs. Industry


6 - Month vs. Peers


2 - Year vs. Peers


5 - Year vs. Peers

Presentation Appendix

Relative stability throughout recession

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

http://finance.yahoo.com/news/Lake-City-Bank-Net-Income-pz-1996656220.html?x=0



http://beta.fool.com/robertdcoleman/2012/01/30/too-small-fail-3-commercial-banks-will-outperform-/1453/?source=eogyholnk0000001



















http://caps.fool.com/Ticker/LKFN.aspx

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 orentry into new markets. Rather, it's resulted from targeted growth in our core Indiana markets by great client relationship teams. We've remained committed to contributing to Indiana's economic stability throughout this challenging period and look forward to continuing to play a role in our state's future economic growth.“ - President and CFO David Findlay

• The Company's 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 Company's 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

















LakeLand Financial (LKFN) stock valuation

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