lakeland financial (lkfn) stock valuation
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Lake City Bank 1-888-522-2265 www.lakecitybank.com
Presented By:
Tim Barnes Brant Macquoid Chris Starkey
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Lakeland Financial (LKFN)
Market Cap: 416.2 Million
Chairman and CEO, Michael Kubacki
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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,
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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.
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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.
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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%
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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 Statistics
Source: FDIC Statistics
Source: FDIC StatisticsLake City Bank
Source: FDIC Statistics
Source: FDIC Statistics
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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.
Lake City Bank 1-888-522-2265 www.lakecitybank.com
-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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
-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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Largest weight in sensitive assets and liabilities in Year 1
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Financials Graphic
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Income Statement (1 of 2)
*
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Income Statement (2 of 2)
3
4
5
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Balance Sheet
5
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Balance Sheet
6
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Balance Sheet (Common Size)
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Loan Portfolio
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Loan Portfolio*
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Securities
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Deposits and Borrowed Funds
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Capital
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Cash Flow Statement (1 of 2)
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Cash Flow Statement (2 of 2)
7
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Valuation Metrics
• Price to Earnings
• Price to Book
Lake City Bank 1-888-522-2265 www.lakecitybank.com
DuPont Analysis• Asset Turnover
• Operating Margin
• Financial Leverage
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Dividend Coverage
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Profitability Ratio’s• Return on Capital
• Return on Assets
• Return on Equity
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Capital Ratio’s• Tier 1 Capital Ratio
• Common Equity to Total Assets
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Liquidity• Deposits/Assets
• Total Loans/Total Deposits
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Analyst Recommendation
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Earnings Surprise
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Revenue Surprise
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Institutional Holders
Lake City Bank 1-888-522-2265 www.lakecitybank.com
6 - Month vs. Industry
Lake City Bank 1-888-522-2265 www.lakecitybank.com
2 - Year vs. Industry
Lake City Bank 1-888-522-2265 www.lakecitybank.com
5 - Year vs. Industry
Lake City Bank 1-888-522-2265 www.lakecitybank.com
6 - Month vs. Peers
Lake City Bank 1-888-522-2265 www.lakecitybank.com
2 - Year vs. Peers
Lake City Bank 1-888-522-2265 www.lakecitybank.com
5 - Year vs. Peers
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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
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
Lake City Bank 1-888-522-2265 www.lakecitybank.com
Lake City Bank 1-888-522-2265 www.lakecitybank.com
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