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Lakeland Financial Corporation (NASDAQ: LKFN). Jingyuan Xia Vignesh Murali Olamide Esan Kuralay Seitalina Date Presented: April 29 th 2010. Lakeland Financial Corporation. Holding company for Lake City Bank Founded in 1872 in Warsaw, Indiana, $ 2.5 billion in assets(50% market share) - PowerPoint PPT Presentation
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Lakeland Financial Corporation (NASDAQ:
LKFN)Jingyuan Xia
Vignesh MuraliOlamide Esan
Kuralay Seitalina
Date Presented: April 29th 2010
Holding company for Lake City Bank Founded in 1872 in Warsaw, Indiana, $ 2.5
billion in assets(50% market share)
Third-oldest financial institution headquartered in Indiana.
Serves area business customers and individuals through 43branches
The bank offers▪ retail services as checking and savings accounts▪ money market accounts, and CDs.
Market Cap: $339.8MStock Price: $21.11 (as of April 29, 2010)
Expansion strategy: Organic GrowthFeb 09: Participated in TARP - $56.0
millionNov 09: Raised $57.9 million in a
public offering of common stock to strengthen capital position
http://www.snl.com/
As of December 31, 2009
Minimum regulatory capital requirements for bank holding companies established by Federal Reserves: (i) a risk−based requirement expressed as a percentage
of total assets weighted according to risk (ii) a leverage requirement expressed as a percentage
of total assets. Risk−based requirement: minimum ratio of total capital
to total risk−weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk−weighted assets of 4%.
Leverage requirement: minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others.
As of December 31, 2009
Tier 1 capital: permanent stockholders equity less intangible assets (other than certain loan servicing rights and purchased credit card relationships).
Tier 2 Capital: other non-permanent capital items that do not qualify for Tier 1 Capital and a portion of the allowance for loan and lease losses.
Total capital = Tier 1 capital plus Tier 2 capital
NAICS code: 522110
Industry comprises of firms primarily engaged in accepting
deposits and making commercial, industrial and consumer loans
According to the FDIC, there are 7928 lending institutions
Primary players : Bank of America, JP Morgan Chase and Citigroup
Regional banks are smaller than money centers and are bigger
than community banks. They usually carry between $100 million
to $2 billion in assets .
8012 FDIC insured Institutions in the United States
In 2009, 140 regional banks closed down. This number is projected to peak in second quarter 2010 and then slow down
Those who are surviving, are beginning to recover and looking to expand
Significant M&A Activity: Bigger banks looking to expand by buying smaller banks to enhance market reach
Brick & Mortar banking branches becoming less popular as online banking services provide a cheaper alternative
Small business lending has gone up past quarters, mortgage and home equity loans projected to pick up in 2011
Blair, Sheila. Banks still struggling with Problem loans... National Mortgage News. March 10th 2010
A continued downturn in Northern Indiana has resulted in home prices being driven low, industries closing and high unemployment. Some of these factors have shown slight improvement but needs more.
Commercial banks such as Lake City depend on high business activity in the vicinity, home buying and consumer spending to thrive.
Regional banks also depend on success of small business entrepreneurship. Small business lending is an integral part of their portfolio
Inflation: Banks are hurt by increasing inflation as unexpected changes in anticipated inflation
Strengths Weaknesses
1. 50% market share in operating areas, good reputation in community
2. 20 years average experience in the banking in management consistent of 33 officers
1. Real Estate values have fallen steadily, mortgage portfolio hurt and recoverable assets has gone down
2. Credit demand has decreased due
to lesser spending by individuals. Net Income has gone down because spreads have become narrower
Opportunities Threats1. Asset quality indicate great growth
potential
2. Banks which survive have great potential to acquire others at discounted prices
1. 11 – 16% unemployment range , Industrial activity deeply impacted by recession
2. Mortgage lending and real estate prices do not recover
3. Financial regulation might impact future cash flows ( example higher reserve req. )
Statistic Industry Leader LKFNLKFN Rank
Market Cap US Bancorp (USB) 52.29B 339.68M 21 / 95P/E Ratio (ttm) Oak Financial (OKFC) 154.75 16.78 20 / 95PEG Ratio (ttm, 5 yr expected)
Fifth Third Bank (FITB)
171.90 1.47 17 / 95
Revenue Growth (Qtrly YoY)
United Bancorp (UBMI)
681.70% 12.40% 25 / 95
EPS Growth (Qtrly YoY) LaPorte Bancorp (LPSB)
1047.00% -9.60% 16 / 95
Long Term Growth Rate (5Yr)
Private Bancorp (PVTB)
13.00% 10.00% 4 / 95
Return on Equity (ttm) First Financial Bancorp (FFBC)
48.18% 8.83% 8 / 95
Dividend Yield (Annual)United Bancorp (UBCP)
6.60% 2.90% 24 / 95
Ratios 2005 2006 2007 2008 2009
Margin Analysis
Net Interest Income/ Total
Revenue77.8% 76.4% 77.4% 83.5% 98.7%
Asset Quality
Nonperforming Loan/Total Loan
0.6% 1.0% 0.5% 1.2% 1.5%
Allow. for Credit Losses/ Total Loan
1.1% 1.1% 1.0% 1.0% 1.6%
Capital and Funding
Gross Loan/ Total Deposit
94.7% 91.7% 103.0% 97.3% 108.8%
2005 2006 2007 2008 2009
Net Profit Margin
27.8% 27.3% 27.2% 26.0% 23.3%
Asset Turnover
0.042 0.039 0.037 0.035 0.033
Leverage 14.36 14.25 13.83 14.75 11.51
ROE 16.7% 15.4% 13.9% 13.3% 8.8%
ROA 1.2% 1.1% 1.0% 0.9% 0.8%
ROD 1.4% 1.3% 1.3% 1.0% 1.0%
1st Source Corporation (NASDAQ:SRCE) Commercial and Consumer banking, Trust and
Investment Management, Insurance . 76 banking centers in 17 counties in Indiana and
Michigan. 2009 Revenue=$285.8M
First Financial Corporation(NASDAQ:THFF)
First Financial Bank, Morris Plan and Forrest Sherer Inc. Commercial, Mortgage and Consumer Lending, Lease
financing, insurance. 54 branches in West-Central Indiana and East-Central
Illinois. 2009 Revenue=$154.8M
German American Bancorp, Inc. (NASDAQ: GABC)
Commercial and Consumer banking, Financial Planning, Brokerage and Trust Administration, Insurance Services.
28 retail banking offices in Southern Indiana counties. 2009 Revenue=$79.6M
MainSource Financial Group, Inc. (NASDAQ:MSFG)
Deposits, Mortgage loans, Insurance Services, trust services and others.
85 branch banking offices in Indiana, Illinois, Ohio, and Kentucky, 12 insurance offices in Indiana and 1 in Illinois.
2009 Revenue=$183.8M
Multiple Valuation Equity Cash Flow Method
Forecast Free Cash Flows to Equity Discount at Cost of Equity
Spread or Income Model▪ Spread model: Forecast difference between the
rate paid on borrowings and the rate received on loans and investments.
▪ Income model: Forecast the balance sheet accounts and use as drivers for income statement forecast
Company (Ticker) Forward P/E P/BP/Total
Revenue
Lakeland (LKFN) 12.13 1.49 4.16
1st Source (SRCE) 21.00 0.99 2.55
First Financial (THFF) 13.79 1.27 3.93
German American (GABC)
13.77 1.52 3.06
MainSource (MSFG) 13.58 0.70 1.83High 21.00 1.52 4.16
Mean 14.85 1.19 3.11
Median 13.77 1.27 3.06
Low 12.13 0.7 1.83
Valuation: Measuring and Managing the Value of Companies - Mckinsey & Company
Valuation: Measuring and Managing the Value of Companies - Mckinsey & Company
AssumptionsGrowth Rate 3%Discount Rate 12%
2010E 2011E 2012E 2013E 2014EEquity Cash Flow (14,951) 73,487 75,489 35,706 21,627 TV 236,449
(14,951) 73,487 75,489 35,706 258,076 PV of Total Equity 264,047
Share Outstanding 12,852
Value per Share $20.55
Market ROE 16%CAPM discount rate 10.1%
Weight 60% of CAPM discount rate Weight 40% of Market ROE
Discount Rate used 12%