LKFN Financial Analysis

Analysis Date: 1/27/2025

Business Model

Lakeland Financial Corporation generates revenue primarily through net interest income and noninterest income. Net interest income is derived from the difference between interest earned on assets like loans and securities and interest paid on liabilities like deposits and borrowings. Noninterest income includes wealth advisory fees, service charges on deposit accounts, loan and service fees, and other sources.

Revenue Sources

• Net Interest Income: Income from loans, securities, and other interest-earning assets minus interest expenses on deposits and borrowings.
• Noninterest Income: Includes wealth advisory fees, investment brokerage fees, service charges on deposit accounts, loan and service fees, merchant and interchange fee income, bank owned life insurance income, and other income.

Income Statement Analysis

• Net interest income increased by 4.9% from Q3 2024 to Q4 2024, indicating improved profitability from core banking activities. (Pro)
• Provision for credit losses increased significantly by 20.7% from Q3 2024 to Q4 2024, suggesting a potential increase in expected credit losses. (Con)
• Noninterest income slightly decreased by 0.3% from Q3 2024 to Q4 2024, remaining relatively stable. (Neutral)
• Noninterest expense increased marginally by 0.8% from Q3 2024 to Q4 2024, indicating controlled operating costs. (Pro)
• Net income increased by 3.6% from Q3 2024 to Q4 2024, showing overall improvement in profitability on a linked quarter basis. (Pro)

Balance Sheet Analysis

• Total assets increased by 2.4% year-over-year, indicating moderate growth in the company's size. (Pro)
• Loans, net of allowance for credit losses, grew by 3.9% year-over-year, demonstrating organic loan growth. (Pro)
• Total deposits increased by 3.2% year-over-year, supported by a 5.4% increase in interest-bearing deposits, while noninterest-bearing deposits decreased by 4.1%. Shift from non-interest bearing to interest bearing deposits could increase funding costs in the future. (Neutral/Con)
• Borrowings from Federal Home Loan Bank advances decreased by 100%, indicating reduced reliance on wholesale funding. (Pro)
• Total equity increased by 5.2% year-over-year, strengthening the company's capital base. (Pro)

Capital Allocation

Lakeland Financial Corporation focuses on returning value to shareholders through dividends. The company increased its quarterly dividend by 4% year-over-year, and has a compounded annual dividend growth rate of 15% since 2012. The company emphasizes organic growth in its loan and deposit franchises and maintains a strong capital base to support this growth and dividend payouts. There is no mention of share repurchases in the provided document. Reinvestment is implied through organic loan and deposit growth initiatives and investments in technology as mentioned in non-interest expense discussion.

Management Commentary

“2024 continued a long and consistent trend of organic growth in our balance sheet. We successfully expanded both our loan and deposit franchises during the year,”

“We are particularly pleased with the 9-basis point expansion of our net interest margin on a linked quarter basis as we effectively managed the balance sheet throughout the year.”

“Core deposit growth was steady throughout 2024 and accounts for 99% of the funding sources for Lake City Bank,”

Net income was $24.2 million for the three months ended December 31, 2024, a decrease of $5.4 million, or 18%, compared with net income of $29.6 million for the three months ended December 31, 2023.

Provision expense of $3.7 million, compared to $300,000

Nonperforming assets increased $40.8 million, or 253%, to $56.9 million as of December 31, 2024, versus $16.1 million as of December 31, 2023.

Overall Sentiment: Mixed. Management expresses satisfaction with organic growth, deposit growth, and net interest margin expansion. However, there are concerns about the decrease in quarterly net income, increased provision for credit losses, and significant rise in nonperforming assets year-over-year.

Recommendation

Rating: Hold

Reason for Rating: Given the mixed financial performance in Q4 2024 and for the full year 2024, a Hold recommendation is appropriate. The company shows positive signs in organic growth, deposit expansion, and net interest margin improvement. However, the decrease in net income in Q4 2024 compared to Q4 2023, the substantial increase in provision for credit losses, and the significant rise in nonperforming assets are concerning factors that warrant caution. The increase in dividend payout is positive for shareholders, but overall financial performance is not decisively strong enough to warrant a Buy recommendation at this time. Further monitoring of asset quality and earnings trends is advised.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/27/2025, 10:16:11 AM