$48.05
$100.18
bear $48.05
base $82.64
bull $100.18
margin of safety $30.00
market price* $58.00
Lakeland Financial is the holding company for Lake City Bank, an Indiana commercial bank organized in 1872 with $7.24 billion of assets at June 30, 2026. It runs 55 offices in fifteen counties (46 in Northern Indiana, nine around Indianapolis), funds itself almost entirely with deposits ($5.97 billion at year-end 2025, of which 99.2% were core deposits and $1.22 billion were non-interest-bearing) and lends mainly to businesses: $5.375 billion of loans at December 31, 2025, of which commercial real estate was 49.5% (multifamily housing alone 13.6%), agriculture 8.8% and the recreational vehicle industry 4.5%. Growth has been organic, with goodwill of only $5.0 million. How we measured earnings. For a bank, interest paid to depositors is a cost of doing business, so we value earnings after interest and deduct no borrowings; funding is almost all deposits, with only $170 million of short-term Federal Home Loan Bank advances and a $13 million credit-line draw at the end of 2025. We took cash from operations and removed the swings in receivables, payables and loans held for sale, deducted stock compensation, deducted capital spending on branches and equipment (growth spending excluded in expanding years), and kept the provision for credit losses in as a real recurring cost. Owner earnings per diluted share came out at $1.91 (2016), $2.14, $3.14, $3.36, $3.40, $3.86, $4.35, $3.84, $3.25 (2024) and $3.80 (2025). The non-cash $9.0 million Visa share gain of 2024 is not in these figures; the $18.1 million 2023 wire-fraud loss, which the company disclosed in its 2023 annual report as an international wire fraud of which the bank was the victim, was real cash and is included. We left 2016 to 2018 out of the base because per-share owner earnings jumped from $2.14 to $3.14 between 2017 and 2018, helped by the federal corporate tax cut, so those years describe a different earnings level. The seven years 2019 to 2025 cover the 2020 pandemic provisioning, the 2021 reserve release, the 2022 to 2024 squeeze as deposit costs rose, and the recovery in 2025, and their middle value is $3.80 per share, which is the starting level for the middle case. Recent quarters have been strong (net income of $26.4 million, $29.9 million, $26.5 million and $28.4 million in the last four reported quarters, and first-half 2026 profit 17% above first-half 2025), but we have not raised the starting level on them. Growth path. Owner earnings grew 17.1% in 2025 ($3.25 to $3.80), a rebound as the net interest margin widened from 3.18% to 3.45%. We assume only 2.5% for the first year, below that rebound, because the bank's demonstrated per-share growth since 2018 is about 2.8% a year in owner earnings and 3.6% in reported earnings per share, and nothing contracted lifts it above that. The credited growth is the continuation of what the bank has done for decades: adding branches in its own markets (14 locations in seven counties since 2011, Westfield opened September 2025, Whitestown scheduled for 2026), funded from retained earnings while still paying a $2.08 annualized dividend and buying back shares. We did not credit share gains from new markets, margin expansion, or any management target. The middle case starts at $3.80, grows 2.5% a year for ten years, then 1.5% a year for ten more as the room in existing and adjacent markets narrows, and then stays level. That is a value of $82.64 per share: about $31.70 comes from the first ten years, $21.60 from years 11 to 20 and $29.30 from the level earnings after that. The level tail rests on a franchise that has operated continuously for 154 years, a deposit base that is 99.2% core, and an earnings record of at least $3.25 per share in each of the last seven years; nothing was credited beyond holding the dollar earnings flat. Because it is a lender, there is no debt deducted: the case is worth $82.64 and owes no separate debt. The conservative case starts from the weakest recent year ($3.25 in 2024, when deposit costs peaked), grants no growth, and then adds a full credit cycle modeled on 2008 to 2010. In that cycle Lakeland itself earned $19.0 million in 2009 and $24.5 million in 2010 while setting aside provisions of $21.2 million and $23.9 million (about 2.3% of its roughly $2 billion of loans over the two years); net charge-offs peaked at $11.0 million in 2010 (about 0.54% of loans) and nonperforming assets reached $40.7 million. We sized the downturn at about twice that cumulative provisioning: cumulative credit-loss provisions of 4.5% of today's $5.375 billion of loans, or $242 million over three years, because commercial real estate is 49.5% of the book, multifamily is concentrated in the Indianapolis market, and the Federal Reserve reported charge-off rates on construction and land loans reaching 8% in late 2009. After deducting the roughly $24 million of normal provisioning already inside our earnings, the extra after-tax cost (at about a 22% tax rate) is about $170 million, or $6.83 per share, falling $2.39, $2.73 and $1.71 across three years, so owner earnings drop to $0.86, $0.52 and $1.54 per share before recovering to $3.25 and holding level. The bank stays profitable throughout, so no capital raise is assumed (the common equity ratio was 14.77% and total risk-based capital 15.92% at year-end 2025). The result is $48.05 per share, with no debt to deduct. This is above tangible book value of about $31 per share (equity of $773 million less $5 million of goodwill, over 24.86 million shares at June 30, 2026) because the case assumes the earnings power survives: the same bank stayed profitable through 2009 and 2010, and its funding is overwhelmingly core deposits. The optimistic case begins at $4.15, about 95% of the roughly $4.40 of net income per share earned over the last four quarters (owner earnings ran about 95% of reported earnings in 2025), grows 3.5% a year for ten years (the 3.6% annual rate of earnings-per-share growth since 2018), then 2% for ten years, then stays level. That gives $100.18: $36.50 from the first ten years, $26.60 from years 11 to 20 and $37.10 after, again with no separate debt. We left out any benefit from the $124 million of accumulated unrealized losses (mostly on bonds) reversing, from rate cuts or from faster branch openings than the bank has sustained. Relation to our earlier estimate. Our September 2026 figures were built on reported earnings per share and a different method, so they are not directly comparable, and no new annual report has been filed since. The credit picture behind both: nonperforming loans fell from $56.9 million to $20.9 million (1.1% to 0.39% of loans) during 2025, the allowance for credit losses fell from 1.68% to 1.28% of loans after a $28.6 million partial charge-off on a single commercial relationship in the second quarter of 2025 (net charge-offs of $28.8 million, 0.55% of average loans), and net income for the second quarter of 2026 was $28.4 million. Testing the middle case. The case assumes the provisions we deduct are about what the loan book really costs. In 2024 and 2025 provisions totaled $28.6 million against net charge-offs of $31.6 million, so the earnings level is not flattered by under-reserving, and 2025's large charge-off came from one relationship rather than a broad deterioration. That single loss, however, is a reminder of lumpiness: the bank's own lending limit per borrower is $40 million, and the 2023 wire-fraud loss the company disclosed was $18.1 million before $7.3 million of recoveries. What could make this wrong. If the loan book suffers losses far worse than the 2008 to 2010 pattern, or a run on deposits forces expensive funding, the conservative case would be too high. If the bank's earnings never grow at all, the middle case would be about $63; if earnings stopped after twenty years, about $53. How we set the margin-of-safety price. We are fairly sure of the earnings level: seven years of owner earnings between $3.25 and $4.35 per share through a pandemic, a rate shock and a fraud loss. The worst plausible event is a credit cycle hitting a book that is half commercial real estate in one state, or a very large single loss; it would cost several years of earnings but the bank has capital ratios well above the well-capitalized minimums, almost no brokered deposits ($50.6 million) and $1.19 billion of available borrowing capacity at the Federal Reserve discount window, so it would survive. Outcomes the cases do not model include a major cyber or fraud event and a deposit run. If a credit cycle arrives the shares would be worth about $48 on the conservative case and less if it is worse than 2008 to 2010; if earnings fade after twenty years the middle case falls to about $53. The price assumes a holding period of five years or more, during which the dividend of $2.08 per share a year, plus buybacks, is paid. The margin-of-safety price is $30.00 per share. At that price the bank's tangible equity of about $31 per share is covered, with nothing paid for an earnings stream that has produced $3.25 to $4.35 per share every year since 2019; earnings alone would be about 12.7% of the price and the dividend about 6.9%. A 20% annual return over five years from $30.00 implies the shares plus roughly $10 of dividends being worth about $64. The middle case supports a value well above that by then, and the dividend and the tangible equity cushion the result if the conservative case occurs instead; that is why the margin-of-safety price is no higher than $30.00.