Lake City Bank (LKFN)

Regional banking company Lakeland Financial (NASDAQGS:LKFN) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 10.8% year on year to $69.03 million. Its GAAP profit of $1.03 per share was 1.2% below analysts’ consensus estimates.

Company Overview

Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ:LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Lakeland Financial competes with other regional banks operating in Indiana such as First Merchants Corporation (NASDAQ:FRME), Old National Bancorp (NASDAQ:ONB), and 1st Source Corporation (NASDAQ:SRCE), as well as larger national banks with a presence in its markets including JPMorgan Chase (NYSE:JPM) and PNC Financial Services Group (NYSE:PNC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Thankfully, Lake City Bank’s 5.2% annualized revenue growth over the last five years was decent. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Lake City Bank’s recent performance shows its demand has slowed as its annualized revenue growth of 2.1% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Lake City Bank reported year-on-year revenue growth of 10.8%, and its $69.03 million of revenue exceeded Wall Street’s estimates by 1.2%.

Net interest income made up 75.6% of the company’s total revenue during the last five years, meaning lending operations are Lake City Bank’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Lake City Bank’s efficiency ratio has increased by 6.1 percentage points, going from 47.2% to 49.3%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Lake City Bank’s efficiency ratio came in at 50.7% this quarter, falling short of analysts’ expectations by 325 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

For the next 12 months, Wall Street expects Lake City Bank to rein in some of its expenses as it anticipates an efficiency ratio of 48%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Lake City Bank’s unimpressive 3.5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Lake City Bank, its two-year annual EPS growth of 4.1% is similar to its five-year trend, implying stable earnings.

In Q3, Lake City Bank reported EPS of $1.03, up from $0.91 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates. Over the next 12 months, Wall Street expects Lake City Bank’s full-year EPS of $3.79 to grow 9.8%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Lake City Bank’s TBVPS grew at a sluggish 2.9% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 15.4% annually over the last two years from $21.71 to $28.93 per share.

Over the next 12 months, Consensus estimates call for Lake City Bank’s TBVPS to grow by 6.9% to $30.92, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Lake City Bank has averaged a Tier 1 capital ratio of 14.5%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Lake City Bank has averaged an ROE of 15.3%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Lake City Bank.

It was encouraging to see Lake City Bank beat analysts’ tangible book value per share expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. On the other hand, its net interest income missed and its EPS fell a bit short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $61.85 immediately after reporting.

Updated: December 3, 2025 at 11:14 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Lake City Bank.

Lake City Bank’s business quality ultimately falls short of our standards. For starters, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its market-beating ROE suggests it has been a well-managed company historically, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its net interest income growth was uninspiring over the last five years.

Lake City Bank’s P/B ratio based on the next 12 months is 1.9x. This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $66.80 on the company (compared to the current share price of $59.18).