Lake City Bank (LKFN)

Regional banking company Lakeland Financial (NASDAQGS:LKFN) met Wall Streets revenue expectations in Q4 CY2025, with sales up 7.9% year on year to $69.8 million. Its GAAP profit of $1.16 per share was 9.8% above 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).

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Unfortunately, Lake City Bank’s 5.1% annualized revenue growth over the last five years was sluggish. This was below our standard for the banking sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Lake City Bank’s annualized revenue growth of 5.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 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 grew its revenue by 7.9% year on year, and its $69.8 million of revenue was in line with Wall Street’s estimates.

Net interest income made up 80.1% of the company’s total revenue during the last five years, meaning Lake City Bank barely relies on non-interest income to drive its overall growth.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

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.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Lake City Bank’s efficiency ratio has increased by 5.7 percentage points, going from 47.2% to 48.9%. 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.

In Q4, Lake City Bank’s efficiency ratio was 47.9%, falling short of analysts’ expectations by 74 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Lake City Bank to maintain its trailing one-year ratio with a projection of 48%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Lake City Bank’s weak 4% 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 more recent period because it can provide insight into an emerging theme or development for the business.

For Lake City Bank, its two-year annual EPS growth of 4.8% is similar to its five-year trend, implying stable earnings.

In Q4, Lake City Bank reported EPS of $1.16, up from $0.94 in the same quarter last year. This print beat analysts’ estimates by 9.8%. Over the next 12 months, Wall Street expects Lake City Bank’s full-year EPS of $4.01 to grow 4.9%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

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. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

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 8.5% annually over the last two years from $25.35 to $29.87 per share.

Over the next 12 months, Consensus estimates call for Lake City Bank’s TBVPS to grow by 8% to $32.26, paltry 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 14.6%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Lake City Bank has averaged an ROE of 15.3%, impressive 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 good to see Lake City Bank beat analysts’ EPS expectations this quarter. We were also happy its tangible book value per share narrowly outperformed Wall Street’s estimates. On the other hand, its net interest income was just in line. Zooming out, we think this was a mixed quarter. The stock remained flat at $58.83 immediately after reporting.

Updated: January 26, 2026 at 11:51 PM EST

Are you wondering whether to buy Lake City Bank or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies driving economic growth, but in the case of Lake City Bank, we’re out. To begin with, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing 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 1.8x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $65.80 on the company (compared to the current share price of $60.68).