Lakeland Financial

Shares of Lakeland Financial ( LKFN) of Warsaw, Ind., closed at $25.05 Tuesday, down 3% this year, following a 3% return during 2012.

The shares trade for 1.4 times tangible book value, according to Thomson Reuters Bank insight, and for 11.1 times the consensus 2014 EPS estimate of $2.26, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.19.

Based on a quarterly payout of $0.17, the shares have a dividend yield of 2.72%.

Lakeland Financial had $3.1 billion in total assets as of Dec. 31. The company reported fourth-quarter earnings of $8.6 million, or $0.52 a share, declining from $9.3 million, or $0.57 a share, in the third quarter, but increasing from $8.3 million, or $0.50 a share, in the fourth quarter of 2011. The sequential earnings decline reflected a $1.25 million provision for loan losses during the fourth quarter, after the company made no provision the previous quarter.

Fourth-quarter net interest income declined to $20.9 million from $22.2 million the previous quarter, and $22.8 million a year earlier, reflecting a narrowing of the net interest margin (NIM) to 3.10% from 3.30% in the third quarter and 3.38% during the fourth quarter of 2011.

The net interest margin is the difference between the average yield on loans and investments and the average cost for deposits and borrowings. With the Federal Reserve keeping the short-term federal funds rate in a range of zero to 0.25% since the end of 2008, most banks are seeing a portion of their assets reprice at lower rates, while already realizing most of the benefit of lower funding costs.

But the yield curve has been widening a bit lately, with the market yield on 10-year U.S. Treasury bonds rising to roughly 2% at the end of January, and staying there ever since. The 10-year was trading at yields of between 1.58% and 1.78% in November.

Lakeland's operating return on average assets (ROA) was 1.19% during 2012 according to Thomson Reuters Bank Insight, which was the strongest ROA among the six banks being discussed here.

When discussing Lakeland's stock returns, Rodis says "part of last year's underperformance was that they didn't show loan growth," but he likes Lakeland's focus on steering clear of acquisitions and focusing on internal loan growth. "They are taking market share from the bigger banks in the market."

Rodis said in a report on Jan. 28 that fourth-quarter "loan growth was better than expected with the portfolio increasing 2.5% linked-quarter. The loan growth was driven by commercial related credits and by region included some solid gains in the Indianapolis market." The analyst expects "mid-single-digit growth going forward" for the loan portfolio.

Rodis rates Lakeland Financial "outperform," with a price target of $29, and estimates the company will earn $2.14 a share this year, with EPS growing to $2.30 in 2014.

Sterne Agee analyst Kenneth James has a $30 price target for Lakeland, estimating the company will earn $2.20 a share in 2013, with EPS of $2.37 in 2014. James said in a report on Jan. 28 that "with the NIM near a bottom, loan growth picking up and expectations lowered, the entry point and risk/reward for this solid bank appear very attractive."

LKFN Chart LKFN data by YCharts

Interested in more on Lakeland Financial? See TheStreet Ratings' report card for this stock.

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