What happened
Shares of Lakeland Financial Corporation (LKFN -0.45%) traded roughly 10% higher as of 12:40 p.m. EDT after it was announced that the bank will join the S&P SmallCap 600.
So what
The S&P SmallCap 600 Index covers U.S. small-cap stocks with market capitalizations ranging from $700 million to $3.2 billion at the time the company is added to the index. Lakeland, a $6.2 billion asset bank based in Indiana, currently has a market cap of $1.65 billion.
Stocks tend to appreciate when they are added to an index because funds that track that index must now buy the stock. Also, being added to an index results in greater visibility for the stock.
Lakeland will replace GameStop (GME -3.94%) in the SmallCap 600. GameStop will join the S&P MidCap 400.
Image source: Getty Images.
Now what
Lakeland is a strong bank. In the second quarter, it reported earnings per diluted share of $0.95, up nearly 6% from the first quarter of the year. Earnings equated to a 1.58% return on average assets and a nearly 15% return on average equity, both incredibly strong numbers for a bank of Lakeland's size.
The bank, however, does currently trade at a high valuation of 246% to tangible book value, which is a company's equity minus intangible assets and goodwill. It's a high entry point, but this is a bank that should continue to generate strong consistent earnings.
