Lakeland Bancorp Reports Strong Earnings and Closes Harmony Acquisition

OAK RIDGE, N.J., July 22, 2016 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ:LBAI) (the “Company”) reported the following results for the quarter ended June 30, 2016:

• Net income in the second quarter of 2016 was $10.1 million, 29% higher than the $7.9 million for the same period in 2015.  Excluding merger related expenses of $0.6 million after tax, pertaining to the Company’s acquisitions of Pascack Bancorp, Inc. (“Pascack”), which closed on January 7, 2016, and Harmony Bank (“Harmony”), which closed on July 1, 2016, net income for the second quarter of 2016 was $10.7 million.
   

• Earnings per diluted share was $0.24 in the second quarter of 2016, 14% higher than the $0.21 per diluted share reported in the second quarter of 2015.  Excluding merger related expenses, earnings per diluted share was $0.26 in the second quarter of 2016, a 24% increase over the same period in 2015. 
  
  

• For the second quarter of 2016, annualized return on average assets was 0.93%, annualized return on average common equity was 9.04%, and annualized return on average tangible common equity was 12.63%.  Excluding merger related expenses, these ratios were 0.98%, 9.54% and 13.33%, respectively. 
  
  

• Net income for the first six months of 2016 was $18.2 million, or $0.44 per diluted share, compared to $16.2 million, or $0.42 per diluted share, for the same period in 2015.  Excluding merger related expenses of $1.7 million after tax, net income for the first six months of 2016 was $20.0 million, or $0.48 per diluted share.
  
  

• The annualized return on average assets for the six months ended June 30, 2016 was 0.85%, the annualized return on average common equity was 8.23%, and the annualized return on average tangible common equity was 11.53%.  Excluding merger related expenses, these ratios were 0.93%, 9.00% and 12.62%, respectively. 
  
  

• The Company reported strong loan growth in the second quarter of 2016.  Total loans and leases increased by $85.3 million, or 3%, to $3.45 billion during the quarter.  This overall increase was primarily due to the addition of $109.8 million, or 5%, in commercial real estate loans.  For the first six months of 2016, total loans and leases increased by $486.4 million, or 16%, to $3.45 billion during the quarter.  This increase was $166.4 million, or 6%, after excluding the $320 million in loans acquired from Pascack.
  
  

• The Company also reported strong deposit growth in the second quarter of 2016.  Total deposits increased $74.7 million, or 2%, to $3.54 billion during the quarter.  Most notably, non-interest bearing deposits increased $49.6 million, or 6%, during the quarter.  Total deposits have increased $541.8 million, or 18%, since December 31, 2015.  This increase was $238.8 million, or 8%, after excluding the $303 million in deposits acquired from Pascack.  Non-interest bearing deposits increased $130.3 million, or 19%, in 2016.  This increase was $66.3, or 10%, after excluding the $64 million in deposits acquired from Pascack.
  
  

• Net interest margin (“NIM”) was 3.47% for the second quarter of 2016, compared to 3.48% for the first quarter of 2016 and 3.46% for the second quarter of 2015.    
  
  

• The efficiency ratio was 56.23% for the three months ended June 30, 2016, as compared to 62.09% for the same period in 2015.  The decrease in this ratio, in part, reflects the realization of cost savings from the Pascack acquisition, including the closing of three branches.  
  
  

• On July 20, 2016, the Company declared a quarterly cash dividend of $0.095 per common share, payable on August 12, 2016 to holders of record as of the close of business on August 3, 2016.

Thomas J. Shara, Lakeland Bancorp’s President and CEO said, “We are very proud of the earnings growth during the second quarter of 2016 and our lowest efficiency ratio in six years.  It reflects the success of several significant initiatives we have undertaken, including the acquisition of Pascack earlier in 2016, the opening of two loan production offices in 2015, a commitment to growing our commercial loan portfolio and prudent management of our expenses.  In addition, since June 30, 2015, our assets have grown 21% to $4.5 billion at June 30, 2016 and 27% to $4.7 billion including the acquisition of Harmony Bank at the beginning of the third quarter.”

Earnings

Net income for the second quarter of 2016 was $10.1 million, as compared to $7.9 million for the second quarter of 2015.  Excluding merger related expenses of $0.6 million after tax, net income for the second quarter of 2016 was $10.7 million.

Net income for the first six months of 2016 was $18.2 million, as compared to $16.2 million for the same period in 2015.  Excluding merger related expenses of $1.7 million after tax, net income for the first six months of 2016 was $20.0 million.

Net Interest Income

Net interest income for the second quarter of 2016 was $35.1 million, as compared to $28.7 million for the same period in 2015.  This increase was primarily due to higher levels of loans in 2016 than 2015.  NIM was 3.47% for the second quarter of 2016, compared to 3.46% for the second quarter of 2015.  Included within these percentages were $0.6 million of prepayment fees, gains on called securities, and interest recoveries in 2016, versus $0.3 million in 2015.  The yield on interest earning assets for the second quarter of 2016 was 3.85%, as compared to 3.78% reported in the second quarter of 2015.  The cost of interest bearing liabilities for the second quarter of 2016 was 0.50%, as compared to 0.42% in the second quarter of 2015, reflecting the higher cost of deposits.

Net interest income for the first six months of 2016 was $69.0 million, as compared to $57.2 million reported for the first six months of 2015.  NIM for the first six months of 2016 was 3.48%, compared to 3.51% for the same period in 2015.  Included within these percentages were $1.0 million of prepayment fees, gains on called securities, and interest recoveries in 2016, versus $0.8 million in 2015.  The yield on earning assets was 3.86% for the first six months of 2016 and 3.82% for the same period in 2015.  The cost of interest bearing liabilities for 2016 was 0.50%, as compared to 0.41% in the first six months of 2015, reflecting the higher cost of deposits.

Non-interest Income

Non-interest income totaled $4.9 million for the second quarter of 2016, as compared to $5.0 million for the same period in 2015.  

Non-interest income totaled $9.8 million for the first six months of 2016, as compared to $9.7 million for the same period in 2015.  Commissions and fees of $2.1 million declined $0.4 million from the first six months of 2015 to the first six months of 2016, primarily because of a decline in financial services income related to a decrease in demand for annuities.  Income on bank owned life insurance of $0.8 million declined $0.3 million from the first six months of 2015 to the first six months of 2016 because of death benefits received on a bank owned life insurance policy in 2015 that did not recur in 2016.  These decreases were partially offset by $0.4 million in additional realized gains from the sale of investment securities and a $0.2 million increase in service charges on deposit accounts from higher debit card interchange fee income. 

Non-interest Expense  

Non-interest expense for the second quarter of 2016 was $23.7 million, an increase of $2.5 million compared to $21.2 million for the same period in 2015. Excluding the pre-tax impact of $0.7 million in merger related expenses, non-interest expense increased by $1.8 million.  Salary and benefit expense of $13.1 million increased by $0.9 million, due primarily to a full quarter of expenses associated with the loan production offices that opened in the first and second quarters of 2015, the addition of Pascack employees during the first quarter in 2016 and year-over-year increases in employee salary and benefit costs.  Net occupancy expense of $2.3 million, furniture and equipment at $2.1 million, and FDIC insurance expense of $0.7 million increased a combined $0.7 million, primarily due to the addition of Pascack branches and deposits. 

For the first six months of 2016, non-interest expenses were $49.1 million, an increase of $7.9 million when compared to $41.2 million for the same period in 2015.  Excluding the pre-tax impact of $2.4 million in merger related expenses, non-interest expense increased by $5.5 million.  Salary and benefit expense of $27.2 million increased by $3.3 million, due primarily to two full quarters of expenses associated with the loan production offices that opened in the first and second quarters of 2015, the addition of Pascack employees during the first quarter in 2016 and year-over-year increases in employee salary and benefit costs.  The remaining increases in non-interest expense categories were primarily due to the costs related to the addition of Pascack branches, including occupancy, FDIC insurance expense and supplies. 

Financial Condition

From December 31, 2015 to June 30, 2016, total assets increased $598.3 million to $4.47 billion, including $390 million from Pascack.  During the same period, total loans and leases increased by $486.4 million, including $320 million from Pascack, and total deposits increased $541.8 million to $3.54 billion, including $303 million from Pascack.  Excluding Pascack, total loans and leases increased 6% and deposits increased 8%.  Also, non-interest bearing deposits increased $130.3 million to $824.1 million in 2016, including $64 million from Pascack, while interest bearing deposits increased $411.4 million to $2.71 billion, including $239 million from Pascack. 

Asset Quality

At June 30, 2016, non-performing assets totaled $26.5 million (0.59% of total assets), compared to $23.7 million (0.61% of total assets) at December 31, 2015.  Non-performing loans and leases as a percent of total loans and leases at 0.72% decreased four basis points from December 31, 2015.  The allowance for loan and lease losses totaled $30.7 million at June 30, 2016, and represented 0.89% of total loans and leases, compared to $30.9 million at December 31, 2015, which represented 1.04% of total loans and leases, prior to the Pascack acquisition.  For the first six months of 2016, the Company had net charge-offs of $2.3 million (0.14% of average loans), as compared to $2.1 million (0.16% of average loans) for the same period in 2015.  The provision for loan and lease losses for the first six months of 2016 was $2.1 million, compared to $1.6 million for the same period in 2015.

Capital

At June 30, 2016, stockholders' equity was $454.9 million, while book value per common share was $11.03.  Tangible book value per common share was $7.93, an increase of 4% from December 31, 2015.  As of June 30, 2016, the Company’s leverage ratio was 8.24%.  Tier I and total risk based capital ratios were 9.74% and 10.65%, respectively.  The common equity tier 1 capital ratio was 8.91%.  The tangible common equity ratio was 7.53%.  The regulatory capital ratios exceed those necessary to be considered a well-capitalized institution under Federal regulatory guidelines.

Forward-Looking Statements

The information disclosed in this document includes various forward-looking statements (with respect to corporate objectives, trends, and other financial and business matters) that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The words “anticipates”, “projects”, “intends”, “estimates”, “expects”, “believes”, “plans”, “may”, “will”, “should”, “could”, and other similar expressions are intended to identify such forward-looking statements.  Lakeland cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time.  Actual results could differ materially from such forward-looking statements.  The following factors, among others, could cause actual results to differ materially and adversely from such forward-looking statements: changes in the financial services industry and the U.S. and global capital markets, changes in economic conditions nationally, regionally and in the Company’s markets, the nature and timing of actions of the Federal Reserve Board and other regulators, the nature and timing of legislation affecting the financial services industry, government intervention in the U.S. financial system, changes in levels of market interest rates, pricing pressures on loan and deposit products, credit risks of the Company’s lending and leasing activities, customers’ acceptance of the Company’s products and services, competition, failure to successfully integrate and realize anticipated efficiencies and synergies after the Pascack Community Bank and Harmony Bank mergers.  Any statements made by Lakeland that are not historical facts should be considered to be forward-looking statements.  Lakeland is not obligated to update and does not undertake to update any of its forward-looking statements made herein.

Explanation of Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP").  The Company’s management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

The Company also uses an efficiency ratio that is a non-GAAP financial measure.  The ratio that the Company uses excludes amortization of core deposit intangibles, expenses on other real estate owned and other repossessed assets, provision for unfunded lending commitments and, where applicable, long-term debt prepayment fees and merger related expenses.  Income for the non-GAAP ratio is increased by the favorable effect of tax-exempt income and excludes securities gains and losses and gain on debt extinguishment, which can vary from period to period.  The Company uses this ratio because it believes the ratio provides a better comparison of period to period operating performance.

About Lakeland Bank
Lakeland Bancorp, the holding company for Lakeland Bank, has approximately $4.7 billion in total assets with 56 New Jersey branch offices in Bergen, Essex, Morris, Ocean, Passaic, Somerset, Sussex, Union and Warren counties, five New Jersey regional commercial lending centers in Bernardsville, Jackson, Montville, Teaneck and Waldwick and two commercial loan production offices serving Middlesex and Monmouth counties in New Jersey and the Hudson Valley region of New York.  Lakeland Bank offers an extensive array of consumer and commercial products and services, including online and mobile banking, localized commercial lending teams, and 24-hour or less turnaround time on consumer loan applications.  For more information about the full line of products and services, visit LakelandBank.com.