Lakeland Bancorp Announces Third Quarter Results

OAK RIDGE, N.J., Oct. 26, 2021 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $22.3 million and earnings per diluted share ("EPS") of $0.43 for the three months ended September 30, 2021 compared to net income of $14.4 million and EPS of $0.28 for the three months ended September 30, 2020.  For the third quarter of 2021, annualized return on average assets was 1.10%, annualized return on average common equity was 10.94% and annualized return on average tangible common equity was 13.63%. 

For the nine months ended September 30, 2021, the Company reported net income of $72.9 million and EPS of $1.42 compared to net income of $38.7 million and EPS of $0.76 for the same period of 2020. Annualized return on average assets was 1.24%, annualized return on average common equity was 12.39% and annualized return on average tangible common equity was 15.53% for the first nine months of 2021 (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value).

The third quarter and year-to-date 2021 results were favorably impacted by negative provisions for credit losses of $2.7 million and $11.3 million, respectively, compared to provisions of $8.0 million and $26.2 million for the same periods last year as forecasted macroeconomic conditions have improved and Lakeland's asset quality continues to be strong.

Thomas Shara, Lakeland Bancorp’s President and CEO commented on the financial results, “We are pleased with our results for the quarter marked by strong core earnings and continued improvement in asset quality. Our subordinated debt offering during the quarter was very successful, affording us the opportunity to increase the offering size to $150 million with an interest rate of 2.875% fixed for 5 years. We believe the overwhelming success of the offering further illustrates the strength of the Lakeland brand in the market.”

Regarding Lakeland Bancorp's recently announced acquisition of 1^st Constitution Bancorp, Mr. Shara continued, “We remain very excited regarding our opportunity to partner with 1st Constitution and expanding our product offerings and services to the customers of the combined company. The merger integration meetings are progressing very well and we anticipate closing the merger in January 2022.”

Third Quarter 2021 Highlights

• Non-performing assets decreased $10.3 million or 46% to $12.3 million at September 30, 2021 compared to $22.6 million at June 30, 2021.
• During the third quarter, the Company sold $6.2 million in non-performing loans primarily in the commercial secured by real estate loan category. The sale resulted in net recoveries to the allowance for credit losses of $502,000 as well as recovered interest on non-accrual loans of $755,000, which favorably impacted third quarter 2021 net interest margin by four basis points.
• On September 15, 2021, the Company closed the offering of $150 million of its Fixed-to-Floating Rate Subordinated Notes (the “Notes”) due 2031. The Notes bear interest at a rate of 2.875% per annum until September 2026 and the interest rate will then reset quarterly to the three-month Secured Overnight Financing Rate ("SOFR") plus a spread of 220 basis points.
• During the third quarter, the Company redeemed $75 million of its 5.125% Fixed-to-Floating Rate Subordinated Notes due September 30, 2026, which were scheduled to reset quarterly to the current three-month LIBOR rate plus 397 basis points in September 2021. The Company expensed $831,000 in unamortized debt issuance costs on the $75 million redemption.
• Deposit growth continues to be strong as saving and interest-bearing transaction accounts increased $202.7 million during the third quarter, while higher priced time deposits were allowed to run off. Noninterest-bearing deposits increased $40.8 million to $1.72 billion at September 30, 2021.
• Paycheck Protection Program ("PPP") loans totaled $109.3 million at September 30, 2021 compared to $207.0 million at June 30, 2021.  Unamortized net deferred fees on PPP loans totaled $3.4 million at September 30, 2021 compared to $6.1 million at June 30, 2021. PPP loans contributed approximately $3.1 million to interest income during the third quarter of 2021.

Net Interest Margin and Net Interest Income

Net interest margin for the third quarter of 2021 of 3.10% increased 14 basis points compared to the third quarter of 2020 and decreased 17 basis points compared to the second quarter of 2021. Net interest margin for the first nine months of 2021 was 3.19% as compared to 3.09% for the same period in 2020. The increase in net interest margin compared to the third quarter 2020 and year-to-date 2020 was due primarily to a decrease in the cost of interest-bearing liabilities, while the decrease in net interest margin compared to the linked quarter was due primarily to a $326.7 million increase in lower yielding average federal funds sold.

The yield on interest-earning assets for the third quarter of 2021 was 3.40% as compared to 3.49% for the third quarter of 2020 and 3.57% for the second quarter of 2021. The yield on interest-earning assets for the first nine months of 2021 was 3.51% as compared to 3.77% during the same period in 2020.  The current quarter decrease in yield on interest-earning assets, when compared to the third quarter of 2020 and the second quarter of 2021, was due primarily to a reduction in the yield on securities as well as an increase in lower yielding average securities and federal funds sold balances.  The 26 basis point reduction in yield on interest-earning assets for the first nine months of 2021 compared to the same period in 2020 was due primarily to a reduction in the yield on loans and securities resulting from decreases in market interest rates during 2020.

The cost of interest-bearing liabilities for the third quarter of 2021 was 0.41% compared to 0.72% for the third quarter of 2020 and 0.42% for the second quarter of 2021. The cost of interest-bearing liabilities for the first nine months of 2021 was 0.45% compared to 0.91% during the same period in 2020.  The reduction in the cost of interest-bearing liabilities compared to prior periods was largely driven by reductions in market interest rates as well as a change in the mix of interest-bearing liabilities. Higher cost time deposits and borrowings balances have decreased while lower cost interest-bearing transaction account balances have increased.

Net interest income for the third quarter of 2021 of $59.3 million increased $7.2 million compared to the third quarter of 2020.  Net interest income for the first nine months of 2021 was $175.8 million as compared to $152.6 million for the first nine months of 2020.  The increase in net interest income compared to prior periods was due primarily to a reduction in the cost of interest-bearing deposits as well as growth in the volume of interest-earning assets.

Noninterest Income

Noninterest income decreased $1.3 million to $5.5 million for the third quarter of 2021 from $6.8 million for the third quarter of 2020. Service charges on deposit accounts for the third quarter of 2021 increased $248,000 compared to the third quarter of 2020 due primarily to changes in customer behavior relating to the pandemic. Gains on sales of loans decreased $887,000 due primarily to retaining a greater percentage of originated residential mortgages.  Swap income decreased $624,000 compared to the third quarter of 2020 due primarily to the steepness of the yield curve which makes new swap agreements less attractive.

For the first nine months of 2021, noninterest income decreased $3.8 million to $16.5 million compared to the first nine months of 2020 primarily due to a $3.6 million decrease in swap income resulting from the changes to the yield curve discussed above. Service charges on deposit accounts increased $614,000 compared to the first nine months of 2020 due to the same reasons discussed in the quarterly comparison, while commissions and fees increased $459,000 due primarily to an increase in commercial loan fees.  Losses on equity securities totaled $191,000 in the first nine months of 2021 compared to losses of $625,000 in the first nine months of 2020.  Gains on sales of loans decreased $697,000 due to the same reason discussed above. Other income decreased $567,000 due primarily to a $400,000 write-down on a branch location held for sale. Additionally, the first nine months of 2020 included gains on sales of investment securities of $342,000 compared to $9,000 for the same period in 2021.

Noninterest Expense

Noninterest expense totaled $37.2 million for the third quarter of 2021 and increased $5.1 million compared to the third quarter of 2020. Compensation and employee benefit expense for the third quarter of 2021 increased $2.4 million or 13% compared to the same quarter of 2020 as a result of staff additions and normal merit increases. Premises and equipment increased $624,000 compared to the third quarter of 2020 predominately driven by an increase in costs associated with the Company's digital strategy initiative.  The third quarter of 2021 included $1.1 million in merger related costs for the upcoming merger with 1^st Constitution Bancorp.  Other operating expenses in the third quarter of 2021 were $881,000 greater than the third quarter of 2020 due primarily to $831,000 in long-term debt extinguishment costs resulting from the redemption of the $75 million in subordinated notes mentioned in the quarterly highlights.

Noninterest expense for the first nine months of 2021 of $105.2 million increased $9.1 million compared to the first nine months of 2020. Compensation and employee benefit expense and premises and equipment expense increased $5.1 million and $2.4 million, respectively, compared to the first nine months of 2020 due to the same reasons discussed in the quarterly comparison. FDIC insurance expense in the first nine months of 2021 increased $420,000 due primarily to deposit growth and assessment credits recorded in the first nine months of 2020.  The first nine months of 2021 included $1.1 million in merger related costs for the upcoming merger with 1^st Constitution Bancorp.   

Income Tax Expense

The effective tax rate for the third quarter of 2021 was 26.4% compared to 23.3% for the third quarter of 2020. The increased effective tax rate for the third quarter of 2021 was primarily a result of tax advantaged items declining as a percentage of pretax income due to the increase in pretax income.  

Financial Condition

At September 30, 2021, total assets were $8.17 billion, an increase of $508.2 million compared to December 31, 2020. For the nine months ended September 30, 2021, total loans decreased $140.4 million to $5.88 billion and investment securities increased $275.5 million to $1.25 billion. On the funding side, total deposits increased $475.1 million to $6.93 billion, while borrowings increased $11.2 million to $324.0 million. At September 30, 2021, total loans as a percent of total deposits was 84.8%.

Asset Quality

At September 30, 2021, non-performing assets decreased 71% to $12.3 million or 0.15% of total assets compared to $42.8 million or 0.56% of total assets at December 31, 2020. Non-accrual loans as a percent of total loans decreased to 0.21% at September 30, 2021 compared to 0.71% at December 31, 2020. The allowance for credit losses decreased to $58.0 million, 0.99% of total loans, at September 30, 2021, compared to $71.1 million, 1.18% of total loans, at December 31, 2020. In the third quarter of 2021, the Company had net recoveries of $269,000 or 0.02% of average loans, on an annualized basis, compared to net charge-offs of $597,000 or 0.04% for the same period in 2020. The provision for credit losses for the third quarter of 2021 was a benefit of $2.7 million compared to a provision of $8.0 million in the third quarter of 2020. In addition, the third quarter of 2021 included a sale of non-performing loans totaling $6.2 million and resulted in an improvement of asset quality ratios.

Capital

At September 30, 2021, stockholders' equity was $814.1 million compared to $763.8 million at December 31, 2020, a 7% increase. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 8.60% at September 30, 2021. The book value per common share and tangible book value per common share increased 8% and 10% to $16.09 and $12.95, respectively, compared to $14.93 and $11.77 at September 30, 2020 (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). At September 30, 2021, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio were 9.96% and 8.18%, respectively, compared to 9.97% and 8.05% at December 31, 2020. On October 22, 2021, the Company declared a quarterly cash dividend of $0.135 per share to be paid on November 15, 2021, to shareholders of record as of November 5, 2021.

Forward-Looking Statements

The information disclosed in this document includes various forward-looking statements 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. The Company 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.  Accordingly, you should not place undue reliance on forward-looking statements. In addition to the specific risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, 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 and regulation affecting the financial services industry, government intervention in the U.S. financial system, changes in federal and state tax laws, changes in levels of market interest rates, pricing pressures on loan and deposit products, credit risks of the Company’s lending and leasing activities, successful implementation, deployment and upgrades of new and existing technology, systems, services and products, customers’ acceptance of the Company’s products and services, competition, and failure to realize anticipated efficiencies and synergies from the merger of 1^st Constitution  Bancorp into Lakeland Bancorp and the merger of 1^st Constitution Bank into Lakeland Bank. Further, given its ongoing and dynamic nature, it is difficult to predict the continuing effects that the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, result in a material adverse change for the demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch disruptions, unavailability of personnel and increased cybersecurity risks as employees work remotely. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company 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 U.S. generally accepted accounting principles  ("GAAP"). This press release also contains certain supplemental non-GAAP information that the Company’s management uses in its analysis of the Company’s financial results.

The Company also provides measurements and ratios based on tangible equity and tangible assets. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and,therefore, the Company’s management believes that such information is useful to investors.

Specifically, 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, 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 gains and losses from the sale of investment securities, which can vary from period to period. The Company uses this ratio because it believes the ratio provides a relevant measure to compare the operating performance period to period.

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. See accompanying "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures.

About Lakeland

Lakeland Bank is the wholly-owned subsidiary of Lakeland Bancorp, Inc. (NASDAQ:LBAI), which had $8.17 billion in total assets at September 30, 2021. With an extensive branch network and commercial lending centers throughout New Jersey and Highland Mills, New York, the Bank offers business and retail banking products and services. Business services include commercial loans and lines of credit, commercial real estate loans, loans for healthcare services, asset-based lending, equipment financing, small business loans and lines and cash management services. Consumer services include online and mobile banking, home equity loans and lines, mortgage options and wealth management solutions. Lakeland is proud to be recognized as one of New Jersey's Best-In State Banks by Forbes and Statista, rated a 5-Star Bank by Bauer Financial and named one of New Jersey's 50 Fastest Growing Companies by NJBIZ. Visit LakelandBank.com or 973-697-2000 for more information.

(1) Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13.

Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)

(1) Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13.

(1)  Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13.
(2) See Supplemental Information - Non-GAAP Financial Measures

(1)  Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13.

(1) Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13
(2) Includes non-accrual purchased credit deteriorated loans from December 31, 2020 forward