Lakeland Bancorp Announces Third Quarter Results

OAK RIDGE, N.J., Oct. 26, 2023 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $22.2 million and earnings per diluted share ("EPS") of $0.34 for the three months ended September 30, 2023 compared to net income of $28.7 million and diluted EPS of $0.44 for the three months ended September 30, 2022. For the third quarter of 2023, annualized return on average assets was 0.81%, annualized return on average common equity was 7.76% and annualized return on average tangible common equity was 10.29%.

Thomas Shara, Lakeland Bancorp’s President and CEO, commented on the quarterly financial results, “We are pleased with our continued steady growth during the quarter as we surpassed $11 billion in assets. Loan growth continued to be solid with 2% growth for the quarter and 5% growth year-to-date. The loan growth is diverse across virtually all loan categories for both periods. Deposits grew 2% as well during the quarter and the shift from lower yielding transaction accounts to higher yielding deposit products appears to have slowed. Our asset quality remains pristine with nonperforming loans to total loans dropping to 16 basis points.”

Regarding the Company’s pending merger with Provident Financial Services, Inc., Mr. Shara added, “We continue to engage in productive discussions with our regulators and look forward to closing our transaction as soon as we receive the required regulatory approvals.”

Third Quarter 2023 Highlights

• Loan growth for the third quarter of $192.8 million, or 2.4%, compared to the linked second quarter of 2023, was attributable to expansion across all loan portfolios excluding construction loans.
• Third quarter 2023 results continue to be impacted by the increasing market rate environment. Net interest margin for the third quarter of 2023 decreased 15 basis points to 2.68% from 2.83% in the prior quarter and decreased 60 basis points from 3.28% in the third quarter of 2022. For more information, please see "Net Interest Margin and Net Interest Income" below.
• Nonperforming assets decreased 27% to $13.4 million, or 0.12% of total assets, for the third quarter of 2023 compared to $18.4 million in the third quarter of 2022 and $16.1 million in the linked quarter.
  

Net Interest Margin and Net Interest Income

Net interest margin for the three and nine months ended September 30, 2023 declined from previous periods as a result of an increase in the cost of interest-bearing liabilities partially offset by an increase in the yields on interest-earning assets driven by the increase in market interest rates. The increasing rate environment also has resulted in a change in customers' banking behaviors causing them to move funds from lower yielding interest-bearing transaction and savings accounts to higher yielding time deposits.

Net interest income for the third quarter of 2023 of $68.9 million decreased $11.4 million compared to the third quarter of 2022. Net interest income for the nine months ended September 30, 2023 of $216.4 million decreased $14.6 million from the nine months ended September 30, 2022.

Net interest margin for the third quarter of 2023 of 2.68% decreased 60 basis points compared to the third quarter of 2022 and decreased 15 basis points compared to the second quarter of 2023. Net interest margin for the nine months ended September 30, 2023 decreased 38 basis points to 2.85% from the same period last year.

The yield on interest-earning assets for the third quarter of 2023 increased 96 basis points to 4.86% as compared to 3.90% for the third quarter of 2022 and increased 15 basis points as compared to 4.71% for the second quarter of 2023. For the nine months ended September 30, 2023, the yield on average assets was 4.71% compared to 3.58% for the same period last year.

The cost of interest-bearing liabilities for the third quarter of 2023 was 2.96% compared to 0.94% for the third quarter of 2022 and 2.59% for the second quarter of 2023. For the nine months ended September 30, 2023, the cost of interest-bearing liabilities was 2.56% compared to 0.56% for the same period last year.

Noninterest Income

For the third quarter of 2023, noninterest income totaled $5.4 million, a decrease of $1.8 million as compared to the third quarter of 2022. Service charges on deposit accounts declined $812,000 from the third quarter of 2022 to the same period in 2023 resulting from a decline in interchange income due to the impact of the Durbin Amendment which became effective for Lakeland in the third quarter of 2023. One of the provisions of the Durbin Amendment is reduced interchange income for banks over $10 billion in assets. Commissions and fees decreased $481,000 driven primarily by decreases in loan fee income and investment services income. Partially offsetting these unfavorable variances was a decline in losses on equity securities which totaled $294,000 in the third quarter of 2023 compared to losses of $464,000 in the third quarter of 2022.

For the nine months ended September 30, 2023, noninterest income totaled $18.4 million, a decrease of $2.7 million as compared to the nine months ended September 30, 2022. Gains on sales of loans decreased $1.5 million compared to the nine months ended September 30, 2022 due primarily to lower sale volume. Commissions and fees decreased $1.4 million driven primarily by a decrease in loan fees and investment services income. Partially offsetting these unfavorable variances were losses on equity securities of $281,000 in the nine months ended September 30, 2023 compared to losses of $1.3 million in the nine months ended September 30, 2022. Service charges on deposit accounts decreased $516,000 from the nine months ended September 30, 2022 for the same reason discussed in the quarterly comparison.

Noninterest Expense

Noninterest expense for the third quarter of 2023 of $44.4 million decreased $3.4 million compared to the third quarter of 2022. Merger-related expenses declined from $3.5 million from the third quarter of 2022 to $198,000 for the third quarter of 2023 due to the timing of expenses incurred. Other operating expenses in the third quarter of 2023 decreased $1.2 million compared to the same period in 2022 due primarily to decreased marketing expense, consulting fees, appraisal expenses and other expenses. Compensation and employee benefits decreased $480,000 from the third quarter of 2022 to the third quarter of 2023 as a result of a decline in headcount related to the anticipated merger with Provident Financial Services, Inc. FDIC insurance expense increased $664,000 due to an increase in the 2023 assessment rate related to Lakeland's asset size exceeding $10 billion.

Noninterest expense for the nine months ended September 30, 2023 of $140.0 million decreased $2.9 million compared to the nine months ended September 30, 2022. The decrease in noninterest expense was primarily due to decreases in merger-related expenses which totaled $735,000 in the nine months ended September 30, 2023 compared to $8.1 million during the nine months ended September 30, 2022. Merger-related expenses during the current year are as a result of the anticipated merger with Provident Financial, while expenses in the nine months ended September 30, 2022 related both to the anticipated merger with Provident Financial, as well as the acquisition of 1st Constitution Bancorp. Other operating expenses decreased from $23.3 million for the nine months ended September 30, 2022 to $21.9 million for nine months ended September 30, 2023 for the same reasons discussed in the quarterly comparison. Offsetting these decreases in expense were increases in compensation and employee benefits which increased $2.5 million resulting primarily from increased commissions, bonus expense and normal merit increases. FDIC expense increased for nine months ended September 30, 2023 compared to the same period in the prior year for the same reason referred to above in the quarterly comparison.

Income Tax Expense

The effective tax rate for the third quarter of 2023 was 22.5% compared to 25.0% for the third quarter of 2022. The decreased effective tax rate for the third quarter of 2023 was primarily a result of tax advantaged items increasing as a percentage of pretax income. The effective tax rate for the nine months ended September 30, 2023 was 22.7% compared to 24.7% for the nine months ended September 30, 2022. The decreased effective tax rate for the first nine months of 2023 was primarily for the same reason discussed in the quarterly comparison.

Financial Condition

At September 30, 2023, total assets were $11.18 billion, an increase of $393.0 million, compared to December 31, 2022. As of September 30, 2023, total loans increased $428.0 million to $8.29 billion while investment securities decreased $176.4 million to $1.86 billion from December 31, 2022. On the funding side, total deposits increased $35.0 million from December 31, 2022, to $8.60 billion at September 30, 2023. During the first nine months of 2023, transaction and savings accounts decreased $639.7 million while time deposits increased $674.8 million. At September 30, 2023, total loans as a percent of total deposits was 96.4%. As of September 30, 2023, the Bank had on-balance sheet liquidity and funding capacity that represented 112% of uninsured and uncollateralized deposits. Borrowings increased $300.3 million from December 31, 2022 to September 30, 2023, to fund loan growth.

Asset Quality

At September 30, 2023, non-performing assets totaled $13.4 million or 0.12% of total assets compared to $18.4 million, or 0.17% of total assets at September 30, 2022. Non-accrual loans as a percent of total loans was 0.16% at September 30, 2023, compared to 0.24% at September 30, 2022. The decrease in non-accrual loans resulted primarily from payoffs of non-accrual loans and an improvement in asset quality. The allowance for credit losses on loans totaled $75.2 million, 0.91% of total loans, at September 30, 2023, compared to $68.9 million, 0.91% of total loans, at September 30, 2022. In the third quarter of 2023, the Company had net charge-offs of $133,000 or 0.01% of average loans compared to net recoveries of $32,000 or 0.00% of average loans on an annualized basis for the same period in 2022.

The provision for credit losses for the third quarter of 2023 was $1.3 million compared to $1.4 million in the third quarter of 2022. The provision for the third quarter of 2023 is comprised of a provision for credit losses on loans of $1.3 million and a benefit for off-balance-sheet exposures of $65,000.

Capital

At September 30, 2023, stockholders' equity was $1.14 billion compared to $1.11 billion at December 31, 2022, a 2% increase, resulting primarily from net income, partially offset by the payment of dividends. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 9.24% at September 30, 2023. The book value per common share increased 5% to $17.46 at September 30, 2023 compared to $16.70 at September 30, 2022. Tangible book value per common share was $13.17 and $12.36 at September 30, 2023 and 2022, respectively (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). At September 30, 2023, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio were 10.16% and 7.86%, respectively, compared to 10.29% and 7.83% at September 30, 2022. On October 24, 2023, the Company declared a quarterly cash dividend of $0.145 per share to be paid on November 16, 2023, to shareholders of record as of November 6, 2023.

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, 2022, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, the following factors, among others, could cause actual results to differ materially and adversely from such forward-looking statements: changes in levels of market interest rates, which may affect demand for our products and the value of our financial instruments; pricing pressures on loan and deposit products; changes in the financial services industry and the U.S. and global capital markets; inflation and other 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; credit risks of the Company’s lending and leasing activities; the effects of the recent turmoil in the banking industry (including the failures of three financial institutions); successful implementation, deployment and upgrades of new and existing technology, systems, services and products; customers’ acceptance of the Company’s products and services; competition; failure to realize anticipated efficiencies and synergies from the merger of 1st Constitution Bancorp into Lakeland Bancorp and the merger of 1st Constitution Bank into Lakeland Bank; and expenses related to our proposed merger with Provident Financial, unexpected delays related to the merger, inability to obtain regulatory approvals or satisfy other closing conditions required to complete the merger, and failure to realize anticipated efficiencies and synergies from the merger. 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. 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" and "Supplemental Information – Reconciliation of Net Income" 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 $11.18 billion in total assets at September 30, 2023. 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 New Jersey's Best-In-State Bank by Forbes and Statista for the fifth consecutive year, Best Banks to Work For by American Banker, 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 call 973-697-6140 for more information.