OAK RIDGE, N.J., Oct. 27, 2022 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $28.7 million and earnings per diluted share ("EPS") of $0.44 for the three months ended September 30, 2022 compared to net income of $22.3 million and diluted EPS of $0.43 for the three months ended September 30, 2021. For the third quarter of 2022, annualized return on average assets was 1.10%, annualized return on average common equity was 10.33% and annualized return on average tangible common equity was 13.87%.

Excluding merger-related expenses of $2.9 million after tax, third quarter net income was $31.6 million or $0.48 diluted EPS, resulting in an annualized return on average assets of 1.21%, annualized return on average common equity of 11.36%, and annualized return on average tangible common equity of 15.25% (see "Supplemental Information – Reconciliation of Net Income" for a reconciliation of these non-GAAP financial measures).

For the nine months ended September 30, 2022, the Company reported net income of $73.8 million and diluted EPS of $1.13 compared to net income of $72.9 million and diluted EPS of $1.42 for the first nine months of 2021. Annualized return on average assets was 0.96%, annualized return on average common equity was 8.99% and annualized return on average tangible common equity was 12.08% for the first nine months of 2022.

Excluding merger-related expenses of $6.4 million after tax, which relate to our January 2022 acquisition of 1st Constitution Bancorp and our recently announced merger with Provident Financial Services, Inc. ("Provident Financial"), net income for the nine months ended September 30, 2022 was $80.2 million, resulting in $1.23 diluted EPS, resulting in an annualized return on average assets of 1.05%, annualized return on average common equity of 9.78%, and annualized return on average tangible common equity of 13.13% (see "Supplemental Information – Reconciliation of Net Income" for a reconciliation of these non-GAAP financial measures).

Thomas Shara, Lakeland Bancorp’s President and CEO, commented, “We are very pleased with the results for the quarter which includes continued strong growth in loans and deposits while our asset quality remains stellar under the current economic conditions.”

Regarding Lakeland Bancorp's recently announced merger with Provident Financial Services, Mr. Shara continued, "We remain excited regarding our opportunity to partner with Provident. The combination of two high-performing, like-minded New Jersey institutions will create a preeminent super-community bank that has the same shared vision, values, and an unwavering commitment to employees, customers and our communities."

Third Quarter 2022 Highlights

• Loan growth for the third quarter of $160.3 million, or 2.2% compared to the linked second quarter was attributable to continued expansion in both the commercial and consumer portfolios.

• Net interest margin for the third quarter of 2022 increased to 3.28% compared to 3.10% in the third quarter of 2021.

• Nonperforming assets decreased 17% to $18.4 million for the third quarter of 2022 compared to $22.2 million for the linked second quarter of 2022.

• Efficiency ratio decreased to 49.8% in the third quarter of 2022 compared to 54.0% in the third quarter of 2021.

Net Interest Margin and Net Interest Income

Net interest margin for the third quarter of 2022 of 3.28% increased 18 basis points compared to the third quarter of 2021 and decreased 10 basis points compared to the second quarter of 2022. The increase in net interest margin compared to the third quarter of 2021 was due primarily to an increase in yields on loans, increased loan prepayment fees and higher average investment securities balances. The decrease in net interest margin compared to the second quarter of 2022 was due primarily to a large non-accrual interest recovery in the second quarter of 2022 and an increase in rates on interest-bearing liabilities during the third quarter of 2022. Net interest margin for the first nine months of 2022 was 3.23% compared to 3.19% for the same period of 2021. The variance in net interest margin compared to the first nine months of 2021 is due primarily to an increase in the yield on interest earning assets.

The yield on interest-earning assets for the third quarter of 2022 was 3.90% as compared to 3.40% for the third quarter of 2021 and 3.61% for the second quarter of 2022. The increase in the yield on interest-earning assets compared to prior periods was due primarily to an increase in the yield on loans and investment securities driven primarily by increases in market interest rates. The yield on interest-earning assets for the first nine months of 2022 was 3.58% as compared to 3.51% during the same period in 2021 and was due primarily to an increase in the yield on loans.

The cost of interest-bearing liabilities for the third quarter of 2022 was 0.94% compared to 0.41% for the third quarter of 2021 and 0.40% for the second quarter of 2022. The increase in the cost of interest-bearing liabilities compared to the third quarter of 2021 and the second quarter of 2022 was largely driven by increases in the rates paid on interest-bearing transaction accounts and time deposits. The cost of interest-bearing liabilities for the first nine months of 2022 was 0.56% compared to 0.45% for the same period in 2021 and was due primarily to an increase in rates on interest-bearing deposits partially offset by a decrease in rates on long-term borrowings.

Net interest income for the third quarter of 2022 of $80.3 million increased $20.9 million compared to the third quarter of 2021. Net interest income for the first nine months of 2022 was $231.0 million as compared to $175.8 million for the first nine months of 2021. The increase in net interest income compared to prior periods was due primarily to an increase in the average balances of loans and investment securities due to the 1st Constitution acquisition in January of 2022 and organic growth, partially offset by increased interest paid on interest-bearing liabilities related to increases in market interest rates.

Noninterest Income

For the third quarter of 2022, noninterest income totaled $7.2 million, an increase of $1.8 million as compared to the third quarter of 2021. Income on bank owned life insurance increased $823,000 compared to the third quarter of 2021 due primarily to death benefits received during the third quarter of 2022. Swap income for the third quarter of 2022 was $711,000 compared to none during the same period of 2021 due primarily to changes in the yield curve which increased demand for swap transactions. Commissions and fees increased $603,000 driven primarily by an increase in wire transfer charges and financial services income. Losses on equity securities totaled $464,000 in the third quarter of 2022 compared to $58,000 in the third quarter of 2021. Gains on sales of loans decreased $195,000 compared to the third quarter of 2021 due primarily to lower sale volume.

For the first nine months of 2022, noninterest income was $21.1 million, an increase of $4.6 million as compared to the first nine months of 2021. Commissions and fees increased $1.9 million due primarily to higher loan fees and increases in financial services income. Income on bank owned life insurance and service charges on deposits increased $1.2 million and $868,000, respectively, compared to the first nine months of 2021 due primarily to the same reasons mentioned in the quarterly analysis. Partially offsetting these favorable variances was losses on equity securities, which totaled $1.3 million in the first nine months of 2022 compared to losses of $191,000 in the first nine months of 2021.

Noninterest Expense

Noninterest expense for the third quarter of 2022 of $47.8 million was an increase of $10.6 million compared to the third quarter of 2021. The increase in noninterest expense was primarily due to compensation and employee benefits which increased $5.2 million resulting primarily from the addition of 1st Constitution employees, increased restricted stock plan expense and normal merit increases. Merger-related expense increased $2.4 million compared to the third quarter of 2021 due to the anticipated merger with Provident Financial. Premises and equipment expense increased $1.4 million compared to the third quarter of 2021 due primarily to branches added as the result of the 1st Constitution acquisition. Other operating expenses in the third quarter of 2022 increased $1.5 million compared to the same period in 2021 due primarily to increased marketing expense, core deposit intangible amortization, appraisal fees, consulting fees and insurance expense.

Noninterest expense for the first nine months of 2022 of $142.8 million was an increase of $37.6 million compared to the first nine months of 2021. Compensation and employee benefit expense and premises and equipment expense increased $18.9 million and $4.6 million, respectively, compared to the first nine months of 2021 due to the same reasons discussed in the quarterly comparison. Other operating expenses increased $6.0 million in the first nine months of 2022 compared to the same period in 2021 due primarily to an increase in core deposit intangible amortization, data processing, consulting and marketing fees. Merger-related expenses were $8.1 million due to the acquisition of 1st Constitution Bancorp and the anticipated merger with Provident Financial.

Income Tax Expense

The effective tax rate for the third quarter of 2022 was 25.0% compared to 26.4% for the third quarter of 2021. The decreased effective tax rate for the third quarter of 2022 was primarily a result of tax advantaged items increasing as a percentage of pretax income.

Financial Condition

At September 30, 2022, total assets were $10.52 billion, an increase of $2.32 billion, compared to December 31, 2021. As of September 30, 2022, total loans increased $1.59 billion, including $1.10 billion from 1st Constitution, to $7.57 billion while investment securities increased $425.9 million, including $342.3 million from 1st Constitution, to $2.05 billion from December 31, 2021. On the funding side, total deposits increased $1.71 billion from December 31, 2021, including $1.65 billion from 1st Constitution, to $8.68 billion at September 30, 2022. At September 30, 2022, total loans as a percent of total deposits was 87.2%.

Asset Quality

At September 30, 2022, non-performing assets totaled $18.4 million or 0.17% of total assets compared to $12.2 million, or 0.15% of total assets at September 30, 2021. Non-accrual loans as a percent of total loans was 0.24% at September 30, 2022, compared to 0.21% at September 30, 2021. The allowance for credit losses on loans totaled $68.9 million, 0.91% of total loans, at September 30, 2022, compared to $58.0 million, 0.99% of total loans, at September 30, 2021. At September 30, 2022, the allowance for credit losses included a day-one purchase accounting adjustment of $12.1 million for purchased credit impaired loans. In the third quarter of 2022, the Company had net recoveries of $32,000 compared to net recoveries of $269,000 or 0.02% of average loans on an annualized basis for the same period in 2021.

The provision for credit losses for the third quarter of 2022 was $1.4 million compared to a benefit of $2.7 million in the third quarter of 2021. The provision in the 2022 period is comprised of a provision for credit losses on loans of $11,000, a provision for credit losses on securities of $1.3 million and a provision for off-balance-sheet exposures of $22,000. For the nine months ended September 30, 2022, the provision for credit losses was $11.3 million, while the Company recorded a benefit for credit losses of $11.3 million for the same period in 2021. For the nine months ended September 30, 2022, the provision was comprised of a provision for credit losses on loans of $6.2 million, a provision for credit losses on securities of $4.1 million and a provision for off-balance-sheet exposures of $997,000.

Capital

At September 30, 2022, stockholders' equity was $1.08 billion compared to $827.0 million at December 31, 2021, a 31% increase, resulting primarily from the issuance of stock in connection with the 1st Constitution acquisition. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 9.10% at September 30, 2022. The book value per common share increased 4% to $16.70 at September 30, 2022 compared to $16.09 at September 30, 2021. Tangible book value per common share was $12.36 and $12.95 at September 30, 2022 and 2021, respectively (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). At September 30, 2022, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio were 10.29% and 7.83%, respectively, compared to 9.96% and 8.18% at September 30, 2021. On October 25, 2022, the Company declared a quarterly cash dividend of $0.145 per share to be paid on November 17, 2022, to shareholders of record as of November 7, 2022.

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, 2021, 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 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; 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; 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; 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 $10.52 billion in total assets at September 30, 2022. 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 fourth 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 973-697-6140 for more information.

Thomas J. Shara                                        Thomas F. Splaine

President & CEO                                        EVP & CFO

Lakeland Bancorp, Inc.
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