OAK RIDGE, N.J. - April 27, 2023 - Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $19.8 million and earnings per diluted share ("EPS") of $0.30 for the three months ended March 31, 2023 compared to net income of $15.9 million and diluted EPS of $0.25 for the three months ended March 31, 2022.
For the first quarter of 2023, annualized return on average assets was 0.75%, annualized return on average common equity was 7.17% and annualized return on average tangible common equity was 9.57%.
Thomas Shara, Lakeland Bancorp’s President and CEO, commented, “Lakeland’s operating performance for the quarter was solid in light of the current economic conditions and the liquidity concerns in the banking industry. Despite the continued increase in market interest rates during the quarter and concern over bank failures in March, our loan portfolio was up 1%, our deposit portfolio remained flat compared to year-end balances, our stellar asset quality improved further in the quarter with non- performing assets to total assets decreasing to 16 basis points and our capital and liquidity levels remain strong. Lakeland’s franchise value is based upon our focus on full customer relationships including long- term core deposits and lending solutions that solve our customer’s needs. Finally, we are incredibly proud of our associates and appreciate their efforts in serving our customers during a challenging time for the industry.”
Regarding the Company’s pending merger with Provident Financial Service, Inc., Mr. Shara added, “The preparation for the merger is well underway and teams from both banks have participated in numerous planning and integration meetings to ensure the smooth transition to a combined company once the regulatory approvals are received.” The shareholders of both companies approved the merger at special shareholder meetings in February.
First Quarter 2023 Highlights
- First quarter 2023 results were negatively impacted by a provision for credit losses on investment securities of $6.5 million resulting exclusively from a $6.6 million provision and subsequent charge-off of an investment in subordinated debt of Signature Bank, which failed in March. First quarter 2022 results were negatively impacted by a provision for credit losses of $6.3 million, of which $4.6 million was related to the acquired 1st Constitution Bank non purchased credit deteriorated loans and $1.2 million related to investment securities.
- In response to the volatility in the banking industry during first quarter 2023 caused by high-profile bank failures, the Company instituted measures to maintain its liquidity including proactively reaching out to clients and maximizing our funding sources. These measures included increasing our usage of our insured cash sweep ("ICS") product, as a method to increase the level of customer's deposit insurance. The Company's ICS deposits increased from $349.1 million on December 31, 2022 to $417.9 million at March 31, Currently, the Company's estimated uninsured and uncollateralized deposits are $2.1 billion and we have borrowing capacity of $2.0 billion.
- Net interest margin for the first quarter of 2023 increased to 3.07% compared to 3.02% in the first quarter of 2022 and decreased from 3.28% in the linked quarter.
- Nonperforming assets decreased 14% to $16.9 million for the first quarter of 2023 compared to $19.7 million in the first quarter of 2022 and $17.4 million in the linked quarter.
- Loan growth for the first quarter of $86.5 million, or 1.1%, compared to the linked fourth quarter of 2022 was attributable to expansion primarily in the residential mortgage portfolio.
Net Interest Margin and Net Interest Income
Net interest margin for the first quarter of 2023 of 3.07% increased five basis points compared to the first quarter of 2022 and decreased 21 basis points compared to the fourth quarter of 2022. The increase in net interest margin compared to the first quarter of 2022 was due primarily to an increase in yields on loans and securities partially offset by an increase in cost of interest-bearing liabilities. The decrease in net interest margin compared to the fourth quarter of 2022 was due primarily to an increase in rates on interest-bearing liabilities as well as an increase in higher costing average time deposits and short- term borrowings during the first quarter of 2023.
The yield on interest-earning assets for the first quarter of 2023 was 4.56% as compared to 3.25% for the first quarter of 2022 and 4.31% for the fourth 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 cost of interest-bearing liabilities for the first quarter of 2023 was 2.11% compared to 0.34% for the first quarter of 2022 and 1.50% for the fourth quarter of 2022. The increase in the cost of interest- bearing liabilities compared to prior periods was largely driven by increases in market interest rates as well as an increase in balances of higher costing average time deposits and borrowings.
Net interest income for the first quarter of 2023 of $75.9 million increased $5.5 million compared to the first quarter of 2022. The increase in net interest income compared to the first quarter of 2022 was due primarily to an increase in the yield on loans and investment securities as well as an increase in average loan balances, partially offset by increased interest paid on interest-bearing liabilities related to increases in market interest rates.
Noninterest Income
For the first quarter of 2023, noninterest income totaled $6.3 million, a decrease of $515,000 as compared to the first quarter of 2022. Gains on sales of loans decreased $996,000 compared to the first quarter of 2022 due primarily to lower sale volume. Commissions and fees decreased $181,000 driven primarily by a decrease in loan fees. Partially offsetting these unfavorable variances was gains on equity securities which totaled $148,000 in the first quarter of 2023 compared to losses of $485,000 in the first quarter of 2022. Additionally, service charges on deposit accounts increased $163,000.
Noninterest Expense
Noninterest expense for the first quarter of 2023 of $48.6 million decreased $1.4 million compared to the first quarter of 2022. The decrease in noninterest expense was primarily due to merger-related expenses which totaled $295,000 in the first quarter of 2023 compared to $4.6 million during the first quarter of 2022. Merger-related expense during the current quarter was a result of the anticipated merger with Provident Financial, while merger-related expense for the first quarter of 2022 was due to the acquisition of 1st Constitution Bancorp. Compensation and employee benefits increased $2.3 million resulting primarily from increased commissions, bonus expense, share based compensation expense and normal merit increases. FDIC insurance expense increased $291,000 due to an estimated increase in 2023 assessment rates related to Lakeland's asset size exceeding $10 billion. Other operating expenses in the first quarter of 2023 increased $131,000 compared to the same period in 2022 due primarily to increased marketing expense.
Income Tax Expense
The effective tax rate for the first quarter of 2023 was 22.9% compared to 23.9% for the first quarter of 2022. The decreased effective tax rate for the first quarter of 2023 was primarily a result of tax advantaged items increasing as a percentage of pretax income.
Financial Condition
At March 31, 2023, total assets were $10.84 billion, an increase of $53.4 million, compared to December 31, 2022. As of March 31, 2023, total loans increased $86.5 million, to $7.95 billion while investment securities decreased $42.5 million, to $1.99 billion from December 31, 2022. On the funding side, total deposits decreased $30.5 million from December 31, 2022, to $8.54 billion at March 31, 2023, including an increase in brokered deposits of $141.9 million. At March 31, 2023, total loans as a percent of total deposits was 93.15%. Uninsured and uncollateralized deposits as a percent of total deposits were 25.26% at March 31, 2023 compared to 26.81% at December 31, 2022.
Asset Quality
At March 31, 2023, non-performing assets totaled $16.9 million or 0.16% of total assets compared to $19.7 million, or 0.19% of total assets at March 31, 2022. Non-accrual loans as a percent of total loans was 0.21% at March 31, 2023, compared to 0.28% at March 31, 2022. The decrease in non-accrual loans resulted primarily from an improvement in asset quality. The allowance for credit losses on loans totaled $71.4 million, 0.90% of total loans, at March 31, 2023, compared to $67.1 million, 0.94% of total loans, at March 31, 2022. In the first quarter of 2023, the Company had net charge offs of $74,000 compared to $7.6 million or 0.44% of average loans on an annualized basis for the same period in 2022.
The provision for credit losses for the first quarter of 2023 was $7.9 million compared to $6.3 million in the first quarter of 2022. The provision in the 2023 period is comprised of a provision for credit losses on loans of $1.2 million, a provision for credit losses on investment securities of $6.5 million and a provision for off-balance-sheet exposures of $140,000. The provision for credit losses on investment securities was exclusively related to the $6.6 million provision and subsequent charge off of an investment in subordinated debt of Signature Bank.
Capital
At March 31, 2023, stockholders' equity was $1.13 billion compared to $1.11 billion at December 31, 2022, a 2% increase, resulting primarily from net income and a decrease in other comprehensive loss, partially offset by the payment of dividends. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 9.13% at March 31, 2023. The book value per common share increased 3% to $17.33 at March 31, 2023 compared to $16.82 at March 31, 2022. Tangible book value per common share was $13.01 and $12.45 at March 31, 2023 and 2022, respectively (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). At March 31, 2023, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio were 10.40% and 8.02%, respectively, compared to 10.60% and 8.07% at March 31, 2022. On April 25, 2023, the Company declared a quarterly cash dividend of $0.145 per share to be paid on May 17, 2023, to shareholders of record as of May 8, 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 two 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 $10.84 billion in total assets at March 31, 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 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
