OAK RIDGE, N.J. - July 27, 2023 - Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $22.6 million and earnings per diluted share ("EPS") of $0.34 for the three months ended June 30, 2023 compared to net income of $29.1 million and diluted EPS of $0.44 for the three months ended June 30, 2022.
For the second quarter of 2023, annualized return on average assets was 0.84%, annualized return on average common equity was 8.03% and annualized return on average tangible common equity was 10.67%.
Thomas Shara, Lakeland Bancorp’s President and CEO, commented on the quarterly financial results, “We are quite pleased with our continued steady loan growth of 3% year-to-date. Overall, deposit balances remain fairly stable while customers shift funds toward time deposits and higher yielding accounts. Asset quality remains stellar and continues to improve with lower nonperforming assets year- over-year which reduces our concern over any significant near term credit degradation in our loan portfolio. Management elected to maintain higher on-balance sheet liquidity balances in response to the volatility in the banking industry this quarter which had a slight negative impact on the net interest margin.”
Regarding the Company’s pending merger with Provident Financial Services, Inc., Mr. Shara added, “We continue our interaction with the regulators and have been providing additional information in order to further support our applications for approval of the merger. The companies have made significant progress in various integration initiatives through outstanding teamwork from both banks. We look forward to receiving regulatory approval and combining our two great franchises into the best bank in New Jersey.”
Second Quarter 2023 Highlights
- Loan growth for the second quarter of $148.7 million, or 9%, compared to the linked first quarter of 2023 was attributable to expansion primarily in the commercial loan portfolios and in the residential mortgage portfolio.
- Second quarter 2023 results continue to be impacted by the increasing market rate environment. Net interest margin for the second quarter of 2023 decreased 24 basis points to 2.83% from 3.07% in the prior quarter and decreased 55 basis points from 3.38% in the second quarter of 2022. For more information, please see "Net Interest Margin and Net Interest Income" below.
- Nonperforming assets decreased 27% to $16.1 million for the second quarter of 2023 compared to $22.2 million in the second quarter of 2022 and $16.9 million in the linked quarter.
- In response to the volatility in the banking industry beginning in the first quarter of 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 customers' deposit insurance. As of June 30 2023, the Bank had on-balance sheet liquidity and funding capacity that represented 127% of adjusted uninsured deposits.
Net Interest Margin and Net Interest Income
Net interest margin for the second quarter and the six months ended June 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 caused 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 second quarter of 2023 of $71.5 million decreased $8.8 million compared to the second quarter of 2022. Net interest income for the six months ended June 30, 2023 of $147.5 million decreased $3.2 million from the six months ended June 30, 2022.
Net interest margin for the second quarter of 2023 of 2.83% decreased 55 basis points compared to the second quarter of 2022 and decreased 24 basis points compared to the first quarter of 2023. Net interest margin for the six months ended June 30, 2023 decreased 25 basis points to 2.95% from the same period last year.
The yield on interest-earning assets for the second quarter of 2023 increased 110 basis points to 4.71% as compared to 3.61% for the second quarter of 2022 and increased 15 basis points as compared to 4.56% for the first quarter of 2023. For the six months ended June 30, 2023, the yield on average assets was 4.63% compared to 3.42% for the same period last year.
The cost of interest-bearing liabilities for the second quarter of 2023 was 2.59% compared to 0.40% for the second quarter of 2022 and 2.11% for the first quarter of 2023. For the six months ended June 30, 2023, the cost of interest-bearing liabilities was 2.35% compared to 0.37% for the same period last year.
Noninterest Income
For the second quarter of 2023, noninterest income totaled $6.7 million, a decrease of $394,000 as compared to the second quarter of 2022. Gains on sales of loans decreased $486,000 compared to the second quarter of 2022 due primarily to lower sale volume resulting from the higher interest rate environment. Commissions and fees decreased $692,000 driven primarily by a decrease in investment services income. Partially offsetting these unfavorable variances was a decline in losses on equity securities which totaled $135,000 in the second quarter of 2023 compared to losses of $364,000 in the second quarter of 2022. Additionally, service charges on deposit accounts increased $133,000 from the second quarter of 2022.
For the six months ended June 30, 2023, noninterest income totaled $12.9 million, a decrease of $909,000 as compared to the six months ended June 30, 2022. Gains on sales of loans decreased $1.5 million compared to the six months ended June 30, 2022 due primarily to lower sale volume. Commissions and fees decreased $873,000 driven primarily by a decrease in loan fees and investment services income. Partially offsetting these unfavorable variances were gains on equity securities of $13,000 in the six months ended June 30, 2023 compared to losses of $849,000 in the six months ended June 30, 2022. Service charges on deposit accounts increased $296,000 from the six months ended June 30, 2022.
Noninterest Expense
Noninterest expense for the second quarter of 2023 of $47.0 million increased $1.9 million compared to the second quarter of 2022. FDIC insurance expense increased $955,000 due to an increase in the 2023 assessment rate related to Lakeland's asset size exceeding $10 billion. Other operating expenses in the second quarter of 2023 decreased $351,000 compared to the same period in 2022 due primarily to decreased marketing expense. Noninterest expense for the six months ended June 30, 2023 of $95.6 million increased $586,000 compared to the six months ended June 30, 2022. The increase in noninterest expense was primarily due to increases in compensation and employee benefits which increased $3.0 million resulting primarily from increased commissions, bonus expense, share based compensation expense and normal merit increases. FDIC expense increased from the first half of 2022 to the first half of 2023 for the same reasons referred to above in the quarterly comparison. Offsetting these increases was a decrease in merger-related expenses which totaled $537,000 in the six months ended June 30, 2023 compared to $4.6 million during the six months ended June 20, 2022. Merger-related expense during the current year was a result of the anticipated merger with Provident Financial, while merger-related expense for the first half of 2022 was due to the acquisition of 1st Constitution Bancorp.
Income Tax Expense
The effective tax rate for the second quarter of 2023 was 22.7% compared to 24.7% for the second quarter of 2022. The decreased effective tax rate for the second quarter of 2023 was primarily a result of tax advantaged items increasing as a percentage of pretax income. The effective tax rate for the six months ended June 30, 2023 was 22.8% compared to 24.4% for the six months ended June 30, 2022. The decreased effective tax rate for the first half of 2023 was primarily for the same reasons discussed in the quarterly comparison.
Financial Condition
At June 30, 2023, total assets were $10.90 billion, an increase of $114.1 million, compared to December 31, 2022. As of June 30, 2023, total loans increased $235.2 million to $8.10 billion while investment securities decreased $98.8 million to $1.94 billion from December 31, 2022. On the funding side, total deposits decreased $122.8 million from December 31, 2022, to $8.44 billion at June 30, 2023, During the first six months of 2023, transaction and savings accounts decreased $717.9 million while time deposits increased $595.1 million, including an increase in brokered deposits of $116.9 million. At June 30, 2023, total loans as a percent of total deposits was 95.93%. As of June 30 2023, the Bank had on- balance sheet liquidity and funding capacity that represented 127% of adjusted uninsured deposits. Federal funds and securities sold under agreements to repurchase increased $209.9 million from December 31, 2022 to June 30, 2023, to fund deposit runoff and to fund loan growth.
Asset Quality
At June 30, 2023, non-performing assets totaled $16.1 million or 0.15% of total assets compared to $22.2 million, or 0.21% of total assets at June 30, 2022. Non-accrual loans as a percent of total loans was 0.20% at June 30, 2023, compared to 0.30% at June 30, 2022. The decrease in non-accrual loans resulted primarily from an improvement in asset quality. The allowance for credit losses on loans totaled $74.0 million, 0.91% of total loans, at June 30, 2023, compared to $68.8 million, 0.93% of total loans, at June 30, 2022. In the second quarter of 2023, the Company had net recoveries of $140,000 or 0% of average loans compared to $141,000 or 0.01% of average loans on an annualized basis for the same period in 2022.
The provision for credit losses for the second quarter of 2023 was $1.9 million compared to $3.6 million in the second quarter of 2022. The provision in the 2023 period is comprised of a provision for credit losses on loans of $2.4 million, a benefit for credit losses on investment securities of $171,000 and a benefit for off-balance-sheet exposures of $304,000.
Capital
At June 30, 2023, stockholders' equity was $1.13 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 9.17% at June 30, 2023. The book value per common share increased 3% to $17.40 at June 30, 2023 compared to $16.82 at June 30, 2022. Tangible book value per common share was $13.10 and $12.47 at June 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 June 30, 2023, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio were 10.38% and 8.02%, respectively, compared to 10.51% and 8.01% at June 30, 2022. On July 25, 2023, the Company declared a quarterly cash dividend of $0.145 per share to be paid on August 16, 2023, to shareholders of record as of August 7, 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 $10.90 billion in total assets at June 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.
Thomas J. Shara Thomas F. Splaine
President & CEO EVP & CFO
