Lakeland Bancorp Announces Record Quarterly and Year-End 2022 Earnings

Lakeland Bancorp, Inc.

OAK RIDGE, N.J., Jan. 26, 2023 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $33.6 million and earnings per diluted share ("EPS") of $0.51 for the three months ended December 31, 2022, compared to net income of $22.2 million and diluted EPS of $0.43 for the fourth quarter of 2021. For the fourth quarter of 2022, annualized return on average assets was 1.26%, annualized return on average common equity was 12.19% and annualized return on average tangible common equity was 16.42%.

For the year ended December 31, 2022, the Company reported net income of $107.4 million, a 13% increase compared to $95.0 million for 2021, resulting in return on average assets of 1.04%, return on average common equity of 9.80%, and return on average tangible common equity of 13.17% for 2022. For 2022, the Company reported diluted EPS of $1.63 compared to diluted EPS of $1.85 for 2021.

Excluding $8.6 million of merger-related expenses, for our January 2022 acquisition of 1st Constitution Bancorp and our pending merger with Provident Financial Services, Inc. ("Provident Financial"), net income for the year ended December 31, 2022, was $114.3 million, resulting in $1.74 diluted EPS. Excluding merger-related expenses, return on average assets was 1.11%; return on average common equity was 10.43%; and return on average tangible common equity was 14.02%. See "Supplemental Information - Reconciliation of Net Income" for a reconciliation of these non-GAAP financial measures.

The current year results include a $77.8 million increase in net interest income, offset by increases in non-interest expenses and the provision for credit losses of $47.5 million and $19.4 million, respectively. Fourth quarter 2022 results were favorably impacted by a $22.6 million, or 38%, increase in net interest income and a $3.2 million reduction in the provision for credit losses offset by a $9.8 million increase in non-interest expenses compared to the fourth quarter of 2021.

Thomas Shara, Lakeland Bancorp’s President and CEO commented, "2022 was an exceptional year for Lakeland Bancorp despite the economic uncertainty and rapidly changing interest rate conditions. Through the acquisition of 1st Constitution Bancorp in January 2022, we expanded Lakeland's presence into the fastest growing markets in New Jersey and eclipsed $10 billion in total assets. During the year we experienced strong organic loan growth of $790 million while continuing to improve upon our already excellent asset quality. We finished 2022 with record quarterly and annual earnings and total asset growth of 32%. All of these achievements are directly related to the hard work of our dedicated Lakeland associates and we are extremely proud of their accomplishments."

Regarding the announced merger with Provident Financial, Mr. Shara continued, "We are awaiting shareholder and regulatory approvals and continue to work to combine the companies into a preeminent super-community bank with an unwavering commitment to associates, customers and our communities."

Full Year 2022 Highlights

• Total assets grew $2.59 billion or 32% to $10.78 billion at December 31, 2022, including $1.97 billion due to the acquisition of 1st Constitution.

• Loan growth for 2022 was very robust at $1.89 billion or 32% resulting from acquired 1st Constitution loans totaling $1.10 billion and organic net loan growth of $794.6 million.

• Net interest margin for 2022 increased 11 basis points to 3.24% compared to 2021 due primarily to increases in yields of interest-earning assets.

• Net loan charge-offs for the year totaled $7.5 million, or 0.10% of average loans, of which $7.6 million were charge-offs of purchased credit deteriorated loans acquired from 1st Constitution.

Net Interest Margin and Net Interest Income

Net interest margin for the fourth quarter of 2022 of 3.28% increased 30 basis points compared to the fourth quarter of 2021 and remained flat compared to the third quarter of 2022. The increase compared to the fourth quarter of 2021 was primarily a result of an increase in the yield on loans and securities as well as an increase in loan balances, offset by an increase in interest-bearing liability balances and rates paid on those balances. Net interest margin for the full year of 2022 of 3.24% increased 11 basis points compared to 3.13% for 2021 for the same reasons as the fourth quarter comparison.

The yield on interest-earning assets for the fourth quarter of 2022 was 4.31% compared to 3.22% for the fourth quarter of 2021 and 3.90% for the third quarter of 2022. Yields on all categories of interest-earning assets increased when compared to the fourth quarter 2021, due primarily to the increases in market interest rates during 2022. In addition, average balances of interest-earning loans and securities increased by $1.83 billion and $721.6 million, respectively, and average balances of federal funds sold decreased by $500.0 million when compared to the fourth quarter of 2021. The increase in yield on interest-earning assets when compared to the third quarter of 2022 was due primarily to an increase in the yield on loans and securities and increased loan balances. The yield on interest-earning assets for 2022 was 3.77% compared to 3.43% for 2021 resulting primarily from an increase in the yields on interest earning assets and increased balances of loans and securities.

The cost of interest-bearing liabilities increased in the fourth quarter of 2022 to 1.50% compared to 0.33% for the fourth quarter of 2021 and 0.94% for the third quarter of 2022. The cost of interest-bearing liabilities for 2022 was 0.80% compared to 0.42% during the same period in 2021. The increase in the cost of interest-bearing liabilities in 2022 compared to prior periods was largely driven by increases in market interest rates. Additionally, the Company's total average overnight borrowings increased during 2022 and the Company paid higher rates on those borrowings.

Net interest income increased to $81.6 million for the fourth quarter of 2022 compared to $59.0 million for the fourth quarter of 2021, due primarily to the growth of interest-earning assets at higher yields, partially offset by higher rates paid on interest-bearing liabilities. Net interest income for 2022 was $312.6 million, as compared to $234.8 million for 2021 due to the same reasons discussed in the quarterly comparison.

Noninterest Income

Noninterest income increased $1.2 million to $7.0 million for the fourth quarter of 2022 from $5.9 million for the fourth quarter of 2021. Commissions and fees in the fourth quarter of 2022 increased $266,000 compared to the same period in 2021 due primarily to increases in investment commission income and commercial loan fees. Gain on sales of loans in the fourth quarter of 2022 decreased $130,000 due primarily to the Company retaining more originated residential mortgage loans in the loan portfolio. The Company recorded $466,000 in swap income in the fourth quarter of 2022 compared to none during the same period in 2021 due primarily to changes in the yield curve which increased the demand for swap transactions during 2022.

For 2022, noninterest income increased $5.7 million to $28.1 million compared to 2021. Service charges on deposit accounts increased $1.1 million compared to 2021 due primarily to increases in debit card income. Commissions and fees in 2022 increased $2.2 million compared to 2021 due to increases in investment commission income and commercial loan fees. Income on bank owned life insurance increased $1.3 million due primarily to death benefits received during 2022. Gains on sales of loans and swap income increased $501,000 and $942,000, respectively, compared to 2021.

Noninterest Expense

Noninterest expense totaled $45.4 million for the fourth quarter of 2022, an increase of $9.8 million compared to the fourth quarter of 2021. Compensation and employee benefit expense in the fourth quarter of 2022 increased $6.7 million, or 33%, compared to the fourth quarter of 2021 due primarily to staff additions and normal merit increases, as well as $772,000 of additional expense to accelerate the vesting of executive equity awards. In the fourth quarter of 2022, premises and equipment expense increased $1.5 million due primarily to additional rent, property tax and maintenance expenses from 1st Constitution properties and data processing expense decreased $147,000 due primarily to credits received from service providers compared to the fourth quarter of 2021. In the fourth quarter of 2022, merger-related costs included $533,000 for the merger with Provident Financial, while the fourth quarter of 2021 included $710,000 in merger-related costs for the acquisition of 1^st Constitution Bancorp.

For 2022, noninterest expense increased $47.5 million to $188.2 million compared to $140.8 million for 2021 due primarily to compensation and employee benefit expense which increased $25.6 million, or 31%. The increase in compensation and employee benefits expense was due primarily to the same reasons discussed in the quarterly comparison. Premises and equipment expense in 2022 increased $6.1 million due to the same reason discussed in the quarterly comparison. Noninterest expense in 2022 included merger-related expenses of $8.6 million compared to $1.8 million in 2021. Additionally, noninterest expense in 2021 included $831,000 in long-term debt extinguishment costs compared to none in 2022.

Income Tax Expense

The effective tax rate for the fourth quarter of 2022 was 27.1% compared to 23.4% for the fourth quarter of 2021. The effective tax rate for both 2022 and 2021 was 25.4%. The effective tax rate for the fourth quarter of 2022 was primarily a result of the tax implications of executive accelerated vesting awards as well as tax-advantaged items decreasing as a percentage of pretax income.

Financial Condition

At December 31, 2022, total assets were $10.78 billion, an increase of $2.59 billion, or 32%, compared to December 31, 2021. For the year ended December 31, 2022, total loans increased $1.89 billion, including $1.10 billion from 1st Constitution, to $7.87 billion, while investment securities increased $416.1 million, including $342.3 million from 1st Constitution, to $2.04 billion. On the funding side, total deposits increased $1.60 billion, while borrowings increased $637.6 million to $948.1 million for the year ended December 31, 2022. At December 31, 2022, total loans as a percent of total deposits was 91.8%.

Asset Quality

At December 31, 2022, non-performing assets remained low at $17.4 million, 0.16% of total assets, compared to $17.0 million, 0.21% of total assets, at December 31, 2021. Non-accrual loans as a percent of total loans decreased to 0.22% at December 31, 2022 compared to 0.28% at December 31, 2021. At December 31, 2022, the allowance for credit losses was $70.3 million, 0.89% of total loans compared to $58.0 million, 0.97% of total loans, at December 31, 2021. The increase in the allowance from 2021 was primarily due to the initial allowance for credit losses on PCD loans acquired from 1st Constitution. In the fourth quarter of 2022, the Company had net charge-offs of $79,000, or 0.00% of average loans, annualized, compared to net recoveries of $181,000, or 0.01% of average loans, annualized, for the same period in 2021. Provision for credit losses on loans for the fourth quarter of 2022 was a provision of $1.5 million compared to a benefit of $87,000 in the fourth quarter of 2021. Provision for credit losses on investments for the fourth quarter of 2022 was a benefit of $3.9 million compared to a provision of $31,000 for the same period in 2021.

Capital

At December 31, 2022, stockholders' equity increased 34% to $1.1 billion as compared to $827.0 million at December 31, 2021. Lakeland Bancorp remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 9.16% at December 31, 2022. Book value per common share and tangible book value per common share were $17.09 and $12.76, respectively, compared to $16.34 and $13.21 at December 31, 2021 (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). On January 24, 2023, the Company declared a quarterly cash dividend of $0.145 per share to be paid on February 16, 2023, to shareholders of record as of February 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, 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 $10.78 billion in total assets at December 31, 2022. With an extensive branch network and commercial lending centers throughout New Jersey and Highland Mills, N.Y., 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 973-697-6140 for more information.

Thomas J. Shara	Thomas F. Splaine
President & CEO	EVP & CFO

Lakeland Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended December 31,								Years Ended December 31,
(dollars in thousands, except per share amounts)		2022				2021				2022				2021
Income Statement
Net interest income	$	81,640			$	59,029			$	312,615			$	234,835
(Provision) benefit for credit losses		2,760				(408	)			(8,514	)			10,896
Gain on investment securities transactions, net		—				—				—				9
Gain on sales of loans		269				399				2,765				2,264
Gain (loss) on equity securities		11				(94	)			(1,302	)			(285	)
Other noninterest income		6,743				5,559				26,636				20,373
Long-term debt extinguishment costs		—				—				—				(831	)
Merger-related expenses		(533	)			(710	)			(8,606	)			(1,782	)
Other noninterest expense		(44,837	)			(34,840	)			(179,602	)			(138,144	)
Pretax income		46,053				28,935				143,992				127,335
Provision for income taxes		(12,476	)			(6,765	)			(36,623	)			(32,294	)
Net income	$	33,577			$	22,170			$	107,369			$	95,041
Basic earnings per common share	$	0.51			$	0.43			$	1.64			$	1.85
Diluted earnings per common share	$	0.51			$	0.43			$	1.63			$	1.85
Dividends paid per common share	$	0.145			$	0.135			$	0.570			$	0.530
Weighted average shares - basic		64,854				50,647				64,624				50,624
Weighted average shares - diluted		65,222				50,959				64,918				50,870
Selected Operating Ratios
Annualized return on average assets		1.26	%			1.06	%			1.04	%			1.19	%
Annualized return on average common equity		12.19	%			10.70	%			9.80	%			11.95	%
Annualized return on average tangible common equity (1)		16.42	%			13.26	%			13.17	%			14.93	%
Annualized yield on interest-earning assets		4.31	%			3.22	%			3.77	%			3.43	%
Annualized cost of interest-bearing liabilities		1.50	%			0.33	%			0.80	%			0.42	%
Annualized net interest spread		2.81	%			2.89	%			2.97	%			3.01	%
Annualized net interest margin		3.28	%			2.98	%			3.24	%			3.13	%
Efficiency ratio (1)		49.67	%			53.19	%			51.79	%			53.23	%
Stockholders' equity to total assets										10.28	%			10.09	%
Book value per common share									$	17.09			$	16.34
Tangible book value per common share (1)									$	12.76			$	13.21
Tangible common equity to tangible assets (1)										7.88	%			8.31	%
Asset Quality Ratios									December 31, 2022				December 31, 2021
Ratio of allowance for credit losses on loans to total loans										0.89	%			0.97	%
Non-performing loans to total loans										0.22	%			0.28	%
Non-performing assets to total assets										0.16	%			0.21	%
Net charge-offs to average loans										0.10	%			0.04	%
(1) See Supplemental Information - Non-GAAP Financial Measures
Selected Balance Sheet Data at Period End										2022				2021
Loans									$	7,866,050			$	5,976,148
Allowance for credit losses on loans										70,264				58,047
Investment securities										2,037,386				1,621,329
Total assets										10,783,840				8,198,056
Total deposits										8,567,471				6,965,823
Short-term borrowings										728,797				106,453
Other borrowings										219,264				204,043
Stockholders' equity										1,108,587				827,014

Lakeland Bancorp, Inc.
Financial Highlights
(Unaudited)

	Three Months Ended December 31,								Year Ended December 31,
		2022				2021				2022				2021
Selected Average Balance Sheet Data
Loans	$	7,729,510			$	5,902,152			$	7,376,839			$	6,003,325
Investment securities		2,145,252				1,423,650				2,128,870				1,160,503
Interest-earning assets		9,923,173				7,874,181				9,694,234				7,516,662
Total assets		10,534,884				8,332,637				10,307,245				7,974,905
Noninterest-bearing demand deposits		2,240,197				1,775,119				2,267,867				1,671,889
Savings deposits		1,001,870				670,039				1,094,399				642,298
Interest-bearing transaction accounts		4,389,672				3,862,443				4,373,830				3,613,484
Time deposits		1,100,911				781,199				922,935				882,379
Total deposits		8,732,650				7,088,800				8,659,031				6,810,050
Short-term borrowings		311,875				112,533				197,557				95,111
Other borrowings		219,202				204,266				218,811				162,643
Total interest-bearing liabilities		7,023,530				5,630,480				6,807,532				5,395,915
Stockholders' equity		1,092,720				822,001				1,095,861				795,554

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

		Three Months Ended December 31,								Year Ended December 31,
(in thousands, except per share amounts)			2022				2021				2022				2021
Interest Income
Loans and fees		$	95,295			$	57,773			$	325,001			$	237,037
Federal funds sold and interest-bearing deposits with banks			449				190				1,295				440
Taxable investment securities and other			10,769				4,966				35,352				17,208
Tax exempt investment securities			1,666				802				5,895				2,633
Total Interest Income			108,179				63,731				367,543				257,318
Interest Expense
Deposits			21,767				3,444				44,253				16,793
Federal funds purchased and securities sold under agreements to repurchase			2,771				20				3,658				78
Other borrowings			2,001				1,238				7,017				5,612
Total Interest Expense			26,539				4,702				54,928				22,483
Net Interest Income			81,640				59,029				312,615				234,835
(Benefit) provision for credit losses			(2,760	)			408				8,514				(10,896	)
Net Interest Income after (Benefit) Provision for Credit Losses			84,400				58,621				304,101				245,731
Noninterest Income
Service charges on deposit accounts			2,840				2,579				10,985				9,856
Commissions and fees			2,243				1,977				9,116				6,939
Income on bank owned life insurance			862				754				3,980				2,676
Gain (loss) on equity securities			11				(94	)			(1,302	)			(285	)
Gain on sales of loans			269				399				2,765				2,264
Gain on investment securities transactions, net			—				—				—				9
Swap income			466				—				1,576				634
Other income			332				249				979				268
Total Noninterest Income			7,023				5,864				28,099				22,361
Noninterest Expense
Compensation and employee benefits			26,914				20,186				108,167				82,589
Premises and equipment			7,657				6,171				30,882				24,773
FDIC insurance			690				548				2,724				2,341
Data processing			1,258				1,405				6,238				5,454
Merger-related expenses			533