Lakeland Bancorp Announces Second Quarter Results

OAK RIDGE, N.J., July 23, 2020 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $11.9 million and earnings per diluted share (“EPS”) of $0.23 for the three months ended June 30, 2020 compared to net income of $17.5 million and diluted EPS of $0.34 for the second quarter of 2019. For the second quarter of 2020, annualized return on average assets was 0.67%, annualized return on average common equity was 6.42% and annualized return on average tangible common equity was 8.19%. 

For the six months ended June 30, 2020, the Company reported net income of $24.2 million and earnings per diluted share (“EPS”) of $0.47 compared to net income of $33.1 million and diluted EPS of $0.65 for the first six months of 2019. For the first six months of 2020, annualized return on average assets was 0.71%, annualized return on average common equity was 6.59% and annualized return on average tangible common equity was 8.42%.

The second quarter and year-to-date results were adversely impacted by a $9.0 million and $18.2 million provision for loan losses, respectively, compared to no provision and a $508,000 provision for the same periods last year. The increased provision for the first half of 2020 was primarily due to the impact of COVID-19 on certain qualitative factors and loans on payment deferment resulting in approximately $15.0 million of the provision. The remaining $3.2 million of the provision is attributable to loan growth, a change in the loan portfolio composition and a change in loss rates. As of June 30, 2020, the ratio of the allowance for loan loss to total loans was 1.00% compared to 0.78% as of December 31, 2019. The allowance for loan losses to total loans less Paycheck Protection Program (“PPP”) loans of $326.0 million, was 1.06% as of June 30, 2020.

Thomas Shara, Lakeland Bancorp’s President and CEO commented, “While the pandemic has continued to impact our markets, Lakeland remains focused on expanding our customer relationships and carefully growing our franchise. Lakeland’s commitment to our communities is evident in our active participation in the PPP loan program, the recently launched Main Street Lending Program and numerous other charitable initiatives during this crisis. As conditions improved, the number of loan deferral requests has decreased dramatically and we are encouraged by the large volume of loans on payment deferment indicating a return to full or partial paying status. Although the pandemic has lessened in our markets and loan charge-offs continue to be negligible, we remain prudent with our elevated loan loss provision of $9.0 million which is consistent with last quarter.”

Mr. Shara continued, “Despite these conditions, Lakeland’s Q2 balance sheet growth has been robust as loans increased $111 million or 8% annualized, excluding originating $326.0 million in PPP loans, while deposits surged by $670 million. The additional liquidity combined with lower market interest rates and the impact of low yielding PPP loans reduced the net interest margin to 3.06% for the quarter. We will look to leverage this liquidity during the second half of the year as the economic forecast becomes clearer.”

COVID-19

As part of Lakeland’s response to COVID-19, we initiated remote working plans and encouraged the use of our mobile and online banking alternatives. To assist COVID-19 impacted borrowers, we are offering temporary payment deferrals on commercial, mortgage and consumer loans. As of June 30, 2020, we have deferred approximately $927.0 million of commercial loans, $40.0 million of equipment finance and $53.0 million of residential mortgage and consumer loans. We are also participating in the Small Business Administration Paycheck Protection Program (“PPP”) to help strengthen local businesses and preserve jobs in our communities and as of June 30, 2020 have funded 2,066 loans totaling $326.0 million with $11.1 million in related fees, as well as $1.1 million in deferred costs. Additionally, to further support our customers, the Company is participating in the Main Street Lending Program established by the Federal Reserve to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic.

Net Interest Margin and Net Interest Income

Net interest margin for the second quarter of 2020 of 3.06% decreased 33 and 22 basis points, respectively, from the second quarter of 2019 and the first quarter of 2020. Net interest margin for the first six months of 2020 of 3.16% compared to 3.41% for the same period in 2019. The decrease in net interest margin was due primarily to a decrease in the yield on interest-earning assets partially offset by a decrease in the cost of interest bearing liabilities.

The yield on interest-earning assets for the second quarter of 2020 was 3.69% compared to 4.46% for the second quarter of 2019 and 4.17% for the first quarter of 2020. The yield on interest-earning assets for the first six months of 2020 was 3.92% compared to 4.45% during the same period in 2019. The current quarter and year-to-date decrease in yield on interest-earning assets, when compared to the prior periods, was due primarily to a reduction in the yield on loans due to decreases in the prime rate and LIBOR during 2019 and 2020, an increase in lower yielding federal funds sold, as well as the origination of PPP loans during the second quarter of 2020, which earn an effective yield of 2.50% including amortization of fees and costs.

The cost of interest-bearing liabilities for the second quarter of 2020 was 0.86% compared to 1.42% for the second quarter of 2019 and 1.18% for the first quarter of 2020. The cost of interest-bearing liabilities for the first six months of 2020 was 1.02% compared to 1.38% during the same period in 2019. The cost of interest-bearing transaction accounts, time deposits and borrowings have decreased since 2019 largely driven by reductions in the federal funds rate.

Net interest income for the second quarter of 2020 of $50.5 million increased $1.3 million and $620,000, respectively, compared to the second quarter of 2019 and the first quarter of 2020.  Net interest income for the first six months of 2020 of $100.4 million compared to $97.8 million for the first six months of 2019.  The increase in net interest income compared to prior periods was due primarily to the growth in the volume of interest-earning assets and a decrease in interest rates on interest-bearing liabilities partially offset by a decrease in the yield on interest-earning assets.

Noninterest Income

Noninterest income decreased $908,000 to $5.5 million for the second quarter of 2020 from $6.4 million for the second quarter of 2019. Service charges on deposit accounts for the second quarter of 2020 decreased $880,000 compared to the second quarter of 2019 due primarily to changes in customer behavior resulting from the pandemic and New Jersey’s Stay in Place Order. Commissions and fees for the second quarter of 2020 decreased $529,000 compared to the second quarter of 2019 due primarily to decreases in commercial loan fees and investment commission income. Partially offsetting these unfavorable variances was gains on sales of loans and swap income which increased $282,000 and $111,000, respectively, due primarily to increased volume driven by lower interest rates.

For the first six months of 2020, noninterest income increased $1.4 million to $13.5 million compared to the first six months of 2019 primarily due to a $2.8 million increase in swap income. The first half of 2020 included gains on sales of investment securities of $342,000 compared to none for the same period last year. Gains on sales of loans for the first six months of 2020 totaling $1.1 million increased $326,000 compared to the first six months of 2019 due to the same reason discussed above. Service charges on deposit accounts and commissions and fees decreased $953,000 and $301,000, respectively, compared to the same period in 2019 due to the same reasons discussed in the quarterly comparison. The first half of 2020 also included a $455,000 loss on equity securities compared to a gain of $453,000 for the first half of 2019.

Noninterest Expense

Noninterest expense totaled $31.5 million for the second quarter of 2020 and decreased $224,000 compared to the second quarter of 2019. Salary and employee benefit expense for the second quarter of 2020 increased $890,000, or 5%, when compared to the same quarter of 2019 as a result of staff additions and normal merit increases. Furniture and equipment expense increased $618,000 compared to the second quarter of 2019 due primarily to an increase in costs associated with the Company’s digital strategy initiative, while marketing expense decreased $306,000 due partially to the delay of marketing campaigns resulting from the pandemic. The second quarter of 2019 also included $318,000 in merger related expenses from the Highlands Bancorp acquisition.

Noninterest expense for the first half of 2020 of $64.0 million decreased $1.7 million due primarily to merger related expenses in the first half of 2019 of $3.2 million. Salary and employee benefit expense and furniture and equipment expense increased $1.9 million and $1.1 million, respectively, compared to the first half of 2019 due to the same reasons discussed in the quarterly comparison. Marketing expenses for the first half of 2020 decreased $548,000 due to the same reason discussed in the quarterly comparison. First half of 2020 results included a long-term debt prepayment fee of $356,000 resulting from the payoff of $10.0 million in Federal Home Loan Bank debt yielding 2.89%. 

Income Tax Expense

The effective tax rate for the second quarter of 2020 was 23.7% compared to 27.0% for the second quarter of 2019.  The increased effective tax rate for the second quarter of 2019 was primarily a result of a technical bulletin issued by the New Jersey Division of Taxation during the second quarter of 2019, which resulted in increasing our 2019 year-to-date effective tax rate to 24.5%.

Financial Condition

At June 30, 2020, total assets were $7.49 billion, an increase of $777.3 million compared to December 31, 2019. For the six months ended June 30, 2020, total loans grew $618.3 million, including $326.0 million attributed to PPP loans, to $5.76 billion and investment securities increased $39.1 million to $958.0 million. On the funding side, total deposits increased $831.7 million to $6.13 billion, while borrowings decreased $155.6 million to $457.1 million. At June 30, 2020, total loans as a percent of total deposits was 94.2%.

Asset Quality

At June 30, 2020, non-performing assets increased to $33.2 million, 0.44% of total assets, compared to $21.7 million, 0.32% of total assets, at December 31, 2019. Non-accrual loans as a percent of total loans increased to 0.57% at June 30, 2020 compared to 0.41% at December 31, 2019. The increase in non-accrual loans from December 31, 2019, related primarily to one loan relationship totaling $9.5 million that was not COVID-19 related. The allowance for loan losses increased to $57.8 million, 1.00% of total loans, at June 30, 2020, compared to $40.0 million, 0.78% of total loans, at December 31, 2019. In the second quarter of 2020, the Company had net charge-offs of $45,000, or 0.00% of average loans, annualized, compared to net recoveries of $683,000, or 0.06%, for the same period in 2019. The provision for loan losses for the second quarter of 2020 was $9.0 million compared to no provision for loan losses in the second quarter of 2019.

Capital

At June 30, 2020, stockholders’ equity was $745.5 million compared to $725.3 million at December 31, 2019, a 3% increase. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 8.69% at June 30, 2020. The book value per common share and tangible book value per common share increased 7% and 9% to $14.77 and $11.60, respectively, compared to $13.85 and $10.66 at June 30, 2019. On July 21, 2020, the Company declared a quarterly cash dividend of $0.125 per share to be paid on August 17, 2020, to shareholders of record as of August 3, 2020.

Forward-Looking Statements

The information disclosed in this document includes various forward-looking statements - including the statements regarding the prospective impact of COVID-19 and Lakeland’s ability to leverage its increased liquidity - 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. The following factors, among others, could cause the Company’s 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; changes in economic conditions nationally, regionally and in the Company’s markets; public health crises (such as the governmental, social and economic effects of the novel coronavirus); 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; pricing pressures on loan and deposit products; credit risks of Lakeland’s lending and equipment financing activities; successful implementation, deployment and upgrades of new and existing technology, systems, services and products; and customers’ acceptance of Lakeland’s products and services.

Explanation of Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America (“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. Specifically, the Company provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.

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.

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, provision for unfunded lending commitments 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 and gain on debt extinguishment, 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 non-GAAP tables.

About Lakeland

Lakeland Bank is the wholly-owned subsidiary of Lakeland Bancorp, Inc. (NASDAQ:LBAI), which has over $7 billion in total assets. 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 New Jersey’s #1 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  for more information.

Thomas J. Shara

President & CEO

Thomas F. Splaine

EVP & CFO

973-697-2000