Lakeland Bancorp Announces Second Quarter Results

OAK RIDGE, N.J., July 26, 2019 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. LBAI (the "Company"), the parent company of Lakeland Bank ("Lakeland"), reported net income of $17.5 million and earnings per diluted share ("EPS") of $0.34 for the three months ended June 30, 2019 versus net income of $15.8 million and diluted EPS of $0.33 for the prior year quarter. For the second quarter of 2019, annualized return on average assets was 1.12%, annualized return on average common equity was 10.16% and annualized return on average tangible common equity was 13.21%.

For the six months ended June 30, 2019, the Company reported net income of $33.1 million, a 6% increase compared to $31.1 million for the same period in 2018. For the six months ended June 30, 2019, the Company reported diluted EPS of $0.65, which equaled diluted EPS for the first six months of 2018. Excluding merger-related expenses pertaining to the Company's January 2019 acquisition of Highlands Bancorp, Inc. ("Highlands") of $2.4 million, tax-effected, net income for the six months ended June 30, 2019 was $35.5 million, or $0.70 per diluted share. For the first six months of 2019, return on average assets was 1.07%, return on average common equity was 9.79%, and return on average tangible common equity was 12.77%. Excluding merger-related expenses these ratios were 1.15%, 10.49% and 13.69%, respectively.

Thomas Shara, Lakeland Bancorp's President and CEO commented, "We are pleased to report record quarterly net income of $17.5 million for the second quarter of 2019. Our quarterly results reflect a 10% growth in quarterly net income compared to the same prior year period, partially attributable to the Highlands Bancorp acquisition completed earlier in the year. Our record results were achieved in spite of an increase in our effective tax rate this quarter, due to the recent changes in the New Jersey tax rules. While commercial loan production this year has been very healthy, loan prepayments continue at an accelerated pace keeping loan growth muted. However, we are pleased with the 5% growth of our C&I area this quarter along with 9% growth in our Equipment Finance area."

Net Interest Margin and Income

Net interest margin for the second quarter of 2019 of 3.39% decreased four basis points from the second quarter of 2018 and decreased three basis points from the first quarter of 2019. The decrease in net interest margin was due primarily to an increase in the cost of interest-bearing liabilities. Net interest margin for the first six months of 2019 of 3.41% equaled net interest margin for the same period in 2018.

The yield on interest-earning assets for the second quarter of 2019 was 4.46% compared to 4.12% for the second quarter of 2018 and 4.44% for the first quarter of 2019. The yield on interest-earning assets for the first six months of 2019 was 4.45% compared to 4.07% during the same period in 2018. The increase in yield on interest-earning assets was a result of originating higher yielding loans, additional accretion income on loans resulting from the Highlands acquisition and higher investment securities yields.

The cost of interest-bearing liabilities for the second quarter of 2019 was 1.42% compared to 0.91% for the second quarter of 2018 and 1.34% for the first quarter of 2019. The cost of interest-bearing liabilities for the first six months of 2019 was 1.38% compared to 0.87% during the same period in 2018. The cost of interest-bearing transaction accounts, time deposits and borrowings have increased since 2018 largely driven by competitive pressures and higher market interest rates.

Net interest income increased to $49.2 million for the second quarter of 2019 compared to $43.5 million for the second quarter of 2018, due primarily to the growth of interest-earning assets and increases in loan yields, partially offset by an increase in interest-bearing liabilities and higher interest rates on deposits and borrowings. Net interest income for the first six months of 2019 was $97.8 million, as compared to $85.7 million for the same period in 2018.

Noninterest Income

Noninterest income increased $680,000 to $6.4 million for the second quarter of 2019 from $5.7 million for the second quarter of 2018. Service charges on deposit accounts increased $210,000 compared to the second quarter of 2018 due primarily to deposit growth. Commissions and fees increased $315,000 compared to the second quarter of 2018 due primarily to an increase in commercial loan fees and investment services income, while gains on sales of loans increased $128,000.

For the first six months of 2019, noninterest income totaled $12.1 million compared to $11.0 million for the same period in 2018 as the Company recorded a $453,000 gain on equity securities in the first half of 2019 compared to $55,000 during the same period in 2018. In addition, commissions and fees increased $455,000 compared to the first half of 2018 due primarily to an increase in investment services income, while gains on sales of loans increased $253,000.

Noninterest Expense

Noninterest expense totaled $31.7 million for the second quarter of 2019 compared to $27.6 million for the second quarter of 2018. Noninterest expense in the second quarter of 2019 included $318,000 in merger related expenses. Salary and employee benefit expense increased $2.7 million as a result of additions to our staff from the Highlands merger, normal merit increases and higher benefit costs. In the second quarter of 2019, data processing expense increased $249,000 compared to the second quarter of 2018 due primarily to the Company's continued expansion and improvement of its digital infrastructure. Other expenses increased $377,000 due primarily to an increase in consulting expense.

For the first six months of 2019, noninterest expense totaled $65.7 million compared to $54.7 million for the same period in 2018. Excluding merger related expenses of $3.2 million, noninterest expense increased $7.8 million compared to the first half of 2018 primarily as a result of additional Highlands expenses from merger date in January 2019 through system conversion date in April, as well as increased salary and benefit expenses and increased data processing expenses.

Income Tax Expense

The effective tax rate for the second quarter of 2019 was 27.0% compared to 21.3% for the first quarter of 2019, as a result of a technical bulletin issued by the New Jersey Division of Taxation during second quarter 2019, which will result in increasing our effective tax rate for 2019 to 24.5%.

Financial Condition

At June 30, 2019, total assets were $6.41 billion, an increase of $601.1 million, including $496.5 million from the Highlands acquisition compared to December 31, 2018. For the six months ended June 30, 2019, total loans grew $465.6 million, including $425.0 million from Highlands, to $4.92 billion and investment securities increased $42.0 million, including $24.5 million from Highlands, to $863.5 million. On the funding side, total deposits increased $461.9 million, including $409.6 million from Highlands, to $5.08 billion, while borrowings increased $32.7 million to $552.7 million. At June 30, 2019, total loans as a percent of total deposits was 96.9%.

Asset Quality

At June 30, 2019, non-performing assets increased to $15.0 million, 0.23% of total assets, compared to $13.0 million, 0.22% of total assets, at December 31, 2018. Non-accrual loans as a percent of total loans equaled 0.29% at June 30, 2019 compared to 0.27% at December 31, 2018. The allowance for loan losses increased to $38.7 million, 0.78% of total loans, at June 30, 2019, compared to $37.7 million, 0.84% of total loans, at December 31, 2018. The Company's allowance for loan losses excluding acquired loans would be 0.92%. In the second quarter of 2019, the Company had net loan recoveries of $683,000, or 0.06% of average loans, annualized, compared to net charge-offs of $532,000, or 0.05% of average loans, annualized, for the same period in 2018. There was no provision for loan losses for second quarter of 2019 compared to provision for loan losses of $1.5 million in the second quarter of 2018.

Capital

At June 30, 2019, stockholders' equity was $698.5 million compared to $623.7 million at December 31, 2018, a 12% increase. Lakeland Bank remains above FDIC "well capitalized" standards, with a Tier 1 Leverage Ratio of 9.30% at June 30, 2019. The book value per common share and tangible book value per common share increased 10.0% and 10.2% to $13.85 and $10.66, respectively, compared to $12.59 and $9.67 at June 30, 2018. On July 24, 2019, the Company declared the quarterly cash dividend of $0.125 per share to be paid on August 15, 2019, to shareholders of record as of August 5, 2019.

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. 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, 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, 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 and failure to realize anticipated efficiencies and synergies from the merger of Highlands Bancorp, Inc. into Lakeland Bancorp and the merger of Highlands State Bank into Lakeland Bank. Any statements made by the Company that are not historical facts (including statements regarding anticipated synergies from the Highlands Bancorp and Highlands State Bank mergers and regarding positioning for 2019) 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 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 Bancorp, Inc. LBAI has approximately $6.41 billion in total assets. Lakeland Bank, a wholly-owned subsidiary of Lakeland Bancorp, Inc., operates 53 branch offices throughout Bergen, Essex, Morris, Ocean, Passaic, Somerset, Sussex, and Union counties in New Jersey including one branch in Highland Mills, New York; five New Jersey regional commercial lending centers in Bernardsville, Jackson, Montville, Teaneck and Waldwick; and one New York commercial lending center to serve the Hudson Valley region. Lakeland also has a commercial loan production office serving Middlesex and Monmouth counties in New Jersey. Lakeland Bank offers an extensive suite of financial products and services for businesses and consumers. Visit LakelandBank.com for more information.

Thomas J. Shara
President & CEO

Thomas F. Splaine
EVP & CFO
973-697-2000