Lakeland Bancorp Reports a 25% Increase in Earnings Per Share

OAK RIDGE, N.J., Oct. 26, 2016 (GLOBE NEWSWIRE) — Lakeland Bancorp, Inc. (NASDAQ:LBAI) (the “Company”) reported the following results as of September 30, 2016:

• Net income for the third quarter of 2016 was $11.3 million, or $0.25 per diluted share, compared to $7.8 million, or $0.20 per diluted share, for the same period in 2015.  Excluding merger related expenses and other items, net income for the third quarter of 2016 was $12.4 million, or $0.28 per diluted share, compared to $8.3 million, or $0.22 per diluted share, for the third quarter of 2015.

• For the third quarter of 2016, annualized return on average assets was 0.94%, annualized return on average common equity was 9.10%, and annualized return on average tangible common equity was 12.68%.  Excluding merger related expenses, these ratios were 1.03%, 9.96% and 13.89%, respectively. 

• Net income for the first nine months of 2016 was $29.6 million, or $0.69 per diluted share, compared to $24.0 million, or $0.63 per diluted share, for the same period in 2015.  Excluding merger related expenses and other items, net income for the first nine months of 2016 was $32.3 million, or $0.76 per diluted share, compared to $24.5 million, or $0.64 per diluted share, for the first nine months of 2015.

• The annualized return on average assets for the nine months ended September 30, 2016 was 0.88%, the annualized return on average common equity was 8.54%, and the annualized return on average tangible common equity was 11.95%.  Excluding merger related expenses, these ratios were 0.96%, 9.34% and 13.07%, respectively. 

• The Company reported strong loan growth in the third quarter of 2016.  Excluding the acquisition of Harmony Bank (“Harmony”), total loans and leases increased by $80.5 million, or 2%, to $3.79 billion during the quarter.  This overall increase was primarily due to the addition of $65.8 million in commercial real estate loans and $23.3 million in commercial, industrial and other loans.  For the first nine months of 2016, total loans and leases increased by $826.6 million, or 28%.  Excluding the acquisitions of Pascack and Harmony, this increase was $247.3 million, or 8%.

• The Company also reported robust deposit growth in the third quarter of 2016.  Excluding the acquisition of Harmony, total deposits increased $126.4 million, or 4%, to $3.94 billion during the quarter.  Most notably, non-interest bearing deposits increased $63.6 million, or 8%, during the quarter excluding the impact of Harmony.  Total deposits have increased $946.2 million, or 32%, since December 31, 2015.  This increase was $363.6 million, or 12%, after excluding the acquisitions of Pascack and Harmony.

• The efficiency ratio was 53.42% for the three months ended September 30, 2016, as compared to 60.77% for the same period in 2015.  The decrease in this ratio, in part, reflects the realization of cost savings from the Pascack acquisition and the closure of six branches in 2016. 

• Net interest margin (“NIM”) was 3.45% for the third quarter of 2016 compared to 3.47% for the second quarter of 2016 and 3.42% for the third quarter of 2015. 

• On September 30, 2016, the Company closed the offering of $75 million of its Fixed-to-Floating Rate Subordinated Notes due September 30, 2026 (the “Notes”).  The Notes bear interest at a rate of 5.125% per annum until September 2021 and the interest rate will then reset quarterly to the then current three-month LIBOR rate plus 397 basis points.

• On October 24, 2016, the Company declared a quarterly cash dividend of $0.095 per common share, payable on November 15, 2016 to holders of record as of the close of business on November 7, 2016.

Thomas J. Shara, Lakeland Bancorp’s President and CEO, commented, “We are very proud of the Company’s continued progress during the third quarter marked by our completion of the Harmony acquisition, substantial organic growth in both loans and deposits, as well as a marked improvement in our efficiency ratio. In the last year, our assets have grown 31% to $4.9 billion and with the completion of our subordinated debt offering, our capital position has strengthened to foster future growth.”

Harmony Acquisition

On July 1, 2016, the Company completed its acquisition of Harmony, which operated three branches in Ocean County, New Jersey, and had $326.4 million in total assets, $259.7 million in total loans and $278.1 million in total deposits.  Goodwill amounted to $11.1 million and core deposit intangibles were $1.0 million.       

Earnings

Net income for the third quarter of 2016 was $11.3 million, as compared to $7.8 million for the third quarter of 2015.  Excluding merger related expenses and other items, net income for the third quarter of 2016 was $12.4 million compared to $8.3 million for the third quarter of 2015.

Net income for the first nine months of 2016 was $29.6 million, as compared to $24.0 million for the same period in 2015.  Excluding merger related expenses and other items, net income for the first nine months of 2016 was $32.3 million, compared to $24.5 million for the first nine months of 2015.

Net Interest Income
Net interest income for the third quarter of 2016 was $38.5 million, as compared to $29.3 million for the same period in 2015.  This increase was primarily due to higher levels of loans in 2016, as a result of the 2016 acquisitions of Pascack and Harmony as well as organic growth.  NIM was 3.45% for the third quarter of 2016, compared to 3.42% for the third quarter of 2015.  Included within these percentages were $0.5 million, or five basis points, of loan prepayment fees in the third quarter of 2016, versus $0.1 million, or one basis point, in 2015.  The yield on interest earning assets for the third quarter of 2016 was 3.85%, as compared to 3.75% reported in the third quarter of 2015.  The cost of interest bearing liabilities for the third quarter of 2016 was 0.53%, as compared to 0.44% in the third quarter of 2015, reflecting the higher cost of deposits.

Net interest income for the first nine months of 2016 was $107.5 million, as compared to $86.5 million reported for the first nine months of 2015.  NIM for the first nine months of 2016 was 3.47%, compared to 3.48% for the same period in 2015.  Included within these percentages were $1.5 million, or five basis points, of loan prepayment fees, gains on called securities, and interest recoveries in 2016, versus $0.8 million, or three basis points, in 2015.  The yield on earning assets was 3.86% for the first nine months of 2016 and 3.79% for the same period in 2015.  The cost of interest bearing liabilities for 2016 was 0.51%, as compared to 0.42% in the first nine months of 2015, reflecting the higher cost of deposits.

Non-interest Income
Non-interest income totaled $6.4 million for the third quarter of 2016, as compared to $6.7 million for the same period in 2015.  Non-interest income in 2016 included $0.9 million in bank owned life insurance (“BOLI”) death benefits.  Non-interest income in 2015 included several items not present in 2016, principally the $1.8 million gain on debt extinguishment and $173 thousand gain on sale of investment securities. 

Non-interest income totaled $16.2 million for the first nine months of 2016, as compared to $16.4 million for the same period in 2015.  The major variances include the $1.8 million gain on debt extinguishment in 2015 and $0.9 million BOLI death benefits received in 2016 compared to $0.4 million received in 2015. 

Non-interest Expense
Non-interest expense for the third quarter of 2016 was $26.0 million, an increase of $2.2 million compared to $23.8 million for the same period in 2015.  Excluding the impact of merger related expenses and the 2015 long-term debt prepayment fee of $2.4 million, non-interest expense increased by $3.2 million.  Salary and benefit expense of $14.6 million increased by $2.3 million, due primarily to the additions of Pascack and Harmony employees and year-over-year increases in employee salary and benefit costs.  Primarily due to the acquisitions of Pascack and Harmony, several non-interest expenses increased a total of $0.8 million related to net occupancy, FDIC insurance, data processing and core deposit intangible amortization.

For the first nine months of 2016, non-interest expense was $75.1 million, an increase of $10.1 million compared to the same period in 2015.  Excluding the impact of merger related expenses and the 2015 long-term debt prepayment fee of $2.4 million, non-interest expense increased by $8.7 million.  Salary and benefit expense of $41.8 million increased by $5.5 million due primarily to the additions of Pascack and Harmony employees and year-over-year increases in employee salary and benefit costs.  The remaining increases in non-interest expense categories were primarily due to higher expenses related to the Pascack and Harmony branches, including net occupancy, furniture and equipment, FDIC insurance and data processing. 

Financial Condition

From December 31, 2015 to September 30, 2016, total assets increased $1.03 billion to $4.90 billion, including $405.3 million from Pascack and $326.4 million from Harmony.  During the same period, total loans and leases increased by $826.6 million to $3.79 billion, including $319.6 million from Pascack and $259.7 million from Harmony.  Likewise, total deposits increased $946.2 million to $3.94 billion, including $304.5 million from Pascack and $278.1 million from Harmony. 

Asset Quality
At September 30, 2016, non-performing assets totaled $24.6 million (0.50% of total assets), compared to $23.7 million (0.61% of total assets) at December 31, 2015.  Non-performing loans and leases as a percent of total loans and leases of 0.60% decreased 16 basis points from December 31, 2015.  The allowance for loan and lease losses totaled $31.4 million at September 30, 2016, and represented 0.83% of total loans and leases, compared to $30.9 million at December 31, 2015, which represented 1.04% of total loans and leases.  The decline in the allowance coverage is primarily attributed to the acquired loans from Pascack and Harmony at fair market value with no allowance for losses.  The Company’s allowance for loan and lease losses excluding acquired loans would be 0.99%.  The Company had net charge-offs of $3.4 million (0.13% of average loans) for the first nine months of 2016 and $1.1 million for the third quarter of 2016.  The provision for loan and lease losses for the first nine months of 2016 was $3.8 million, versus $1.9 million for the same period in 2015.

Capital
At September 30, 2016, stockholders’ equity was $498.7 million, while book value per common share was $11.22, an increase of 6% from December 31, 2015.  Tangible book value per common share was $8.07, an increase of 6% from December 31, 2015.  As of September 30, 2016, the Company’s leverage ratio was 8.26%.  Tier I and total risk based capital ratios were 9.70% and 12.40%, respectively, reflecting the issuance of the subordinated notes.  The common equity tier 1 capital ratio was 8.94%.  The tangible common equity ratio was 7.53%.  The regulatory capital ratios exceed those necessary to be considered a well-capitalized institution under Federal regulatory guidelines.

Forward-Looking Statements

The information disclosed in this document includes various forward-looking statements (with respect to corporate objectives, trends, and other financial and business matters) 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.  Lakeland 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 affecting the financial services industry, government intervention in the U.S. financial system, changes in levels of market interest rates, pricing pressures on loan and deposit products, credit risks of the Company’s lending and leasing activities, customers’ acceptance of the Company’s products and services, competition, and failure to successfully integrate and realize anticipated efficiencies and synergies after the Pascack Community Bank and Harmony Bank mergers.  Any statements made by Lakeland that are not historical facts should be considered to be forward-looking statements.  Lakeland 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 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 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 uses an efficiency ratio that is a non-GAAP financial measure.  The ratio that the Company uses excludes amortization of core deposit intangibles, expenses on other real estate owned and other repossessed assets, 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 securities gains and losses and gain on debt extinguishment, which can vary from period to period.  The Company uses this ratio because it believes the ratio provides a better comparison of period to period operating performance.

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.

About Lakeland Bank
Lakeland Bancorp, the holding company for Lakeland Bank, has $4.9 billion in total assets with 52 New Jersey branch offices in Bergen, Essex, Morris, Ocean, Passaic, Somerset, Sussex, and Union counties, five New Jersey regional commercial lending centers in Bernardsville, Jackson, Montville, Teaneck and Waldwick and two commercial loan production offices serving Middlesex and Monmouth counties in New Jersey and the Hudson Valley region of New York.  Lakeland Bank offers an extensive array of consumer and commercial products and services, including online and mobile banking, localized commercial lending teams, and 24-hour or less turnaround time on consumer loan applications.  For more information about the full line of products and services, visit LakelandBank.com.

Thomas J. Shara President & CEO  Joseph F. Hurley EVP & CFO 973-697-2000