LBAI - Lakeland Bancorp Announces Quarterly and Year-End 2020 Earnings; Updates Loan Deferrals and Share Repurchase Plan

OAK RIDGE, N.J. , Jan. 28, 2021 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI ) (the “Company”), the parent company of Lakeland Bank (“Lakeland”), reported net income of $18.8 million and earnings per diluted share ("EPS") of $0.37 for the three months ended December 31, 2020, compared to net income of $14.4 million and diluted earnings per share of $0.28 for the third quarter of 2020 and net income of $18.7 million and diluted EPS of $0.37 for the fourth quarter of 2019. For the fourth quarter of 2020, annualized return on average assets was 0.98%, annualized return on average common equity was 9.96% and annualized return on average tangible common equity was 12.64%.

For the year ended December 31, 2020, the Company reported net income of $57.5 million, a 19% decrease compared to $70.7 million for the same period in 2019 resulting in annualized return on average assets of 0.80%, annualized return on average common equity of 7.74%, and annualized return on average tangible common equity of 9.86%. For 2020, the Company reported diluted EPS of $1.13, compared to diluted EPS of $1.38 for 2019.

The 2020 financial results were adversely impacted by an elevated provision for credit losses of $27.2 million, compared to a provision for loan losses of $2.1 million for 2019. The increased provision for 2020 was primarily due to COVID-19's negative impact on forecasted economic conditions and credit loss projections with the remainder of the provision attributable to loan growth. As of December 31, 2020, the ratio of the allowance for credit loss for loans to total loans was 1.18% compared to 0.78% as of December 31, 2019. The allowance for credit losses on loans to total loans excluding Paycheck Protection Program ("PPP") loans of $284.6 million was 1.24% as of December 31, 2020.

Thomas Shara, Lakeland Bancorp’s President and CEO commented, "2020 turned out to be a year that no one could have anticipated. We have all been directly or indirectly impacted by the events of the past year and, while it has presented many challenges, I could not be prouder of our Lakeland team for going above and beyond to support our customers and communities. Our team worked tirelessly to ensure the needs of our customers were addressed by increasing our lending, extending PPP loans, granting loan payment deferrals to borrowers, keeping our branches open and increasing donations to the communities we serve. The ongoing pandemic has impacted every sector of our society and dramatically changed the financial services industry. Yet, Lakeland maintained its position as one of New Jersey’s leading banks and developed even closer relationships with our customers in the last year. We will continue to prudently navigate the current environment with the safety of our customers and associates at the forefront.”

Mr. Shara continued, “Our financial performance in this environment was strong and directly related to our focus on addressing our customers' needs. In 2020, we experienced substantial balance sheet growth in both our loan and deposit portfolios. Our provision for projected credit losses increased significantly due to the pandemic; however, our loan charge-offs remained very low for the year. Due to our strong capital position, we will be recommencing our share repurchase plan in the first quarter of 2021.”

Q4 2020 Highlights

• Loans on payment deferral at December 31, 2020 totaled $9.7 million, or 0.2% of total loans.
• Balance sheet restructure in October involving the payoff of $99.9 million in FHLB borrowings, resulted in a prepayment fee of $3.8 million, partially offset by gain on securities sales of $871,000.
• Net interest margin increased 12 basis points to 3.08% compared to the linked quarter.
• The Company adopted CECL at December 31, 2020, and recorded a Q4 provision for credit losses of $789,000 compared to $8 million in Q3 2020.
• Loan and deposit portfolios continued their steady growth, each increasing 3% compared to the linked quarter.
  
  

Full Year 2020 Highlights

• Total asset growth of 14% to $7.66 billion at December 31, 2020.
• Strong organic loan growth of 12% or $605.6 million, which excludes PPP loans.
• Deposit generation of 22% or $1.16 billion, including 34% growth in noninterest-bearing deposits.
• Net loan charge-offs for the year totaled $1.5 million, or 0.03% of average loans.

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 offered temporary payment deferrals on commercial, mortgage and consumer loans. At December 31, 2020, loans on payment deferral totaled $9.7 million, or 0.2% of total loans compared to $154 million, or 2.6% of total loans at September 30, 2020. The reduction in payment deferrals since September 30, 2020, was due primarily to borrowers resuming their regular payment schedule. In addition, during the fourth quarter of 2020, we modified $39.0 million in loans on payment deferment in accordance with the provisions of the CARES Act. We are also a participant in the Small Business Administration PPP to help strengthen local businesses and preserve jobs in our communities and had originally funded $326.6 million with $11.1 million in related fees, as well as $1.1 million in deferred costs. The Company is currently accepting online applications for PPP First Draw Loans to first-time borrowers as well as PPP Second Draw Loans for previous PPP borrowers under the Economic Aid Act.

Net Interest Margin and Net Interest Income

Net interest margin for the fourth quarter of 2020 of 3.08% increased 12 basis points from the linked quarter and decreased 19 basis points compared to the fourth quarter of 2019. The increase in net interest margin compared to the third quarter was due in part to the impact of the reduction of FHLB borrowings as a result of the balance sheet restructure in the fourth quarter of 2020 as well as an increase in prepayment fees, a decrease in cash balances and a decrease in the cost of interest-bearing liabilities. The decrease compared to the fourth quarter of 2019 was primarily a result of the current low interest rate environment resulting in lower yields on interest-earning assets as well as higher cash levels. Net interest margin for 2020 was 3.09% compared to 3.33% for the same period in 2019.

The yield on interest-earning assets for the fourth quarter of 2020 was 3.51% compared to 3.49% for the linked quarter and 4.21% for the fourth quarter of 2019. The yield on interest-earning assets for 2020 was 3.70% compared to 4.36% for 2019. The decrease in yield on interest-earning assets, when compared to 2019 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, increased balance of lower-yielding federal funds sold, as well as the origination of lower-yielding PPP loans during 2020.

The cost of interest-bearing liabilities decreased in the fourth quarter of 2020 to 0.59% compared to 0.72% for the linked quarter and 1.26% for the fourth quarter of 2019. The cost of interest-bearing liabilities for 2020 was 0.83% compared to 1.35% during the same period in 2019. The cost of interest-bearing transaction accounts, time deposits and borrowings continue to decrease since 2019 largely driven by reductions in market interest rates.

Net interest income increased to $55.1 million for the fourth quarter of 2020 compared to $49.5 million for the fourth quarter of 2019, due primarily to the growth of interest-earning assets as well as lower interest rates on interest-bearing liabilities partially offset by an increase in interest-bearing liabilities and lower yields on interest-earning assets. Net interest income for 2020 was $207.7 million, as compared to $196.0 million for the same period in 2019 due to the same reason as the quarterly comparison.

Noninterest Income

Noninterest income decreased $1.1 million to $6.8 million for the fourth quarter of 2020 from $8.0 million for the fourth quarter of 2019 due primarily to a reduction of $1.2 million in loan swap income. Service charges on deposit accounts decreased $541,000 due to changes in customer behavior resulting from the pandemic. Gain on sales of loans in the fourth quarter of 2020 increased $385,000 due primarily to the low interest rate environment. Fourth quarter 2020 results also included an $871,000 gain on sales of securities compared to no gain on sales of securities during the same period in 2019. Other income decreased $593,000 compared to the fourth quarter of 2019 due primarily to gains resulting from payoffs of purchased credit impaired loans during the fourth quarter of 2019.

For 2020, noninterest income totaled $27.1 million compared to $26.8 million for the same period in 2019. Gains on sales of loans and swap income increased $1.7 million and $1.5 million, respectively, compared to 2019, both due primarily to the low interest rate environment. Gain on sales of securities totaled $1.2 million in 2020 compared to no such gains in 2019. These variances were partially offset by a decrease in service charges on deposit accounts of $2.1 million, a reduction in equity securities valuation by $1.0 million and a decrease in other income of $499,000 compared to 2019.

Noninterest Expense

Noninterest expense totaled $36.9 million for the fourth quarter of 2020 and increased $5.4 million compared to the fourth quarter of 2019 due primarily to prepayment fees of $3.8 million resulting from the prepayment of $99.9 million in FHLB debt at a weighted average rate of 2.34%. Salary and employee benefit expense increased $586,000, or 3%, due primarily to normal merit increases. Furniture and equipment in the fourth quarter of 2020 increased $726,000 due primarily to an increase in IT service agreement expense compared to the fourth quarter of 2019. FDIC expense was $750,000 in the fourth quarter of 2020 compared to zero in the fourth quarter of 2019 as the FDIC insurance fund reserve ratio exceeded the required level and the Company received credits to offset its fourth quarter 2019 assessment.

For 2020, noninterest expense totaled $132.8 million compared to $126.8 million for the same period in 2019. The primary increase was $4.1 million in FHLB loan prepayment fees on balance sheet restructurings during 2020. Salary and employee benefit expense increased $3.1 million, or 4%, due primarily to an increase in staffing levels as well as normal merit increases. Furniture and equipment in 2020 increased $2.6 million due to the same reason mentioned in the quarterly comparison. FDIC insurance expense increased $1.7 million in 2020 primarily due to an increase in deposit balances and the application of FDIC assessment credits in 2019 as mentioned in the previous paragraph. Noninterest expense in 2019 included merger-related expenses of $3.2 million resulting from the merger with Highlands Bancorp.

Income Tax Expense

The effective tax rate for the fourth quarter of 2020 was 22.3% compared to 24.9% for the fourth quarter of 2019. The effective tax rate for 2020 was 23.1% compared to 24.8% for 2019.

Financial Condition

At December 31, 2020, total assets were $7.66 billion, an increase of $953.1 million, including $284.6 million in PPP loans, compared to December 31, 2019. For the twelve months ended December 31, 2020, total loans grew $883.4 million, or 17% to $6.02 billion and investment securities increased $54.3 million or 6% to $973.2 million. On the funding side, total deposits increased $1.16 billion or 22% to $6.46 billion, while borrowings decreased $299.9 million or 49% to $312.8 million. At December 31, 2020, total loans as a percent of total deposits was 93.4%.

Asset Quality

At December 31, 2020, non-performing assets increased to $36.1 million, 0.47% 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 0.60% at December 31, 2020 compared to 0.41% at December 31, 2019. The allowance for credit losses increased to $71.1 million, 1.18% of total loans, at December 31, 2020, compared to $40.0 million, 0.78% of total loans, at December 31, 2019. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 1.24%. The increase from December 31, 2019, was primarily due to the adoption of CECL and the impact of COVID-19. The Company adopted CECL at December 31, 2020, and recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020. In the fourth quarter of 2020, the Company had net charge-offs of $528,000, or 0.04% of average loans, annualized, compared to net recoveries of $262,000, or 0.02% of average loans, annualized, for the same period in 2019. Provision for credit losses for the fourth quarter of 2020 was $789,000 compared to $1.1 million in the fourth quarter of 2019.

Capital

At December 31, 2020, stockholders' equity was $763.8 million compared to $725.3 million at December 31, 2019, a 5% increase. Lakeland Bancorp remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 8.37% at December 31, 2020. At December 31, 2020, the book value per common share increased 5% to $15.13 and tangible book value per common share increased 7% to $11.97. On January 26, 2021, the Company declared a quarterly cash dividend of $0.125 per share to be paid on February 17, 2021, to shareholders of record as of February 8, 2021. The Company will recommence its existing share repurchase plan, which has 2.4 million shares remaining under the current plan, in the first quarter of 2021.

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, and competition. Further, given its ongoing and dynamic nature, it is difficult to predict what the continuing effects of the COVID-19 pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, continue to result in a material adverse change for the demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch disruptions, unavailability of personnel and increased cybersecurity risks as employees work remotely. 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 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, 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 non-GAAP tables.

About Lakeland

Lakeland Bank is the wholly-owned subsidiary of Lakeland Bancorp, Inc. (NASDAQ:LBAI), which had $7.66 billion in total assets at December 31, 2020. 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 973-697-2000 for more information.

(1) The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL") on December 31, 2020, with a transition adjustment retroactive to January 1, 2020. Quarterly amounts for the first, second and third quarters of 2020 do not reflect the adoption of CECL.
(2) See Supplemental Information - Non-GAAP Financial Measures

(3) The Company adopted CECL on December 31, 2020, with a transition adjustment retroactive to January 1, 2020. Quarterly amounts for the first, second and third quarters of 2020 do not reflect the adoption of CECL.

(4) The Company adopted CECL on December 31, 2020 with a $6.7 million transition adjustment retroactive to January 1, 2020. Quarterly amounts for the first, second and third quarters of 2020 do not reflect the adoption of CECL.