OAK RIDGE, N.J., Oct. 22, 2020 (GLOBE NEWSWIRE) -- Lakeland Bancorp, Inc. (NASDAQ: LBAI), the parent company of Lakeland Bank, reported net income of $14.4 million and earnings per diluted share of $0.28 for the three months ended September 30, 2020 compared to net income of $18.9 million and diluted EPS of $0.37 for the third quarter of 2019. For the third quarter of 2020, annualized return on average assets was 0.76%, annualized return on average common equity was 7.64% and annualized return on average tangible common equity was 9.71%.

For the nine months ended September 30, 2020, the Company reported net income of $38.7 million and earnings per diluted share ("EPS") of $0.76 compared to net income of $52.0 million and diluted EPS of $1.02 for the first nine months of 2019. For the first nine months of 2020, annualized return on average assets was 0.73%, annualized return on average common equity was 6.95% and annualized return on average tangible common equity was 8.86%.

The third quarter and year-to-date results were adversely impacted by provisions for loan losses of $8.0 million and $26.2 million, respectively, compared to $536,000 and $1.0 million for the same periods last year. The increased provision for the first nine months of 2020 was primarily due to the impact of COVID-19 on certain qualitative factors and loans on payment deferment resulting in approximately 75% of the provision. The remainder of the provision is attributable to loan growth, a change in the loan portfolio composition and a change in loss rates. As of September 30, 2020, the ratio of the allowance for loan loss to total loans was 1.11% compared to 0.78% as of December 31, 2019. The allowance for loan losses to total loans less Paycheck Protection Program ("PPP") loans of $325.1 million, was 1.18% as of September 30, 2020.

Thomas Shara, Lakeland Bancorp’s President and CEO commented, "We continue to be a trusted partner for our customers during these uncertain times with our loans growing this quarter by $86 million or 1.5% and year-to-date growth of 7.4% excluding Payment Protection Plan loans, while deposits grew this quarter by $141 million or 2.3% and year-to-date growth of 18%. In addition, we recorded a lower provision for loan loss this quarter as our asset quality remains strong. Loans on deferred payment status decreased to 2.7% of total loans at September 30, 2020 from 19% at June 30, 2020 and loan charge-offs remain negligible. In light of the customer preference to utilize digital banking channels along with a decrease in branch transactions, we will be closing three branches representing 6% of our branch network."

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 September 30, 2020, we have on deferral, approximately $149 million in commercial loans (includes commercial loans secured by real estate, commercial and industrial and other loans), $3 million in equipment finance loans and $3 million in residential mortgage and consumer loans, compared to $927 million, $40 million and $53 million, respectively, at June 30, 2020. The reduction in deferrals from June 30, 2020 to September 30, 2020 was due primarily to borrowers resuming their regular payment schedule. We also participated in the Small Business Administration Paycheck Protection Program ("PPP") to help strengthen local businesses and preserve jobs in our communities and have funded 2,066 loans totaling $326.6 million with $11.1 million in related fees, as well as $1.1 million in deferred costs.

Net Interest Margin and Net Interest Income

Net interest margin for the third quarter of 2020 of 2.96% decreased 29 and 10 basis points, respectively, compared to the third quarter of 2019 and the second quarter of 2020. Net interest margin for the first nine months of 2020 of 3.09% compared to 3.35% 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 third quarter of 2020 was 3.49% compared to 4.32% for the third quarter of 2019 and 3.69% for the second quarter of 2020. The yield on interest-earning assets for the first nine months of 2020 was 3.77% compared to 4.41% 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 third quarter of 2020 was 0.72% compared to 1.41% for the third quarter of 2019 and 0.86% for the second quarter of 2020. The cost of interest-bearing liabilities for the first nine months of 2020 was 0.91% compared to 1.39% during the same period in 2019. The cost of interest-bearing transaction accounts, time deposits and borrowings has decreased since 2019 largely driven by reductions in market interest rates.

Net interest income for the third quarter of 2020 of $52.1 million increased $3.5 million and $1.6 million, respectively, compared to the third quarter of 2019 and the second quarter of 2020. Net interest income for the first nine months of 2020 of $152.6 million compared to $146.5 million for the first nine 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 which was somewhat offset by a decrease in yield on interest-earning assets.

Noninterest Income

Noninterest income increased $73,000 to $6.8 million for the third quarter of 2020 from $6.7 million for the third quarter of 2019. Gains on sales of loans for the third quarter of 2020 increased $951,000 compared to the third quarter of 2019 due primarily to increased volume driven by lower interest rates, while commissions and fees for the third quarter of 2020 increased $122,000 due primarily to increases in mortgage application fees and commercial loan fees. Service charges on deposit accounts for the third quarter of 2020 decreased $563,000 compared to the third quarter of 2019 due primarily to changes in customer behavior resulting from the pandemic. Third quarter 2020 results also included losses on equity securities of $170,000 compared to a gain of $72,000 during the same period in 2019.

For the first nine months of 2020, noninterest income increased $1.5 million to $20.3 million compared to the first nine months of 2019 primarily due to increases in swap income and gains on sales of loans which increased $2.6 million and $1.3 million, respectively, resulting from increased volume driven by lower interest rates. The first nine months of 2020 included gains on sales of investment securities of $342,000 compared to none for the same period last year. Partially offsetting these favorable variances was service charges on deposits which decreased $1.5 million compared to the first nine months of 2019 due to the same reason mentioned in the quarterly comparison. The first nine months of 2020 also included a $625,000 loss on equity securities compared to a gain of $525,000 for the first nine months of 2019.

Noninterest Expense

Noninterest expense totaled $32.1 million for the third quarter of 2020 and increased $2.5 million compared to the third quarter of 2019. Salary and employee benefit expense for the third quarter of 2020 increased $632,000, or 3%, when compared to the same quarter of 2019 as a result of staff additions and normal merit increases. Furniture and equipment expense increased $806,000 compared to the third quarter of 2019 due primarily to an increase in costs associated with the Company's digital strategy initiative. FDIC insurance expense totaled $625,000 for the third quarter of 2020 and increased $1.0 million compared to the same period in 2019. In the third quarter of 2019, $420,000 in previously recorded FDIC expense was reversed due to FDIC assessment credits and no third quarter 2019 accrual was made, resulting from the insurance fund reserve ratio exceeding the required level.

Noninterest expense for the first nine months of 2020 of $96.1 million increased $830,000 compared to the first nine months of 2019. Salary and employee benefit expense increased $2.5 million compared to the first nine months of 2019 due to the same reasons discussed in the quarterly comparison. Furniture and equipment expense and FDIC insurance expense increased $1.9 million and $942,000, respectively, due to the same reasons mentioned in the quarterly comparison. Marketing expenses for the first nine months of 2020 decreased $590,000 due partially to the delay of marketing campaigns resulting from the pandemic. Year-to-date 2019 results included merger related expenses of $3.2 million due to the acquisition of Highlands Bank, while year-to-date 2020 results include 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 third quarter of 2020 was 23.3% compared to 25.3% for the third quarter of 2019. The decreased effective tax rate for the third quarter of 2020 was primarily a result of an increase in tax advantaged items as a percent of pretax income.

Financial Condition

At September 30, 2020, total assets were $7.52 billion, an increase of $810.9 million compared to December 31, 2019. For the nine months ended September 30, 2020, total loans grew $705.8 million, including $325.1 million attributed to PPP loans, to $5.84 billion and investment securities decreased $9.3 million to $909.5 million. On the funding side, total deposits increased $972.7 million to $6.27 billion, while borrowings decreased $261.5 million to $351.2 million. At September 30, 2020, total loans as a percent of total deposits was 93.4%.

Asset Quality

At September 30, 2020, non-performing assets increased to $33.1 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 September 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 $65.2 million, 1.11% of total loans, at September 30, 2020, compared to $40.0 million, 0.78% of total loans, at December 31, 2019. In the third quarter of 2020, the Company had net charge-offs of $597,000, or 0.04% of average loans, annualized, compared to $543,000, or 0.04%, for the same period in 2019. The provision for loan losses for the third quarter of 2020 was $8.0 million compared to a $536,000 provision for loan losses in the third quarter of 2019.

Capital

At September 30, 2020, stockholders' equity was $753.6 million compared to $725.3 million at December 31, 2019, a 4% increase. Lakeland Bank remains above FDIC “well capitalized” standards, with a Tier 1 leverage ratio of 8.36% at September 30, 2020. The book value per common share and tangible book value per common share increased 6% and 8% to $14.93 and $11.77, respectively, compared to $14.13 and $10.94 at September 30, 2019. At September 30, 2020, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio was 10.02% and 8.06%, respectively, compared to 10.81% and 8.62% at December 31, 2019. Excluding the impact of the PPP loans of $325.1 million, the Company’s common equity to assets ratio and tangible common equity to tangible assets ratio was 10.47% and 8.44%, respectively, at September 30, 2020. On October 21, 2020, the Company declared a quarterly cash dividend of $0.125 per share to be paid on November 13, 2020, to shareholders of record as of November 3, 2020.

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 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 for more information.