Full Year 2023 Highlights

• Loans grew $477.8 million or 6% during the year with commercial real estate loans increasing $263.0 million, or 5%, and residential mortgages increasing $220.2 million, or 29%.

• Net interest margin for 2023 decreased 47 basis points to 2.77% compared to 2022 due primarily to the increase in the market rate environment and the resulting movement of customers from lower rate interest-bearing transaction accounts to higher rate time deposits.

• The provision for credit losses of $13.1 million for the year ended December 31, 2023 increased $4.5 million from $8.5 million for 2022. The Company recorded a charge-off of $6.6 million for subordinated debt securities issued by Signature Bank which failed in first quarter of 2023.
  

Net Interest Margin and Net Interest Income

Net interest margin for the three months and year ended December 31, 2023 declined from previous periods as a result of an increase in the cost of interest-bearing liabilities partially offset by an increase in the yields of interest-earning assets driven by the increase in market interest rates. The increasing rate environment also has resulted in a change to customers' banking behaviors causing them to move funds from lower yielding interest-bearing transaction accounts to higher yielding time deposits.

Net interest income for the fourth quarter of 2023 of $65.3 million decreased $16.3 million compared to the fourth quarter of 2022. Net interest income of $281.7 million for the year ended December 31, 2023 decreased from $312.6 million for 2022, a decline of $30.9 million, or 10%.

Net interest margin for the fourth quarter of 2023 of 2.52% decreased 76 basis points compared to the fourth quarter of 2022 and declined 16 basis points compared to the third quarter of 2023. Net interest margin for the full year of 2023 of 2.77% decreased 47 basis points compared to 3.24% for 2022.

The yield on interest-earning assets for the fourth quarter of 2023 was 4.93% compared to 4.31% for the fourth quarter of 2022 and 4.86% for the third quarter of 2023. The yield on interest-earning assets for 2023 was 4.77% compared to 3.77% for 2022 resulting primarily from an increase in the yields on interest-earning assets.

The cost of interest-bearing liabilities increased in the fourth quarter of 2023 to 3.25% compared to 1.50% for the fourth quarter of 2022 and 2.96% for the third quarter of 2023. The cost of interest-bearing liabilities for the year ended December 31, 2023 was 2.74% compared to 0.80% during the same period in 2022.

Noninterest Income

Noninterest income decreased $237,000 to $6.8 million for the fourth quarter of 2023 from $7.0 million for the fourth quarter of 2022. Commissions and fees in the fourth quarter of 2023 decreased $537,000 compared to the same period in 2022 due primarily to decreases in investment commission income. Gain on sales of loans in the fourth quarter of 2023 increased $236,000. Gain on equity securities increased from $11,000 in fourth quarter 2022 to $391,000 in fourth quarter 2023.

For the year ended December 31, 2023, noninterest income decreased $3.0 million to $25.1 million compared to 2022. Gains on sales of loans decreased from $2.8 million in 2022 to $1.5 million in 2023 resulting from lower sale volume of residential mortgages. Service charges on deposit accounts decreased $646,000 compared to 2022 due primarily to decreases in interchange income as a result of the provisions of the Durbin amendment which became effective for Lakeland in the third quarter of 2023. Commissions and fees in 2023 decreased $1.9 million compared to 2022 due to decreases in investment commission income and commercial loan fees. Income on bank owned life insurance decreased $530,000 due primarily to death benefits received during 2022. Offsetting these decreases in noninterest income was an increase in gain (loss) on equity securities which increased to a gain of $110,000 in 2023 from a loss of $1.3 million in 2022.

Noninterest Expense

Noninterest expense totaled $43.0 million for the fourth quarter of 2023, a decrease of $2.4 million compared to the fourth quarter of 2022. Compensation and employee benefit expense in the fourth quarter of 2023 decreased $1.8 million, or 7%, compared to the fourth quarter of 2022 as a result of a decline in headcount related to the anticipated merger with Provident Financial. Data processing expense increased $486,000 due primarily to credits received from service providers in the fourth quarter of 2022. FDIC insurance costs increased $660,000 in the fourth quarter of 2023 from $690,000 in the fourth quarter of 2022 relating to Lakeland's asset size exceeding $10 billion. In the fourth quarter of 2023, merger-related costs included $129,000 for the proposed merger with Provident Financial, compared to $533,000 in the fourth quarter of 2022.

For the year ended December 31, 2023, noninterest expense decreased $5.2 million to $183.0 million compared to $188.2 million for 2022 due primarily to merger-related expenses of $864,000 for 2023 compared to $8.6 million in 2022. Merger-related expenses in 2022 included $4.6 million related to the Company's acquisition of 1st Constitution Bancorp, as well as $4.0 million related to the anticipated transaction with Provident Financial. Data processing expense increased from $6.2 million to $7.6 million for the same reason noted in the quarterly comparison.

Income Tax Expense

The effective tax rate for the fourth quarter of 2023 was 26.1% compared to 27.1% for the fourth quarter of 2022. The effective tax rate for 2023 and 2022 was 23.5% and 25.4%, respectively. The effective tax rate declined from 2022 to 2023 as a result in a decline in pretax income and the resulting increase of tax advantaged items as a percent of pretax income.

Financial Condition

At December 31, 2023, total assets were $11.14 billion, an increase of $354.7 million, or 3%, compared to December 31, 2022. For the year ended December 31, 2023, total loans increased $477.8 million to $8.34 billion, while investment securities decreased $184.5 million to $1.85 billion. On the funding side, total deposits increased $13.8 million, while borrowings increased $285.8 million to $1.23 billion for the year ended December 31, 2023. At December 31, 2023, total loans as a percent of total deposits was 97.2%.

Asset Quality

At December 31, 2023, non-performing assets increased to $26.0 million, 0.23% of total assets, compared to $17.4 million, 0.16% of total assets, at December 31, 2022. Non-performing assets increased $12.5 million from the linked quarter as a result of one construction loan totaling $12.7 million being placed in non-accrual late in fourth quarter. Non-accrual loans as a percent of total loans increased to 0.31% at December 31, 2023 compared to 0.22% at December 31, 2022. At December 31, 2023, the allowance for credit losses was $77.2 million, 0.92% of total loans compared to $70.3 million, 0.89% of total loans, at December 31, 2022. In the fourth quarter of 2023, the Company had net charge-offs of $242,000, or 0.01% of average loans, annualized, compared to net charge-offs of $79,000, or 0.00% of average loans, annualized, for the same period in 2022. Provision for credit losses on loans for the fourth quarter of 2023 was a provision of $2.2 million compared to a provision of $1.5 million in the fourth quarter of 2022. There was no provision for credit losses on investments for the fourth quarter of 2023 compared to a benefit of $3.9 million for the same period in 2022.

Capital

At December 31, 2023, stockholders' equity increased 5% to $1.2 billion as compared to $1.1 billion at December 31, 2022. Lakeland Bancorp remains above regulatory “well capitalized” standards, with a Tier 1 leverage ratio of 9.27% at December 31, 2023. Book value per common share and tangible book value per common share were $17.98 and $13.69, respectively, compared to $17.09 and $12.76 at December 31, 2022 (see "Supplemental Information - Non-GAAP Financial Measures" for a reconciliation of non-GAAP financial measures, including tangible book value). On January 23, 2024, the Company declared a quarterly cash dividend of $0.145 per share to be paid on February 15, 2024, to shareholders of record as of February 5, 2024.

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. Accordingly, you should not place undue reliance on forward-looking statements. In addition to the specific risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, 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; inflation and other 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, which may affect demand for our products and the value of our financial instruments; 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; failure to realize anticipated efficiencies and synergies from the merger of 1st Constitution Bancorp into Lakeland Bancorp and the merger of 1st Constitution Bank into Lakeland Bank; and expenses related to our proposed merger with Provident Financial, unexpected delays related to the merger, inability to obtain regulatory approvals or satisfy other closing conditions required to complete the merger, and failure to realize anticipated efficiencies and synergies from the merger. Further, given its ongoing and dynamic nature, it is difficult to predict the continuing effects that the COVID-19 pandemic will have on our business and results of operations. 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 U.S. generally accepted accounting principles ("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.

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.

Specifically, 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 "Supplemental Information - Non-GAAP Financial Measures" and "Supplemental Information – Reconciliation of Net Income" for a reconciliation of non-GAAP financial measures.

About Lakeland

Lakeland Bank is the wholly-owned subsidiary of Lakeland Bancorp, Inc. (NASDAQ:LBAI), which had $11.14 billion in total assets at December 31, 2023. 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 973-697-6140 for more information.

(1) See Supplemental Information - Non-GAAP Financial Measures