Lakeland Bancorp, Inc.

Reported Q3 net income was $28.7 million, or $0.44 per diluted share, versus $29.0 million and $0.44 in Q2 2022 and $22.0 million and $0.43 in Q3 2021. Excluding $3.5 million of pre-tax merger-related expenses, net income would have been $31.3 million, or $0.46 per share. ROA was 1.10%, ROE was 10.33%, and ROTCE was 13.87%; excluding merger costs, those would have been 1.21%, 11.36%, and 15.25%. Net interest margin was 3.28% versus 3.38% in the linked quarter and 2.98% a year ago. Loans increased $160.2 million, or 2.2%, while deposits increased $176 million, or 2.1%; total assets rose $141 million, or 1.4%. Non-performing loans were $18 million versus $22 million at June 30, non-performing assets to assets were 17 basis points, allowance for credit losses was $69 million or 91 basis points of loans, and net charge-offs were a recovery of $32,000. Non-interest income was $7.2 million and non-interest expense was $47.8 million, including $3.5 million of merger-related costs; the efficiency ratio was 49.8%. For Q4, management expects net interest margin to expand into the mid-3.30s range, says it will not increase deposit pricing in Q4, expects 2022 organic loan growth to meet prior high-single-digit guidance, and forecasts 2022 non-interest expense excluding merger costs in the low $180 million range with an effective tax rate of about 25%.

CEO Thomas Shara characterized the quarter as solid, emphasizing organic growth in both loans and deposits of more than 2% sequentially and continued pristine asset quality. He said commercial closings were strong, the fourth-quarter loan pipeline is very strong, and the company expects Q4 to be its strongest lending quarter seasonally. He also framed the deposit strategy as proactive funding ahead of higher rates, and said the balance sheet remains in a good liquidity position even as the company prepares for the Provident merger.

CFO Thomas Splaine focused on margin mechanics, funding strategy, and capital. He said Q3 NIM of 3.28% reflected higher loan yields and securities yields, offset by a 54-basis-point increase in the cost of interest-bearing liabilities to 62 basis points, driven by deposit pricing and the CD strategy. He noted approximately $300 million of one- to two-year CDs were secured at an average rate of 2.40% to 2.50%, and said the company did not repurchase stock in Q3; tangible capital ratio was 7.83% versus 8.01% at June 30, and the company remains well capitalized.

Analysts focused on the deposit strategy, asking where the CDs were priced, how the prefunding would support future loan growth, and whether securities balances would decline. Management said the $300 million in CDs were meant to lock in funding before further rate increases, that future loan growth would be funded by securities cash flows, loan amortization, and additional deposits if needed, and that the securities portfolio should drift down over time from about 20% of assets toward a more typical 12% to 15% range. On lending, management said growth is strongest in healthcare, the Hudson Valley, and Toms River/Ocean County, while suburban office and hospitality remain areas of caution. On buybacks, management said repurchases will stay paused in Q4 because of the merger and current balance-sheet priorities.