Q3 2022 Lakeland Bancorp Inc Earnings Call

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Baird.

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Thank you for joining today's conference call May have your first name.

Yes, Hi, this is Rachel Smith or E C. H E. L. S M I T H.

Okay and your company name.

I'm with ore that stay I E R E.

Thank you you want him on that.

Thank you.

It remains strong.

Our Q3 net charge offs were a recovery of $32000 and would represent the fifth consecutive quarter of net recoveries, excluding the accounting for their first.

Constitution acquisition for purchase credit deteriorated loans back in Q1 of this year.

As of September 30th the allowance for credit losses.

On loans represented 91 basis points of total loans compared with 93 basis points for the trailing quarter.

Q3, noninterest income remained steady at $7 $2 million as improvements in loan swap fees and the benefit on bank owned life insurance were offset by continued softness in the gain on sale of residential mortgage loans and SBA loans.

Q3, noninterest expenses of $47 $8 million included $3 5 million in merger related expenses.

Absent, which these expenses would have decreased $750000 from the linked quarter.

Our efficiency ratio decreased to 49, 8% compared to the prior quarter of 57%.

Our Q3 effective tax rate increased slightly to 25% as compared to the trailing quarter.

On the balance sheet in comparison to the prior quarter total assets increased $141 million or one 4%.

With the loan portfolio, increasing $162 million or two 2% while investment securities decreased $77 million as cash flows were used to fund the loan growth.

Deposit balances increased $176 million or two 1% for the quarter, primarily due to our longer term certificates of deposit strategy discussed earlier, while borrowings decreased $74 million.

Our September 30 loan to deposit ratio was 87% consistent with the prior quarter and gives us ample liquidity to fund future loan growth.

For capital management, our capital levels remained strong and tangible capital ratio decreased to 783% compared to 8.0% to 1% at June 30.

As asset growth cash dividends and other comprehensive income changes offset earnings retention for the quarter.

Due to the potential impact of interest rate changes, causing additional mark to market adjustments on our available for sale investment securities portfolio as well as the continued strong loan growth in our in our loan portfolio, we did not repurchase any common stock in Q3 under our existing authorized share repurchase.

Graham.

All of our capital ratio percentages are consistent with the prior quarter and we remain well capitalized.

Regarding our outlook for the remainder of 2022, we believe that we are well positioned for rising interest rates.

Our projected net.

Our projected interest.

Rate risk position is neutral and we become more asset sensitive in future periods.

Deposit pricing increases in the certificate of deposit strategy. We implemented in Q3 was designed to pre fund our expected balance sheet growth with significantly lower cost of funding than is currently available Avaya federal home loan bank borrowings and broker.

Deposit markets, we do not anticipate increasing deposit pricing in Q4, which will decrease the deposit beta cycle to date.

As a result, we anticipate Q4 net interest margin will expand into the mid <unk> range.

As Tom discussed earlier, we expect loan portfolio to organically grow in the high single digits in 2022 and that asset quality will remain high.

Noninterest expenses for 2022, excluding merger related costs are forecasted in the low $180 million range.

And income tax expense for 2022 is forecasted to be approximately 25% for the year.

That concludes our prepared remarks, and we'd be happy to address any questions with that Megan can you open up the question period for us. Please.

Absolutely if you would like to ask a question. Please press star followed by one on your telephone keypad.

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As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly as questions are registered.

Yeah.

Okay.

Our first question comes from Chris Oconnor with K B W.

Your line is now open.

Okay. Good morning.

Good morning, Fritz will talk a little bit.

Bob.

A little bit more about the deposit strategy maybe.

Where are the Cds are coming on that.

And how much of that is going to flow into the fourth quarter here just on an average balance basis.

Where do you see the.

Deposit costs going.

In terms of I know, you said that there'll be flat in terms of.

No new raises but how much of.

Raises in the third quarter will kind of flow into them.

Right Yeah, Chris on the on the strategy, we forecasted interest rates continue to rise based upon the federal reserve's bank's intention.

And we just want to get out in front of it.

We secured.

Approximately $300 million and one to two year Cds.

At an average rate in the $2 40 to $2 50 range.

Comparable borrowings right now from the home loan bank or in the neighborhood of 5%. So we think that we secured some nice funding in advance.

Which had some downward pressure on our NIM in Q3, but should benefit us as we go forward now.

So I think that answers your question, but let me know if I didn't do it fully.

Yes, absolutely.

That helps.

As far as the <unk>.

Pre funding goes.

Cash balances didn't move.

That much I guess.

When thinking about the future loan growth.

These deposits.

Going forward.

So is it going to be kind of new deposit growth or.

Future borrowings over kind of runoff of the securities portfolio.

That's going to be flowing into loans on a go forward basis.

Yes, that's right Chris when you look at the overall balance sheet.

Yes about $75 million in cash flow coming out of the investment securities portfolio as well as all the cash flow of the lower yielding loans coming off the loan portfolio and thats being turned back into more loans going forward. So.

That's what we see right now.

And then.

We have ample we can do some more deposit taking if we want on a go forward basis, depending on where we're at with additional.

Loan growth above our projections, but I think we're in a good place from a liquidity standpoint that we can we can take care of what we need to do we fully leverage the cash position as you mentioned in the beginning of the year.

And so.

We're not sitting on excess liquidity right now, but we have plenty of capacity to borrow and move.

We need to.

Yeah.

Got it so over the next call.

We'll have quarters or so as you guys take on loan growth.

Is it fair to say that the securities portfolio might drift down a bit.

Yes, that's the intention if historically, we operated with the securities to total assets of approximately.

Around that 15, 12% to 15% range right now they are still up around 20% of total assets and we'd like to deploy those cash flows into higher yielding loans and increased profitability on a go forward basis.

Got it.

Yeah.

And then on.

On the loan portfolio growth.

Guys are getting.

<unk> got good growth this quarter it sounds like the pipeline going into the back end of the year is pretty strong maybe just a little bit of.

Color around.

Youre seeing demand and kind of where you are being cautious at this point in the cycle.

And yes, it would be great.

Yes, Chris we're seeing growth heavy growth.

Healthcare.

Space, which we said last quarter, they're continuing to.

To make some pretty good traction there.

Valley market continues to grow nicely.

Toms River Ocean County market is growing nicely, so it's coming pretty much across the board.

Health care is clearly leading the way.

We continue to avoid suburban office.

Good years that we've been doing that multifamily is still remain strong retail still remains strong and industrial warehouse space is just continuing to be on fire. So those are the areas, we're focusing our activities, but being very cautious on on hospitality and suburban office.

Got it whereas the pipeline.

Compared to last quarter.

It is up about 10% from last quarter.

Okay great.

And then last one for me.

On the buyback.

Being paused here.

Is it safe to say that that will continue to stay paused.

With the deal pending.

Yes, Chris.

Basically based upon the balance sheet, what we're doing right now I think we're going to keep a cause as well as because of the merger acquisition with.

With Provident financial so Rob we're going to be on the sidelines for Q4.

Great. Thanks for taking my questions.

Thanks, Chris Thanks, Chris.

Thank you Mr Oconnell.

There are currently no questions registered so as a reminder into star one on your telephone keypad.

Okay.

Yeah.

There are no additional questions waiting at this time, so I'll pass the conference back over to Tom <unk>.

For any additional remarks.

Thank you Mary and thanks, everybody for joining US today, if you do have any questions for Tom and I and we are available pretty much all day today. So please give us a call. Thanks, very much and have a great day everybody. Thank.

Thank you.

Yeah.