Lakeland Bancorp(LBAI) - 2022 Q4 - Annual Report

Financial Performance - Total assets increased to $10,783,840 thousand in 2022, up from $8,198,056 thousand in 2021, representing a growth of 31.7%[310] - Net income for 2022 was $107,369 thousand, compared to $95,041 thousand in 2021, reflecting an increase of 12.3%[313] - Total loans, net of deferred fees, rose to $7,795,786 thousand in 2022, up from $5,918,101 thousand in 2021, marking a growth of 31.7%[310] - Total deposits increased to $8,567,471 thousand in 2022, compared to $6,965,823 thousand in 2021, an increase of 23.0%[310] - Net interest income after provision for credit losses was $304,101 thousand in 2022, up from $245,731 thousand in 2021, a rise of 23.6%[313] - Noninterest income totaled $28,099 thousand in 2022, compared to $22,361 thousand in 2021, an increase of 25.7%[313] - Total noninterest expense increased to $188,208 thousand in 2022, up from $140,757 thousand in 2021, reflecting a rise of 33.8%[313] - Cash dividends paid per share increased to $0.57 in 2022 from $0.53 in 2021, a rise of 7.5%[313] - The allowance for credit losses increased to $70,264 thousand in 2022 from $58,047 thousand in 2021, reflecting a growth of 20.0%[310] - Net cash provided by operating activities increased to $124,696,000 in 2022 from $95,103,000 in 2021, reflecting a growth of 31%[322] Employee and Organizational Growth - As of December 31, 2022, Lakeland employed 911 associates, a 27% increase from 717 associates in 2021, with approximately 68% being women[24] - Approximately 29% of Lakeland's staff had been with the Company for over 10 years as of December 31, 2022, indicating strong employee retention[28] - The Company has implemented a Leader Engagement and Development (LEAD) Program since 2018, with 51 associates completing the program to foster leadership skills[25] - The Company provides competitive employee benefits, including a 401(k) plan with employer matching contributions and wellness programs, to enhance associate satisfaction[28] Regulatory Compliance and Capital Requirements - Lakeland's consolidated assets exceeded $10 billion following the acquisition of 1st Constitution Bancorp and 1st Constitution Bank on January 6, 2022, leading to increased regulatory supervision[32] - As of December 31, 2022, the Company and Lakeland met all capital requirements under the Basel Rules, including the capital conservation buffer requirement, and were classified as "well capitalized" on that date[58] - The Company is required to maintain a Common Equity Tier 1 Capital Ratio of at least 4.5%, a Tier 1 Capital Ratio of at least 6.0%, and a Total Capital Ratio of at least 8.0% to be classified as "well capitalized"[56] - The Federal Reserve Board and FDIC have established guidelines that limit the amount of dividends the Company can pay based on its capital ratios and current operating earnings[46] - The Company must comply with a leverage ratio requirement of 4.0% as part of its capital requirements[49] - The Basel Rules require a capital conservation buffer of 2.5%, effectively increasing the minimum capital ratios the Company must maintain[50] Competition and Market Position - The Company faces intense competition from various financial institutions, including credit unions and fintechs, which may impact its market share and pricing strategies[21] - The Company faces intense competition from financial services and technology companies, which may lead to actions such as lowering interest rates or fees to attract customers[167] - The Company aims to establish a reputation as the "small and middle market business bank" in its principal markets[326] Mergers and Acquisitions - The merger will convert each share of the Company common stock into 0.8319 of a share of Provident common stock, with no adjustments for market price fluctuations[75] - The combined company will incur substantial non-recurring costs related to the merger, including legal and advisory fees, which may affect future earnings[79] - The merger is subject to various regulatory approvals, which may impose conditions that could delay or adversely affect the combined company's operations[87] - The success of the merger depends on the ability to retain key employees and effectively manage the expanded operations of the combined company[86] - The combined company will face increased scrutiny from governmental authorities due to its larger size following the merger[85] - The merger agreement includes conditions that must be fulfilled, including SEC registration of shares and shareholder approval, which have already been met[94] - The integration process may result in unforeseen expenses and challenges that could impact the anticipated benefits of the merger[81] - The merger agreement includes a termination fee of $50 million payable under certain circumstances if the merger is not completed[96] Risk Factors - The company faces liquidity risks if its ability to borrow funds from the FHLB or other sources deteriorates, which could impact its financial condition[129] - Interest rate risks could negatively affect net interest income, which is the company's largest source of income, and changes in rates may influence loan demand and asset values[123] - The company is exposed to various economic risks, including potential increases in loan delinquencies and foreclosures due to adverse economic conditions[120] - Cybersecurity risks pose a threat to the company's operations, with potential impacts on reputation, customer retention, and regulatory scrutiny[137] - The ongoing COVID-19 pandemic has materially impacted supply chains and could lead to economic disruptions affecting the Company's operations and financial condition[162] - The Company faces risks from severe weather and geopolitical events, which could disrupt operations and impair borrowers' ability to repay loans[161] Asset Management and Investments - The company's investment portfolio was approximately $1.98 billion as of December 31, 2022, with $1.05 billion classified as available for sale and $923.3 million as held to maturity[135] - The transition from LIBOR to alternative rates, such as Term SOFR, is ongoing, with the company focusing on converting remaining LIBOR-based loans, which may impact risk profiles and pricing models[133] - The held-to-maturity portfolio includes major security types such as U.S. government agencies and mortgage-backed securities, which are highly rated and have a history of no credit losses[336] - The Company evaluates securities in segments for risk characteristics, utilizing a historical losses method for estimating expected collections on mortgage-backed securities and related obligations[337] Community Engagement - Lakeland received an "Outstanding" rating in its most recent Community Reinvestment Act examination, reflecting its commitment to meeting community credit needs[41] - Lakeland Bank will provide $12 million in loan subsidies over five years in Majority Black and Hispanic Census Tracts within the Newark Lending Area[72] - The bank will also allocate $750,000 for additional marketing of mortgage lending services and $400,000 for community development partnerships in the Newark Lending Area[72]