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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
Form 10-K10-K/A
Amendment No. 1
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2021.2022.
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                     TO                     
Commission file number: 000-17820

LAKELAND BANCORP, INC.

(Exact name of registrant as specified in its charter)
New Jersey22-2953275
(State or other jurisdiction of
 incorporation  or organization) 		 (I.R.S. Employer
Identification No.)

250 Oak Ridge Road, Oak Ridge, New Jersey 07438
 (Address of principal executive offices and zip code)
(973) 697-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of exchange on which registered
Common Stock, no par valueLBAIThe Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☒    No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:




Large accelerated filer ☒    Accelerated filer ☐    Non-accelerated filer ☐  Smaller reporting company ☐  Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of June 30, 2021,2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $846,945,000,$901,705,000, based on the closing sale price as reported on the NASDAQ Global Select Market.
The number of shares outstanding of the registrant’s common stock, as of February 22, 2022,April 10, 2023, was 64,648,502.65,018,978.
DOCUMENTS INCORPORATED BY REFERENCE:
None


Table of Contents


INDEX

1
Part III
DOCUMENTS INCORPORATED BY REFERENCE:
Lakeland Bancorp, Inc. Proxy Statement for its 2022 Annual Meeting of Shareholders (Part III).

Table of Content
LAKELAND BANCORP, INC.
Form 10-K Index
PAGE
Item 1.
1
Item 1A.
9
Item 1B.
19
Item 2.
19
Item 3.
19
Item 4.
19
PART II
Item 5.
20
Item 6.
21
Item 7.
21
Item 7A.
42
Item 8.
43
Item 9.
95
Item 9A.
95
Item 9B.
97
Item 9C.
97
PART III
Item 10.
972
9715
Security Ownership of Certain Beneficial Owners and Management and Related StockholderStockholders Matters
9744
9747
9748
Part IV
Item 15.
98
Item 16.
Form 10-K Summary
100
10149


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Table of Content


PART I
ITEM 1 - Business.
GENERALEXPLANATORY NOTE

This Amendment No. 1 to the Annual Report on Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, originally filed on February 28, 2023 (the “Original Filing”) by Lakeland Bancorp, Inc. (the “Company” or “Lakeland Bancorp”) is, a bank holding company headquartered in Oak Ridge, New Jersey. The Company was organized in March 1989 and commenced operations on May 19, 1989, upon the consummation of the acquisition of all of the outstanding stock of Lakeland Bank, formerly named Lakeland State BankJersey corporation (“Lakeland” or the “Bank”“Company”). Lakeland is filing this Amendment to present the information required by Part III of Form 10-K as the Company will not file its definitive annual proxy statement within 120 days of the end of its fiscal year ended December 31, 2022.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment also contains new certifications by the principal executive officer and the principal financial officer as required by Section 302 of the Sarbanes-Oxley Act of 2002. Accordingly, Item 15(a)(3) of Part IV is amended to include the currently dated certifications as exhibits. Because no financial statements have been included in this Amendment and this Amendment does not contain or “Lakeland Bank”amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted.
On September 26, 2022, the Company entered into definitive merger agreement with Provident Financial Services, Inc. ("Provident"). pursuant to which the companies will combine in an all-stock merger. The transaction was approved by each of the Company’s shareholders and Provident's stockholders on February 1, 2023. The completion of the merger remains subject to receipt of the requisite regulatory approvals and other customary closing conditions. As a result, the Company does not anticipate holding an annual meeting of February 28, 2022, Lakeland operates 69 branch offices located throughout northernshareholders prior to closing.
Except as described above or as expressly noted in this Amendment, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and central New Jersey and in Highland Mills, New York; six New Jersey regional commercial lending centers strategically located in our market area and one New York commercial lending center to serve the Hudson Valley region. Lakeland offers an extensive suite of financial products and services for businesses and consumers.
The Company has grown through a combination of organic growth and acquisitions. Since 1998, the Company has acquired nine community banksnot updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.
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PART III
ITEM 10 – Directors, Executive Officers and Corporate Governance.
Lakeland’s Board of Directors currently consists of 12 members and is divided into three classes, with an aggregate asset totalone class of approximately $4.16 billion, includingdirectors elected each year. Each of the 12 members also serves as a director of Lakeland Bank. The Company maintains a mandatory retirement age for its most recent acquisitiondirectors, which requires that any director who turns 72 during their term must retire at the next Annual Meeting of 1st Constitution BankShareholders. To provide for continuity with shareholders, customers and its parent, 1st Constitution Bancorp ("1st Constitution Bancorp"), which was completed on January 6, 2022. Atassociates and, in order to further ensure the success with respect to all aspects of the January 6, 2022, 1st Constitution Bancorp had approximately $1.88 billion in assets, $1.12 billion in loansmerger and $1.65 billion in deposits. Allintegration, the Board approved a specific exception to its mandatory retirement age policy so as to allow Robert F. Mangano, who was then age 76, to join the Boards of Lakeland and Lakeland Bank at legal close and to continue thereafter for an additional one-year term from the 2022 Annual Meeting of Shareholders, subject to shareholder approval.
The Company's goal is to have a Board of Directors whose members have diverse professional backgrounds and have demonstrated professional achievement with the highest personal and professional ethics and integrity and whose values are compatible with those of Lakeland. In 2021, the Board's Nominating and Corporate Governance Committee established a diversity definition, goals and timeframe for increased Board member diversity, which was informed by and aligned with an updated skills assessment. The Board recognized that the Company benefits from a Board whose members possess a diversity of business experience and demographic backgrounds and seek to identify nominees with a range of background and experience. In addition to a deep understanding of the acquired banks have been merged intobanking industry and the communities served by Lakeland Bank, important factors considered in the selection of nominees for director include experience in positions that develop good business judgement, that demonstrate a high degree of responsibility and independence and that show the individual's ability to commit adequate time and effort to serve as a director.
Directors and Executive Officers of Lakeland Bancorp
The following table states our directors' names, their ages as of March 15, 2023, the years when they began serving as directors of Lakeland and when their current terms expire.
NamePosition(s) Held With Lakeland BancorpAgeDirector
Since		Expiration
of Term
Bruce D. BohunyDirector5420072024
Mary Ann DeaconChair of the Board7119952024
Brian FlynnDirector6320102024
Mark J. FredericksDirector6219942023
Brian A. GragnolatiDirector6520202024
James E. Hanson IIDirector6420182023
Janeth C. HendershotDirector6820042023
Lawrence R. Inserra, Jr.Director6520162025
Robert F. ManganoDirector7720222023
Robert E. McCrackenDirector6520042025
Robert B. Nicholson, IIIDirector5820032023
Thomas J. SharaDirector, President and Chief Executive Officer6520082025
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The following information describes the business experience of each of Lakeland Bancorp's directors.
Mr. Bohuny currently is President at Brooks Builders. Mr. Bohuny’s over 20 years of experience in the residential and commercial construction and real estate development fields, and his prior work experience in the equity and fixed income markets and service on various educational and philanthropic boards including the StonyBrook School, Eastern Christian School, Christian Healthcare Center, New Canaan Society and NextGen Board Leaders Advisory Council, led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank.
Ms. Deacon is the current Board Chair of Lakeland Bancorp, Inc. and Lakeland Bank, as well as Secretary/Treasurer of Deacon Homes, Inc. Ms. Deacon’s over 40 years of extensive experience in the real estate development process, building contracting, property management and sales, her service to a number of community associations, her reputation in the broader business community as well as in the local real estate markets and her dedication to Lakeland and Lakeland Bank led the Board to conclude that this individual should serve as a director of Lakeland. Ms. Deacon is responsible for the planning and administration of numerous operating companies and four condominium associations. Her past participation in the state and local real estate associations includes leadership positions and committee experience in ethics, professional standards, strategic planning and governance. Ms. Deacon is committed to enhancing her professional participation as a director of Lakeland and frequently attends continuing education seminars and institutes applicable to directors of banks and bank holding companies. During her 28-year tenure at Lakeland, she has served on every committee of the Board. In January 2010, she was elected Vice Chair of the Board of Lakeland and Lakeland Bank and, in May 2011, she was elected Board Chair of Lakeland and Lakeland Bank.
Mr. Flynn is a Partner at PKF O’Connor Davies, LLP, one of the largest regional accounting firms in the tri-state area. He received his Bachelor of Science Degree, cum laude, from Monmouth College. With over 30 years of experience as a practicing CPA, Mr. Flynn brings in-depth knowledge of generally accepted accounting principles and auditing standards to our Board. He has worked with audit committees and boards of directors in the past, including previously serving on the Boards of TD Banknorth, Inc. and Hudson United Bancorp, and provides Lakeland’s Board of Directors and its Audit Committee with extensive experience in auditing and preparing financial statements. For these reasons, the Board has concluded that this individual should serve as a director of Lakeland and Lakeland Bank.
Mr. Fredericks’ experience in business, banking and real estate, as well as his extensive knowledge of the communities in which Lakeland operates, has led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank. Mr. Fredericks has served as a director of Lakeland since 1994 and his knowledge of banking comes his tenure as a director, during which he has served on several committees. Mr. Fredericks owns and operates three businesses in Lakeland’s markets: he is the president and CEO of Fredericks Fuel and Heating Services, as well as president of Keil Oil Inc. and F&B Trucking Inc. He also is the managing partner of several real estate partnerships in the area. Mr. Fredericks is a lifetime resident and active participant in the communities served by Lakeland, and has been a member of numerous charitable, civic and business organizations over the years. These include his prior service as Trustee of Chilton Memorial Hospital; member and past president of the West Milford Education Foundation and member and past president of the West Milford Rotary Club.
Mr. Gragnolati has served as the President and CEO of Atlantic Health System since 2015. Atlantic Health System is a not-for-profit private healthcare company that operates hospitals and health care facilities throughout New Jersey. He also serves as a Past Chairman of the Board of the American Hospital Association, a nationwide organization that represents and advocates on behalf of hospitals, health care systems, networks, other providers of care and individual members. He also previously served on the board of Paper Mill Playhouse and is a proponent of their work in arts accessibility, which makes theater available to audience members with cognitive and developmental disabilities.Prior to joining Atlantic Health System, Mr. Gragnolati
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served as Senior Vice President, Community Division of Johns Hopkins Medicine, and President and CEO of Suburban Hospital and, before that, held executive positions at WellSpan Health, the Medical Center Hospital of Vermont, and Baystate Medical Center in Springfield, Massachusetts. Mr. Gragnolati holds a bachelor’s degree in Health Systems Analysis from the University of Connecticut, an MBA from Western New England College, and an Executive Leadership Certificate from the JFK School at Harvard University. Mr. Gragnolati’s experience in business, executive management and finance, as well as his familiarity with and leadership of not-for-profit organizations, has led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank.
Mr. Hanson has served as President and CEO of The Hampshire Companies, a full service, private real estate investment firm with assets valued at more than $2.3 billion, based in Morristown, New Jersey, since 2005. Mr. Hanson also serves as a non-executive director of United-Hampshire US REIT Management PTE LTD., a Singapore company REIT Manager (50% of which is owned by The Hampshire Companies) that operates as a real estate investment trust that owns and operates U.S.-based shopping, storage, grocery and necessity-based retail properties and which is listed on the Singapore Exchange. He holds a number of leadership positions, both professionally and philanthropically. Mr. Hanson also serves as a Member of the New Jersey State Investment Council since 2010. Mr. Hanson has served as a Commissioner of the Palisades Interstate Park Commission since 1995. Mr. Hanson presently serves as President of the Commission, a position that he previously held between 2000 and 2005 and to which he was re-appointed in September 2021. Mr. Hanson holds a law degree from Vermont Law School, graduating Magna Cum Laude, and a Bachelor of Arts from Hope College, and subsequently served in a variety of leadership roles at each institution, including as Trustee. Mr. Hanson’s extensive knowledge of the commercial real estate markets, his proven business experience and philanthropic leadership led the Board to believe that this individual should serve as a director of Lakeland and Lakeland Bank.
Ms. Hendershot has had significant experience in the leadership and management of various corporate entities and operations. She also has experience in managing and controlling risk-taking operations within the insurance industry, and in IT strategy and developments. This experience, as well as her educational background including a degree in economics from Cornell University, led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank.
Lawrence R. Inserra, Jr. joined the Lakeland and Lakeland Bank Boards of Directors upon the closing of the mergers with Pascack Bancorp, Inc. and Pascack Community Bank in 2016, at which he previously had served as a director. Mr. Inserra is Chairman of the Board and CEO of Inserra Supermarkets, Inc., a family-owned business founded in 1954 and one of the largest supermarket chains in the metropolitan area, which owns and operates numerous ShopRite stores throughout New Jersey and New York. Mr. Inserra also holds a number of leadership positions, both professionally and philanthropically, including board member and treasurer of Wakefern Food Corporation. In 2013, he was named Chairman of the Board of Governors at Hackensack University Medical Center (HUMC) after serving as First Vice Chairman and Chairman of the Human Resources Committee at HUMC. Mr. Inserra received a Bachelor of Science in business and economics from Lehigh University. Mr. Inserra’s business experience, philanthropic endeavors and knowledge of Lakeland’s markets led the Board to believe that this individual should serve as a director of Lakeland and Lakeland Bank.
Robert F. Mangano joined the Lakeland and Lakeland Bank Boards of Directors on January 6, 2022 upon the closing of the mergers with 1st Constitution Bancorp and 1st Constitution Bank at which he had served as a director, President and Chief Executive Officer. Mr. Mangano serves on the Board of Trustees of Englewood Hospital Medical Center and its parent board and is Chairman of its Audit Committee. Mr. Mangano's business skills and experience, his extensive knowledge of financial and operational matters acquired holdingduring his career working for several banks in increasingly senior roles and leadership positions and his thorough understanding of 1st Constitution Bank's markets led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank.
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Robert E. McCracken is the sole managing member and owner of REM, GC LLC, the manager of Wood Funeral Home and Smith-McCracken Funeral Home. Mr. McCracken’s knowledge of the banking industry, his over 15 years of service on the boards of various banks (including serving on Lakeland’s Board since 2004 and Lakeland Bank’s Board since 2008), his business experience as an owner and operator of various businesses and real estate within Lakeland’s footprint, his reputation in the community as a lifelong resident within Lakeland’s footprint, his many long standing relationships with Lakeland’s non-institutional shareholder base and his involvement in many non-profit and local charities, including serving as former Board Chairman of Newton Memorial Hospital, now known as the Newton Medical Center, and presently as Chairman of the Atlantic Health System Board, as well as on the boards of other local organizations, led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank.
Mr. Nicholson’s business experience with Eastern Propane Corporation, including having served as president and CEO of that entity for 29 years, his educational background in finance and business management, his experience in buying and selling companies if applicable, haveand commercial real estate properties and his reputation in the business and local community led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank. Mr. Nicholson has been merged intohonored with the Outstanding Citizen of the Year award from Sparta Township, as a Distinguished Citizen by the Boy Scouts of America, Patriots Path Council, the Distinguished Alumni Award from Florida Southern College for outstanding service to his professions and community and is the Past Chairman of the board of trustees for the Sussex County New Jersey Chamber of Commerce.
Thomas J. Shara’s over 30 years of experience in the banking industry, his stature and reputation in the banking and local community, and his service as President and CEO of Lakeland and Lakeland Bank since April 2008 led the Board to conclude that this individual should serve as a director of Lakeland and Lakeland Bank. His knowledge and understanding of all facets of the business of banking, the leadership he has demonstrated at Lakeland and at prior institutions and his involvement in charitable and trade organizations make him extremely valuable as a Board member. Mr. Shara serves as a member of the New Jersey Bankers Association Board of Directors, on the Board of Directors of the Commerce and Industry Association of New Jersey, the Board of Trustees of the Boys and Girls Club of Paterson and Passaic, New Jersey and the Board of Trustees of the Chilton Hospital Foundation. He also serves on the Board of Governors of the Ramapo College Foundation. Mr. Shara earned a Master’s Degree in Business Administration and a Bachelor of Science Degree from Fairleigh Dickinson University. Mr. Shara previously served as the Chairman of New Jersey Bankers Association.
In addition to Mr. Shara, whose qualifications are listed above, the following describes the business experience of each the Company's Executive Officers.
Thomas F. Splaine, 57, a Certified Public Accountant, has been Executive Vice President and Chief Financial Officer of the Company and the Bank since March 2017. He joined Lakeland in 2016 as First Senior Vice President and Chief Accounting Officer of the Company and the Bank. Prior to joining Lakeland, Mr. Splaine was employed at Investors Bancorp, Inc. since 2004 and served in roles as Senior Vice President - Chief Financial Officer, Financial Planning and Analysis and Investor Relations of Investors Bancorp, Inc.
Ronald E. Schwarz, 68, has served as Senior Executive Vice President and Chief Operating Officer of the Company and the Bank since 2017. Since joining the Company in 2009, Mr. Schwarz has served as Senior Executive Vice President and Chief Revenue Officer of the Company and the Bank and Executive Vice President and Chief Retail Officer of the Company and the Bank.
Timothy J. Matteson, Esq., 53, has served as Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary of the Company since 2017. In 2012, Mr. Matteson was named Executive Vice President, General Counsel and Corporate Secretary of the Company. He joined the Company in 2008 as Senior Vice President and General Counsel.
At December 31, 2021,
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James M. Nigro, 55, joined Lakeland in 2016 and serves as Executive Vice President, Chief Risk Officer of the Company. Previously, Mr. Nigro was Senior Vice President and Credit Risk Manager of The Provident Bank from 2013 to 2016.
Paul Ho Sing Loy, 62, is Executive Vice President and Chief Information Officer of the Company since 2019 and, of the Bank, since 2017. Previously Mr. Ho Sing Loy served as Senior Vice President and Director of Business Solutions of Associated Bank since 2012.
Ellen Lalwani, 59, has served as Executive Vice President and Chief Banking Officer of the Company and the Bank since 2020. Employed by the Bank since 2008, Ms. Lalwani has served as Executive Vice President and Chief Retail Officer of the Company and the Bank and Senior Vice President and Director of Retail Sales of the Bank.
John F. Rath, III, 64, has served as Executive Vice President and Chief Lending Officer of the Company and the Bank since 2018. Mr. Rath has been with the Bank since 2015, having served as First Senior Vice President, Commercial and Industrial Lending Group Manager and Senior Vice President, Commercial and Industrial Lending, Hudson Valley, New York.
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Board of Directors Meetings and Committees
The Board of Directors of Lakeland Bancorp had total consolidated assetsand Lakeland Bank each held 12 meetings during 2022. The Board of $8.20 billion, total consolidated deposits of $6.97 billion, total consolidated loans, netDirectors currently maintains the following committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, the Loan Review Committee, the Policy Committee and the Risk Committee.
No director attended fewer than 75% of the allowancetotal number of Board meetings held by the Lakeland Bancorp and Lakeland Bank Boards of Directors and all committees of the Boards on which they served (for the period they served) during 2022. All Lakeland Bancorp directors attended the annual meeting of shareholders held on May 17, 2022.
Committees
NameAuditCompensationNominating and Corporate GovernanceLoan ReviewPolicyRisk
Bruce D. BohunyMemberMemberChair
Mary Ann Deacon
Brian FlynnChair (1)Member
Mark J. FredericksMemberMemberMember
Brian A. GragnolatiMember (1)MemberMember
James E. Hanson IIMemberMember
Janeth C. HendershotMemberChair
Lawrence R. Inserra, Jr.MemberMemberChair
Robert F. ManganoMemberMember
Robert E. McCrackenChairMember
Robert B. Nicholson, IIIMemberChairMember
Thomas J. Shara
(1)    The Board considers Messrs. Flynn and Gragnolati each an "audit committee financial expert."
Director Skills
The Nominating and Corporate Governance Committee Charter describes the minimum qualifications for credit lossesnominees and the qualities or skills that are necessary for directors to possess. Each nominee:
•must satisfy any legal requirements applicable to members of the Board;
•must not serve on loans,the board of $5.92 billionany other financial institution, bank or savings and total consolidated stockholders’ equityloan company in the Company’s market area;
•must have business or professional experience that will enable such nominee to provide useful input to the Board in its deliberations;
•must have a willingness and ability to devote the time necessary to carry out the duties and responsibilities of $827.0 million.Board membership;
This•must have a desire to ensure that the Company’s operations and financial reporting are affected in a transparent manner and in compliance with applicable laws, rules and regulations;
•must have a dedication to the representation of the best interests of the Company and all of its shareholders;
•must have a reputation, in one or more of the communities serviced by Lakeland and its subsidiaries, for honesty and ethical conduct;
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•must have a working knowledge of the types of responsibilities expected of members of the board of directors of a public corporation and particularly, a bank holding company;
•must have experience, either as a member of the board of directors of another public or private corporation or in another capacity that demonstrates the nominee’s capacity to serve in a fiduciary position;
•must recognize and fulfill her/his fiduciary responsibility as a representative of the shareholders in the role of director; have a working knowledge of the business, economic, social, charitable and professional attributes of the communities serviced by the Company and its subsidiaries; and
•must diligently and honestly administer the affairs of the Company and Lakeland Bank.
Board Leadership Structure
The Company currently has, and historically has had, a Board Chair separate from the Chief Executive Officer. The Board believes it is important to have an independent director in a Board leadership position at all times. The Board Chair provides leadership for the Board. Having an independent Board Chair enables non-management directors to raise issues and concerns for Board consideration without immediately involving management. The Board Chair also serves as a liaison between the Board and senior management. The Company’s Board has determined that the current structure, an independent Board Chair, separate from the Chief Executive Officer, is the most appropriate structure at this time, as it ensures that, at all times, there will be an independent director in a Board leadership position.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines, a copy of which is available on our website, https://investorrelations.lakelandbank.com/corporate-governance. The Corporate Governance Guidelines set forth the functions, composition, committees and operations followed by the Board of Directors including, among other things:
•Criteria for composition of the Board and selection of new directors;
•Assessment of the Board's performance;
•Formal evaluation of the CEO;
•Succession planning and management development;
•Strategic reviews;
•Board and management compensation reviews;
•Non-delegable actions of the Board;
•Size and composition of the Board;
•Independence determination of the Board;
•Manner of notification of changes of director job responsibilities;
•Director tenure;
•Director retirement age
•Director resignations;
•Board and committee membership limitations;
•Stock ownership requirements;
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•Anti-pledging policy of Company securities; hedging prohibited;
•Number of committees, reporting by committees and assignment and rotation of committee membership;
•Non-executive Board Chair;
•Lead director;
•Executive sessions for non-management directors;
•Committee and Board agendas;
•Board and committee materials and presentations;
•Regular attendance of non-directors at Board and committee meetings;
•Board access to senior management;
•Confidentiality of information;
•Board access to outside resources;
•Director orientation and continuing education;
•Code of Business Conduct and Ethics; and
•Repricing of stock options.
The Board maintains an Independent Directors Committee, consisting of independent non-management directors, which met seven times in 2022.
Anti-Pledging Policy and Anti-Hedging Policy
In March 2013, Lakeland’s Board adopted an anti-pledging policy that prohibits future pledging of Lakeland common stock by Lakeland’s executive officers and directors. The policy does not require pre-existing pledges to be unwound. Hedging transactions involving the Company's securities by directors, officers and employees are also prohibited.
Stock Ownership Requirements
Although the Company’s by-laws provide that the minimum value of Lakeland common stock to be held by directors is $1,000, the Board has adopted Corporate Guidelines that establish a goal that directors own or otherwise control, at a minimum, the number of shares or share equivalents of Lakeland common stock equal to approximately five times (5x) the directors’ annual retainer fee, with new directors attaining that goal within five years. The Compensation Committee periodically reviews this stock ownership goal and has determined that all directors have attained the prescribed goal.
Nominating and Corporate Governance Committee
Each member of theNominating and Corporate Governance Committee is considered independent as defined in the Nasdaq corporate governance listing rules. The Nominating and Corporate Governance Committee’s Charter is posted on the Investor Relations page of Lakeland Bank's website, https://investorrelations.lakelandbank.com/corporate-governance.
As noted in the Nominating and Corporate Governance Committee Guidelines, the purpose of the committee is to assist the Board in identifying individuals to become Board members, determine the size and composition of the Board and its committees, monitor Board effectiveness and implement the Corporate Governance Guidelines.
In furtherance of this purpose, the Committee, among other things, shall:
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•Lead the search for individuals qualified to become members of the Board of Directors and develop criteria (such as independence, experience relevant to the needs of the Company, leadership qualities, diversity, stock ownership) for board membership;
•Make recommendations to the Board concerning Board nominees and shareholder proposals;
•Develop, recommend and oversee the annual self-evaluation process of the Board and its committees;
•Develop and annually review corporate governance guidelines applicable to the Company; and
•Review and monitor the Board's compliance with Nasdaq corporate governance listing rules for independence.
The Company's bylaws and the Nominating and Corporate Governance Committee’s charter describe the procedures for nominations to be submitted by shareholders and other third parties for consideration at an annual meeting, other than candidates who have previously served on the Board or who are recommended by the Board. Shareholders recommending a director candidate to the Committee may do so by submitting the candidate's name, resume and biographical information to the attention of the Chair of this Committee in accordance with procedures listed in this Amendment No. 1 to the Annual Report on Form 10-K contains certain forward-looking statements within(also available on Lakeland's website). All shareholder recommendations for director candidates that the meaningChair of the PrivateCommittee receives in accordance with these procedures will be presented to the Committee for its consideration. The Committee's recommendations to the Board are based on its determination as to the suitability of each individual, and the slate as a whole, to serve as directors of Lakeland.
The Nominating and Corporate Governance Committee and the Board recognize that it is important for the Company's directors to possess a diverse array of backgrounds and skills, including executive management experience, financial services experience and educational and professional achievement. When considering new candidates, the Nominating and Corporate Governance Committee, with input from the Board, will seek to ensure that the Board reflects a range of talents, ages, skills, diversity and expertise, particularly in the areas of accounting and finance, management, regulatory and risk management and leadership sufficient to provide sound and prudent guidance with respect to our operations and interests. In addition, the Nominating and Corporate Governance Committee considers diversity in demographic and professional backgrounds among the factors used to identify nominees for directors. The goal of the Nominating and Corporate Governance Committee is to assemble and maintain a Board comprised of individuals with a broad spectrum of skills, experience and expertise combined with a reputation for integrity to carry out the Board's responsibilities with respect to oversight of the Company's operations.
Criteria for Election
Candidates to serve on the Board will be identified from all available sources, including recommendations made by shareholders. As indicated above, the Nominating and Corporate Governance Committee’s charter provides that there will be no differences in the manner in which the Committee evaluates nominees recommended by shareholders and nominees recommended by the Committee or management, except that no specific process shall be mandated with respect to the nomination of any individual who has previously served on the Board. The evaluation process for individuals other than existing Board members includes:
•a review of the information provided to the Nominating and Corporate Governance Committee by the proponent;
•a review of references from at least two sources determined to be reputable by the Nominating and Corporate Governance Committee; and
•a personal interview of the candidate, as appropriate, for candidates determined to be qualified,
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together with a review of such other information as the Nominating and Corporate Governance Committee shall determine to be relevant.
Procedures for the Nomination of Directors by Shareholders
Although, the Company does not anticipate holding an annual meeting of shareholders in 2023, the Nominating and Corporate Governance Committee has adopted procedures for the consideration of Board candidates submitted by shareholders. Shareholders can submit the names of candidates for director by writing to the Chair of the Nominating and Corporate Governance Committee, at Lakeland Bancorp, Inc., 250 Oak Ridge Road, Oak Ridge, New Jersey 07438. The submission must include the following information:
•a statement that the writer is a shareholder and is proposing a candidate for consideration by the Nominating and Corporate Governance Committee;
•the name and address of the nominating shareholder as he or she appears on Lakeland's books and the number of shares of Lakeland common stock that are owned beneficially by such shareholder (if the shareholder is not a holder of record, appropriate evidence of the shareholder's ownership will be required);
•the name, address and contact information for the nominated candidate, and the number of shares of Lakeland Bancorp common stock that are owned by the candidate (if the candidate is not a holder of record, appropriate evidence of the shareholder's ownership should be provided);
•the qualifications of the candidate and why this candidate is being proposed;
•a statement of the candidate's business and educational experience;
•such other information regarding the candidate as would be required to be included in a proxy statement pursuant to SEC Regulation 14A;
•a statement detailing any relationship between the candidate and the Company and/or Lakeland Bank and between the candidate and any customer, supplier or competitor of the Company and/or Lakeland Bank;
•detailed information about any relationship or understanding between the proposing shareholder and the candidate; and
•a statement that the candidate is willing to be considered and willing to serve as a director if nominated and elected.
A nomination submitted by a shareholder for presentation by the shareholder at an annual meeting of shareholders must comply with the procedural and informational requirements described in "Advance Notice of Business to be Conducted at an Annual Meeting."
Shareholder Communication with the Board
The Board of Directors has established a procedure that enables shareholders to communicate in writing with members of the Board. Any such communication should be addressed to the Board Chair and should be sent to such individual c/o Lakeland Bank, 250 Oak Ridge Road, Oak Ridge, New Jersey 07438. Any such communication must state, in a conspicuous manner, that it is intended for distribution to the entire Board of Directors. Under the procedures established by the Board, upon the Board Chair’s receipt of such a communication, Lakeland’s Secretary will send a copy of such communication to each member of the Board, identifying it as a communication received from a shareholder. Absent unusual circumstances, at the next regularly scheduled meeting of the Board held more than two days after such communication has been distributed, the Board will consider the substance of any such communication.

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Code of Ethics
The Company has adopted a code of ethics that applies, among others, to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, a copy of which is posted on our website, https://investorrelations.lakelandbank.com/corporate-governance.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Litigation ReformExchange Act of 1995 (“Forward-Looking Statements”). Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such Forward-Looking Statements. Certain factors which could materially affect such results1934, as amended, and the futurerules and regulations promulgated thereunder require Lakeland’s directors, executive officers and 10% shareholders to file with the SEC certain reports regarding such persons’ ownership of Lakeland’s securities. Lakeland is required to disclose any failures to file such reports on a timely basis. Based solely upon a review of the copies of the forms or information furnished to Lakeland, Lakeland believes that during 2022, all filing requirements applicable to its directors and executive officers were satisfied on a timely basis.
Risk Oversight Matters
The full Board of Directors is responsible for and regularly engages in discussions about risk management and receives reports on this topic from executive management and other officers of the Company. The Board established a separate standing Risk Committee to assist and facilitate its risk oversight responsibilities, including overseeing the Company’s enterprise-wide risk management framework and monitoring certain risk management activities designed to ensure the Company operates within risk parameters established by the Board.
The Board's Role in Cybersecurity Oversight
Maintaining the security, availability and integrity of our customers' private information is of paramount importance to our entire Lakeland team. We have integrated corporate policies and operating procedures that govern how we collect, use, retain and protect private and personal data of our customers and other stakeholders; manage and monitor third-party risk; and ensure operational continuity and recovery through resiliency planning and testing.
With oversight from our Board, directly and through its Risk Committee chaired by an independent director, Lakeland’s cybersecurity program utilizes multiple levels of preventive and detective tools, rigorous systems testing, vulnerability and software patch management, and a dedicated information security team led by our Chief Information Security Officer, who reports to our Chief Risk Officer.
Activities within our information security program include engaging third parties to conduct internal and external system penetration testing and internal security risk assessments; updating our incident response program to ensure a coordinated response by internal and external team members to mitigate the impact of, and recover from, any cyber-attacks, including communications to internal and external customers and other stakeholders; mandatory annual training in information security for our associates; and periodically conducting exercises to raise data security awareness.
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Audit Committee Matters
The Board has determined that each member of the Audit Committee is independent as defined in the Nasdaq corporate governance listing rules and under SEC’s Rule 10A-3. The Board has determined and considers that Mr. Flynn, the Chair of the Audit Committee, and Mr. Gragnolati are each an "audit committee financial expert" as that term is used in the rules and regulations of the SEC.
The Audit Committee performed its duties during 2022 under a written charter approved by the Board of Directors. A copy of the current Audit Committee charter is available to shareholders on the Company’s website, https://investorrelations.lakelandbank.com/corporate-governance.
As noted in the Audit Committee Charter, the primary purpose of the Audit Committee is to assist the Board:
•Assume direct responsibility for the appointment, compensation and oversight of the work of the Company's independent auditors, including resolution of any disagreements that may arise between the Company's management and the Company's independent auditors regarding financial reporting. Assume direct responsibility for the termination of the Company's independent auditors, if necessary.
•Monitor the integrity of the Company's financial reporting process and systems of internal controls regarding finance, accounting and legal compliance.
•Monitor the independence and performance of the Company are describedCompany's independent auditors.
•Provide an avenue of communication among the independent auditors, management and the Board of Directors.
•Encourage adherence to, and continued improvement of, the Company's accounting policies, procedures, and practices at all levels; review of potential significant financial risk to the Company; and monitor compliance with legal and regulatory requirements.
•Monitor the performance of the Company's internal audit function.
In furtherance of this purpose, this committee, among other things, shall:
•Review the integrity of the Company's internal control over financial reporting, both internal and external, in Item 1A - Risk Factorsconsultation with the independent registered public accounting firm and the internal auditor.
•Review the financial statements and the audit report with management and the independent registered public accounting firm.
•Review earnings and financial releases and quarterly and annual reports filed with the SEC.
•Approve all engagements for audit and non-audit services by the independent registered public accounting firm.
The Audit Committee reports to the Board of Directors on its activities and findings.
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Audit Committee Report
Pursuant to rules and regulations of the SEC, this Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Amendment No. 1 to the Annual Report on Form 10-K.
Commercial Bank Services
Through Lakeland,10-K into any filing under the Company offers a broad rangeSecurities Act of lending, depository, and related financial services to individuals and small to medium sized businesses located primarily in northern and central New Jersey,1933, as amended, or the Hudson Valley region in New York and surrounding areas. In the lending area, these services include commercial real estate loans, commercial and industrial loans, short and medium term loans, linesSecurities Exchange Act of credit, letters of credit, inventory and accounts receivable financing, real estate construction loans, residential mortgage loans, Small Business Administration (“SBA”) loans and merchant credit card services. The Company participated in the SBA's Paycheck Protection Program ("PPP") beginning in April 2020. Through Lakeland’s equipment finance division, the Company provides a financing solution to small and medium-sized companies that prefer to lease equipment over other financial alternatives. Lakeland’s asset-based loan department provides commercial borrowers with another lending alternative.
Depository products include demand deposits,1934, as well as savings, money market and time accounts. Lakeland offers online banking, mobile banking and wire transfer servicesamended, except to the business communityextent that Lakeland Bancorp specifically incorporates this information by reference, and municipal relationships. In addition, Lakeland offers cash management services, such as remote captureotherwise shall not be deemed "soliciting material" or to be "filed" with the SEC subject to Regulation 14A or 14C of deposits and overnight sweep repurchase agreements.
Consumer Banking
Lakeland also offers a broad range of consumer banking services, including checking accounts, savings accounts, interest-bearing checking accounts, money market accounts, certificates of deposit, online banking, secured and unsecured loans, consumer installment loans, mortgage loans, and safe deposit services.
Other Services
    Investment advisory services for individuals and businesses are also available. Additionally, the Bank provides commercial title insurance services through Lakeland Title Group LLC and life insurance products through Lakeland Financial Services Agency, Inc.
Competition
Lakeland faces intense competition in its market areas for deposits and loans from other depository institutions. Many of Lakeland’s depository institution competitors have substantially greater resources, broader geographic markets, and higher lending limits than Lakeland and are also able to provide more services and make greater use of media advertising. In recent years, intense market demands, economic pressures, increased customer awareness of products and services and the availability of electronic services have forced banking institutions to diversify their services and become more cost-effective.
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Lakeland also competes with credit unions, brokerage firms, insurance companies, money market mutual funds, consumer finance companies, mortgage companies, fintechs and other financial companies, some of which are notSEC or subject to the same degreeliabilities of regulationSection 18 of the Exchange Act.
Management has the primary responsibility for Lakeland Bancorp's internal control and restrictions asfinancial reporting process, and for making an assessment of the effectiveness of Lakeland Bancorp's internal control over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of Lakeland's consolidated financial statements in attracting depositsaccordance with standards of the Public Company Accounting Oversight Board (United States) ("PCAOB") and making loans. Interest ratesto issue an opinion on deposit accounts, conveniencethose financial statements, and for providing an opinion on the Company's internal control over financial reporting. The Audit Committee's responsibility is to monitor and oversee the processes.
As part of facilities, productsits ongoing activities, the Audit Committee has:
•reviewed and services, and marketing are all significant factors indiscussed the competition for deposits. Competition for loans comes from other commercial banks, savings institutions, insurance companies, consumer finance companies, credit unions, mortgage banking firms,audited consolidated financial technology and other institutional lenders. Lakeland primarily competes for loan originations through its structuring of loan transactionsstatements and the overall qualityinternal control procedures of service it provides. Competition is affectedLakeland for the year ended December 31, 2022 with Lakeland’s management and the independent registered public accounting firm;
•discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 1301;
•received and reviewed the availability of lendable funds, generalwritten disclosures and local economic conditions, interest rates, and other factors that are not readily predictable. The Company expects that competition will continue or intensify in the future.
Concentration
The Company is not dependent on deposits or exposedletter from Lakeland’s independent registered public accounting firm mandated by loan concentrations to a single customer or a few customers, the loss of any one or more of which would have a material adverse effect upon the financial conditionapplicable requirements of the Company.PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence from Lakeland.
Human Capital Resources
AtBased on the review and discussions referred to above, the Audit Committee has recommended to Lakeland's Board of Directors that the audited consolidated financial statements for the year ended December 31, 2021,2022 be included in Lakeland's Annual Report on Form 10-K for filing with the Company employed 717 associates, including 36 part-time associates,SEC. In addition, the Audit Committee approved the re-appointment of which approximately 68% are women. The Company employed 711 associates, including 43 part-time associates atKPMG LLP as the independent registered public accounting firm for December 31, 2020. As a financial institution, approximately 52% of our associates are located at branch or loan production offices and the remainder are located at our administrative offices.2023.

By:     The success of our business is highly dependent on our associates, who are dedicated to our mission to inspire and enable the communities we serve to achieve financial stability and success. We seek to hire well-qualified associates to sustain and build on our culture of service and performance. Our selection and promotion processes are without bias and include the active recruitment of minorities and women. None of our associates are covered by a collective bargaining agreement.
We encourage the growth and development of our associates and, whenever possible, seek to fill positions by promotion and transfer from within the Company. Continual learning and career development is advanced through annual performance and development conversations between associates and their managers, internally developed training programs, customized corporate training engagements and educational reimbursement programs. Our Leader Engagement and Development (LEAD) Program was launched in 2018 to foster leadership abilities and cultivate effective management approaches. To date, 51 associates have completed the program. Reimbursement is available to associates enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in compliance with Section 127Audit Committee of the Internal Revenue Code, and for seminars, conferences and other training events associates attend in connection with their job duties or professional certification requirements.Board of Directors:
The safety, health and wellness of our associates is a top priority. The COVID-19 pandemic presented unique challenges with regard to maintaining associate safety while continuing successful operations. We instituted remote working plans at the start of the pandemic and were able to transition, over a short period of time, many of our eligible associates to effectively working from remote locations. We ensured a safely-distanced working environment for associates performing customer-facing activities at branches and operations centers, closing branch lobbies as necessary. All associates are prohibited from working on-site when they, or a close family member, experience symptoms of a possible COVID-19 illness and generally used their paid time off to cover compensation during such absences. On an ongoing basis, we further promote the health and wellness of our associates by strongly encouraging work-life balance, offering flexible work schedules, keeping the associate portion of health care premiums to a minimum and sponsoring various wellness programs, whereby associates are encouraged to incorporate healthy habits into their daily routines.    Brian Flynn, Chair
In 2020, we appointed our first Chief Diversity Officer, with a mandate to focus on workforce diversity, vendor/supplier diversity and cultivating more diverse leadership, among other vital issues. We sponsor Share Your Voice “listening” roundtables for associates, with the assistance of outside experts. A Diversity Task Force was created to give associates more opportunity for input into relevant issues. We provided associates with access to information and assistance on topics ranging from diversity to wellness, parenting and other personal issues and concerns.    Bruce D. Bohuny
Associate retention helps us operate efficiently and achieve our business objectives. We provide competitive wages, annual bonuses, stock awards, a 401(k) Plan with an employer matching contribution in addition to a discretionary employer annual contribution, healthcare and insurance benefits, health savings, flexible spending accounts, paid time off, family leave and an employee assistance program. At December 31, 2021, approximately 29% of our current staff had been with us for 10 years or more.Mark J. Fredericks
    Brian A. Gragnolati
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SUPERVISION AND REGULATION
GeneralCompensation Committee Matters
The CompanyBoard has determined that each member of the Compensation Committee is a registered bank holding company underindependent as defined in the Federal Bank Holding Company ActNasdaq corporate governance listing rules and SEC Rule 10C-1. The Compensation Committee's Charter is posted on the Investor Relations page of 1956, as amended (the “Holding Company Act”),Lakeland Bancorp's website, https://investorrelations.lakelandbank.com/corporate-governance.
Authority, Processes and Procedures. Our Compensation Committee is required to file with the Federal Reserve Board an annual reportresponsible for administering our employee benefit plans, for establishing and such additional information as the Federal Reserve Board may require pursuantrecommending to the Holding Company Act.Board the compensation of our President and Chief Executive Officer (CEO) and for reviewing and recommending to the Board for approval the compensation programs covering our other executive officers. Our Compensation Committee also establishes policies and monitors compensation for our employees in general. While the Compensation Committee may, and does in fact, delegate authority with respect to the compensation of employees in general, the Compensation Committee retains overall supervisory responsibility for employee compensation. With respect to executive compensation, the Compensation Committee receives recommendations and information from senior staff members. Mr. Shara (our President and CEO) participated in Committee deliberations regarding the compensation of other executive officers, but did not participate in deliberations regarding his own compensation. The Company has also elected financial holding company status underCEO; Chief Operating Officer (COO); Chief Administrative Officer, General Counsel and Corporate Secretary; and Chief Human Resources Officer assist the Modernization Act, as further discussed below. The Company is subject to examinationCompensation Committee in recommending agenda items for its meetings and by gathering and producing information for these meetings. As requested by the Federal Reserve Board.Compensation Committee, the CEO and COO participate in Committee meetings to discuss executive compensation, evaluate the performance of both the Company and individual executives, and provide pertinent financial or operational information. The Compensation Committee also has the authority to hire compensation consultants and other professionals to assist it in carrying out its duties.
Lakeland isConsultants. During our fiscal year ended December 31, 2022, the Compensation Committee retained the services of Aon Human Capital Solutions (formerly known as McLagan), a state chartered commercial bank subjectdivision of Aon PLC ("Aon"), to supervisionprovide independent executive compensation advice and examination by the Department of Bankingmarket compensation information. See "Executive Compensation - Compensation Discussion and InsuranceAnalysis" for a description of the State of New Jersey (the “Department”)services provided by Aon during 2022. The Compensation Committee is responsible for assisting the Board in carrying out the Board's overall responsibility relating to executive compensation, incentive compensation and the Federal Deposit Insurance Corporation (the “FDIC”). The regulationsequity and non-equity-based benefit plans.
Compensation Committee Interlocks and Insider Participation
No member of the StateCompensation Committee is or has been an officer or employee of New Jersey and FDIC govern most aspects of Lakeland’s business, including reserves against deposits, loans, investments, mergers and acquisitions, borrowings, dividends, and location of branch offices. Lakeland is subject to certain restrictions imposed by law on, among other things, (i) the maximum amount of obligations of any one person or entity which may be outstanding at any one time, (ii) investments in stock or other securitiesCompany. In addition, no executive officer of the Company orserved on the board of directors of any subsidiaryentity whose executive officers included a director of the Company.
Item 11. Executive Compensation
Director Compensation
Director Fees
Each of the individuals who serve as a director of Lakeland Bancorp also serves as a director of Lakeland Bank. The Boards of Directors of Lakeland Bank and the Company hold combined meetings and no additional fees were paid for attending the Lakeland Bank Board meetings. The employee director is not compensated for serving as a director.
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During 2022, each non-employee director received: (i) a $40,000 per annum retainer, payable in quarterly increments of $10,000 each; (ii) $3,000 per Board meeting attended; (iii) $30,000 in restricted stock granted at the beginning of the year with a vesting period of one year, except Mrs. Deacon who received $50,000 in restricted stock (having opted to receive $20,000 of the $100,000 Chair stipend in the form of restricted stock, rather than receiving the full amount in cash); and (iv) a $5,000 annual fee for the chairs of the Directors' Loan Review Committee, Policy Committee and Risk Committee and a $7,500 annual fee for the chair of the Audit Committee, Nominating and Corporate Governance Committee and the Compensation Committee. No fees were paid to non-chair Board committee members for committee service.
Additionally, the Board liaisons to the Executive Loan Committee, a management committee, each received $5,000 annual stipends for such service.
Directors are also reimbursed for expenses for attending seminars and conferences that relate to continuing director and governance education.
The Board of Directors establishes non-employee director compensation based on recommendations of the Compensation Committee. The Compensation Committee, on not less than an annual basis, engages the services of a compensation consultant and its external surveys to assist in the Committee's review of director compensation.
Stock Option and Stock Award Program
The shareholders of the Company approved the 2018 Omnibus Equity Incentive Plan, as described below in "Compensation Discussion and (iii)Analysis" at the takingannual meeting of suchshareholders on May 9, 2018. Directors are eligible to participate in the 2018 Omnibus Equity Incentive Plan. Under this plan, officers and directors are eligible to receive awards of restricted stock or securitiesand stock options to purchase shares of Lakeland Bancorp common stock (at an exercise price of no less than the market price of the common stock at the time of grant). During the year ended December 31, 2022, directors received restricted stock as collateral for loans to any borrower.described in the table below. No stock options were granted during 2022.
Director Deferred Compensation Plan
The HoldingBoard of Directors maintains the Directors’ Deferred Compensation Plan, for eligible directors who became members of the Board on or before December 31, 2008. The plan provides that any director having completed five years of service on Lakeland’s Board of Directors may retire and continue to be paid for a period of ten years at a rate ranging from $5,000 to $17,500 per annum, depending upon years of credited service. This plan is unfunded. Despite serving as a director of the Company Actsince April 2008, Mr. Shara elected not to participate in the Directors’ Deferred Compensation Plan.
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Summary of Directors' Compensation
The Holdingfollowing table sets forth certain information regarding the compensation paid to each non-employee director of the Company Act limitsduring 2022. See the activities“Summary Compensation Table” for information regarding Mr. Shara's compensation.






Name

Fees Earned
 or Paid in Cash
($)



Stock Awards
($) (1)		Change in
Pension Value
and Nonqualified
Deferred
Compensation Earnings
($) (2)


All
Other
Compensation
($) (3)




Total
($)
Bruce D. Bohuny81,000 30,000 2,032 866 113,898 
Mary Ann Deacon156,000 50,000 4,995 1,443 212,438 
Brian Flynn83,500 30,000 — 866 114,366 
Mark J. Fredericks76,000 30,000 1,567 866 108,433 
Brian A. Gragnolati76,000 30,000 — 866 106,866 
James E. Hanson II81,000 30,000 — 866 111,866 
Janeth C. Hendershot81,000 30,000 3,697 866 115,563 
Lawrence R. Inserra, Jr.81,000 30,000 — 866 111,866 
Robert F. Mangano76,000 30,000 — 866 106,866 
Robert E. McCracken83,500 30,000 3,738 866 118,104 
Robert B. Nicholson, III83,500 30,000 2,685 866 117,051 
(1)    The aggregate grant date fair value in accordance with FASB ASC Topic 718.
(2)    The aggregate change in the present value of each director’s accumulated benefit in our Directors’ Deferred Compensation Plan from the measurement date used for preparing our 2021 year-end financial statements to the measurement date used for preparing our 2022 year-end financial statements. The Directors’ Deferred Compensation Plan is our only defined benefit and actuarial plan in which directors participated in 2022. There were no above-market earnings on such deferred compensation in 2022.
(3)    Cash dividends paid on restricted stock for each director.
At December 31, 2022, each of the non-employee directors in the table above held the following aggregate number of restricted stock awards. The shares of restricted stock in the table below vested in full on January 19, 2023.
NameStock Awards
Bruce D. Bohuny1,519 
Mary Ann Deacon2,532 
Brian Flynn1,519 
Mark J. Fredericks1,519 
Brian A. Gragnolati1,519 
James E. Hanson II1,519 
Janeth C. Hendershot1,519 
Lawrence R. Inserra, Jr.1,519 
Robert F. Mangano1,519 
Robert E. McCracken1,519 
Robert B. Nicholson, III1,519 
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Other Matters
The Board believes its directors should have a financial investment in Lakeland Bancorp to further align their interests with shareholders. Directors are expected to own or otherwise control, at a minimum, the number of shares or share equivalents of Lakeland common stock equal to approximately five times (5x) the directors’ annual retainer fee, with new directors attaining that goal within five years.
Securities Authorized for Issuance Under Equity Compensation Plan
The following table provides information about the Company’s common stock that may be engagedissued upon the exercise of options under the 2018 Omnibus Equity Incentive Plan as of December 31, 2022. This plan was the Company’s only equity compensation plan in existence as of December 31, 2022.
Plan Category(a)
Number Of Securities To Be Issued Upon Exercise Of Outstanding Options, Warrants and Rights		(b)
Weighted-Average Exercise Price Of Outstanding Options, Warrants and Rights		(c)
Number Of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected In Column (a))
Equity Compensation Plans Approved by Shareholders607,142 $— 918,217 
Equity Compensation Plans Not Approved by Shareholders— — — 
Total607,142 $— 918,217 
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Compensation Discussion and Analysis
Overview
The following discussion provides an overview and analysis of the Compensation Committee’s philosophy and objectives in designing the Company’s compensation programs as well as the compensation determinations relating to our Named Executive Officers, or NEOs. This discussion should be read together with the compensation tables for our NEOs, which can be found following this discussion.
For 2022, our NEOs were:
NameTitle
Thomas J. SharaPresident and Chief Executive Officer of Lakeland and Lakeland Bank
Thomas F. Splaine, Jr.Executive Vice President and Chief Financial Officer of Lakeland and Lakeland Bank
Ronald E. SchwarzSenior Executive Vice President and Chief Operating Officer of Lakeland and Lakeland Bank
Timothy J. MattesonExecutive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary of Lakeland and Lakeland Bank
James M. NigroExecutive Vice President, Chief Risk Officer of Lakeland and Lakeland Bank
Executive Summary
Our 2022 performance highlights include:
•Net income for the year ended December 31, 2022 was $107.4 million, or $1.63 per diluted share, compared to $95.0 million, or $1.85 per diluted share, for 2021. Financial results for 2022 were favorably impacted by an increase in net interest income of $77.8 million.
•For the Companyyear ended December 31, 2022, our return on average assets was 1.04%, our return on average equity was 9.80% and its subsidiariesour efficiency ratio was 51.79%.
•At December 31, 2022, loans totaled $7.87 billion, an increase of $1.89 billion from December 31, 2021 and included acquired loans totaling $1.10 billion.
•Deposits totaled $8.57 billion, increasing $1.60 billion, or 23%, from December 31, 2021, to thoseDecember 31, 2022, primarily due to deposits acquired from 1st Constitution.
•We maintained and improved our strong capital position.
•The Company's net interest margin was 3.24% for 2022 compared to 3.13% for 2021.
•The following graph of banking,five-year total shareholder return (TSR) compared to our compensation peer group.
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5 yr tsr 23.jpg
Key NEO Compensation Decisions
Our compensation decisions for 2022 reflected the ownershipcontributions by our NEOs to our strong performance during the years 2021 and acquisition of assets2022. Our annual and securities of banking organizations,long-term incentive plans are designed to pay market-competitive incentive compensation while linking our executives' compensation to corporate and individual performance and the managementvalue realized by our shareholders.
Salaries: In recognition of banking organizations,our solid performance in 2021 and to certain non-banking activities which the Federal Reserve Board finds, by order or regulation, to be so closely related to banking or managing or controlling a bank as to be a proper incident thereto.general market movement in executive compensation, base salaries were increased for all NEOs in 2022.
With respect to non-banking activities, the Federal Reserve Board has by regulation determined that several non-banking activities are closely related to banking within the meaningShort-term annual cash incentives: The Company performed at maximum performance levels in 2022 on both of the Holdingobjective corporate performance goals under our 2022 Annual Incentive Plan, which were weighted at 80% of the total plan target. The Company Actalso achieved its performance triggers relating to asset quality and thuscapital levels. In addition, each of our NEOs received a maximum score under the subjective individual performance assessment portion of the plan, which was weighted at 20% of the total plan target. As a result, cash incentive payouts under our 2022 Annual Incentive Plan were at maximum for each of our NEOs.
2022 Long-Term Incentives: In February 2022, we granted RSU awards to each of our NEOs based on a specified plan target percent of salary. 50% of the target RSUs for each NEO vest, if at all, based on the attainment of ROAE and TSR goals, both of which are measured over a three-year period from 2022-2024 against an index of 68 similarly-sized banks.
The remaining 50% of the target RSUs awarded to each NEO vest ratably on each of the first three anniversaries of the grant date. In addition, the number of RSUs granted may be performed by bank holding companies. The Company has also elected "financial holding company" status, which allows it to engageadjusted from anywhere between 75% of the target and 125% of the target RSUs based on the Committee’s evaluation of corporate and individual performance in a broader array of financial activities than a standard bank holding company. Althoughthe previous year. Based on the Company’s management periodically reviews other avenues of business opportunities that are includedstrong financial performance in that regulation,2021, the Company has no present plansCommittee made the determination to engage in any of these activities other than providing investment brokerage services.
With respect togrant the acquisition of banking organizations, the Company is required to obtain the prior approvaltime-vested portion of the Federal Reserve Board before it may,award at 125% of target in 2022.
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Say on Pay Vote
The Compensation Committee evaluates the Company’s executive compensation programs in light of market conditions, shareholder views, and governance considerations, and makes changes as appropriate. As required by merger, purchase or otherwise, directly or indirectly acquire all or substantially all of the assets of any bank or bank holding company, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank or bank holding company.
Regulation of Bank Subsidiaries
There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company’s non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions.
Commitments to Affiliated Institutions
Federal law and Federal Reserve Board policy provides that a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy.
Interstate Banking
    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits bank holding companies to acquire banks in states other than their home state, regardless of applicable state law. The Dodd-Frank Wall Street Reform and Consumer Protection Act, (the “Dodd-Frank Act”) removes the restrictions on interstate branching containedCompany is required to permit a separate non-binding shareholder vote to approve the compensation of its executives. The Company held this advisory “say-on-pay” vote at the 2022 Annual Meeting of shareholders. Shareholders overwhelmingly approved the compensation of the executives, with 96% of the shares voted cast in favor of the say-on-pay proposal.
The Company considered the number of votes cast in favor of the 2022 say-on-pay proposal to be a positive endorsement of its current pay practices and believes the vote result is evidence that its compensation policies and decisions have been in the Riegle-Neal Act,best interests of shareholders. The Company will continue to monitor the level of support for each say-on-pay proposal in the future and allows national bankswill consider this alongside other factors as it makes future executive compensation decisions. The Company holds a "say-on-pay" vote on an annual basis.
Executive Compensation Philosophy
Our compensation program is designed to attract highly qualified individuals, retain those individuals in a competitive marketplace for executive talent and state banksreward performance in a manner that maximizes our corporate performance while ensuring that these programs do not encourage unnecessary or excessive risks that threaten the value of our Company. We seek to establish branchesalign individual executives’ performance and their long-term interests with our long-term strategic business objectives and shareholder value. We believe that the executive compensation program that we provide fulfills these objectives and motivates key executives to remain with Lakeland for productive careers.
Our compensation philosophy is determined by our Board of Directors, through its delegated authority to the Compensation Committee, which is comprised solely of independent directors. The Compensation Committee annually reviews our mix of short-term versus long-term incentives and seeks a reasonable balance of those incentives. The guiding principle of our compensation philosophy is that the compensation of our executive officers should be based primarily on the financial and strategic performance of Lakeland, and partially on individual performance. While this “pay-for-performance” philosophy requires the Compensation Committee to first consider Lakeland’s profitability, the Compensation Committee does not intend to reward unnecessary or excessive risk taking. These principles are reflected in any state if, under the lawsspecific elements of our compensation program, particularly our annual and long-term incentive programs, as described below.
Role of the stateCompensation Committee
The Compensation Committee is responsible for the design, implementation and administration of the compensation programs for our executive officers and directors. The Compensation Committee completed the following actions relative to 2022 executive compensation:
•Reviewed and approved base salary increases.
•Determined annual incentives for NEOs for 2022 performance and approved the payment of such awards in which the branch isform of cash in early 2023.
•Reviewed and approved equity awards granted in 2022 to be located, a state bank chartered byNEOs, including making determinations on the percent of the target time-vested award that state would be permitted to establishgranted.
•Reviewed the branch.compensation peer group.
•Reviewed contractual arrangements for NEOs.
•Reviewed stock ownership requirements of NEOs, based on a review of our stock ownership guidelines.
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Regulation W•Reviewed the Company’s compensation philosophy.
Transactions between a bank
Role and its “affiliates” are quantitatively and qualitatively restricted underRelationship of the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23BCompensation Consultant
As permitted by the Compensation Committee charter, the Compensation Committee periodically engages an independent outside compensation consultant to insured nonmember banks inadvise the same manner andCompensation Committee on executive compensation matters. In 2022, the Compensation Committee once again retained Aon to provide executive compensation consulting services. Pursuant to the same extent as if they were membersterms of its retention, Aon reported directly to the Compensation Committee, which retains sole authority to select, retain, terminate, and approve the fees and other retention terms of its relationship with Aon.
During 2022, Aon assisted the Compensation Committee with the following:
•Advised the Compensation Committee on changes in industry compensation practices and provided insight on emerging regulations.
•Reviewed the competitiveness of the Federal Reserve System. The Federal Reserve Board has also issued Regulation W, which codifies prior regulations under Sections 23ACompany’s current pay levels and 23Bpractices for executive officers as compared to that of the Federal Reserve Act and interpretative guidancecustomized peer group.
•Assisted the Compensation Committee in its preparation of compensation disclosures as required under Regulation S-K with respect to affiliate transactions. Affiliates of a bank include, amongthis document including this Compensation Discussion and Analysis and associated tables and disclosures included herein by reference.
The Compensation Committee evaluated Aon’s analysis and recommendations alongside other entities,factors when making compensation decisions affecting our 2022 executive compensation program and when submitting its own recommendations to the bank’s holding company and companies that are under common control with the bank. The Company is considered to be an affiliate of Lakeland. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:
•    to an amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and
•    to an amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates.Board on these matters.
In addition, a bank and2022, the Compensation Committee reviewed its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, asrelationship with Aon, including Aon's independence. Considering all relevant factors, including those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:
•    a loan or extension of credit to an affiliate;
•    a purchase of, or an investment in, securities issued by an affiliate;
•    a purchase of assets from an affiliate, with some exceptions;
•    the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and
•    the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
In addition, under Regulation W:
•    a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
•    covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and
•    with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by certain types of collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.
Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates or if the subsidiary is a "financial subsidiary" that engages in an activity that is not permitted for the bank directly.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations, a state bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the FDIC, in connection with its examination of a state non-member bank, to assess the bank’s record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the bank. Under the FDIC’s CRA evaluation system, the FDIC focuses on three tests: (i) a lending test, to evaluate the institution’s record of making loans in its service areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. Receipt of a "Needs to Improve" or "Substantial Noncompliance" ratings can, among other things, obstruct regulatory approval for new branches and mergers. The CRA requires all institutions to make public disclosure of their CRA ratings. Lakeland Bank received an “Outstanding” CRA rating in its most recent examination.
Securities and Exchange Commission
The common stock of the Company is registered with the SEC under the Exchange Act. As a result, the Company and its officers, directors, and major stockholders are obligated to file certain reports with the SEC. The Company is subject to proxy and tender offer rules promulgated pursuant to the Exchange Act. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as the Company.
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The Company maintains a website at http://www.lakelandbank.com. The Company makes available on its website, free of charge, the proxy statements and reports on Forms 8-K, 10-K and 10-Q that it files with the SEC as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Additionally, the Company has adopted and posted on its website a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. The Company intends to disclose any amendments to or waivers of the Code of Ethics on its website.
Effect of Government Monetary Policies
The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve Board have had, and will likely continue to have, an important impact on the operating results of commercial banks through the Board’s power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The Federal Reserve Board has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate of borrowings of banks and the reserve requirements against bank deposits. It is not possible to predict the nature and impact of future changes in monetary fiscal policies.
Dividend Restrictions
The Company is a legal entity separate and distinct from Lakeland. Virtually all of the revenue of the Company available for payment of dividends on its capital stock will result from amounts paid to the Company by Lakeland. All such dividends are subject to various limitations imposed by federal and state laws and by regulations and policies adopted by federal and state regulatory agencies. Under New Jersey state law, a bank may not pay dividends unless, following the dividend payment, the capital stock of the bank would be unimpaired and either (a) the bank will have a surplus of not less than 50% of its capital stock, or, if not, (b) the payment of the dividend will not reduce the surplus of the bank.
If, in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require that such bank cease and desist from such practice or, as a result of an unrelated practice, require the bank to limit dividends in the future. The Federal Reserve Board has similar authority with respect to bank holding companies. In addition, the Federal Reserve Board and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Regulatory pressures to reclassify and charge off loans and to establish additional credit loss reserves can have the effect of reducing current operating earnings and thus impacting an institution’s ability to pay dividends. Further, as described herein, the regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in these policy statements and guidelines could limit the amount of dividends which the Company and Lakeland may pay. Banking institutions that fail to maintain the minimum capital ratios, or that maintain the requisite minimum capital ratios but do so at a level below the minimum capital ratios plus the applicable capital conservation buffer, will face constraints on their ability to pay dividends. See “Capital Requirements” below.
Capital Requirements
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. To qualify to engage in activities as a financial holding company under the Gramm-Leach-Bliley Act, all depository institutions must be “well capitalized.” The financial holding company of a bank will be put under directives to raise its capital levels or divest its activities if the depository institution falls from that level.
In July 2013, the Federal Reserve Board, the FDIC and the Comptroller of the Currency adopted final rules establishing a new comprehensive capital framework for U.S. banking organizations (the “Basel Rules”). The Basel Rules implemented the Basel Committee’s December 2010 framework, commonly referred to as Basel III, for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act, as discussed below. The Basel Rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Company and Lakeland, compared to prior U.S. risk-based capital rules. The Basel Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach, which was derived from Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 Basel II capital accords. The Basel Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules.
The Basel Rules became effective for us on January 1, 2015 (subject to phase-in periods for certain components).
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For bank holding companies and banks like the Company and Lakeland, January 1, 2015 was the start date for compliance with the revised minimum regulatory capital ratios and for determining risk-weighted assets under what the Basel Rules call a “standardized approach.” As of January 1, 2015, the Company and Lakeland were required to maintain the following minimum capital ratios, expressed as a percentage of risk-weighted assets:
•Common Equity Tier 1 Capital Ratio of 4.5% (this is referred to as the “CET1”);
•Tier 1 Capital Ratio (CET1 capital plus “Additional Tier 1 capital”) of 6.0%; and
•Total Capital Ratio (Tier 1 capital plus Tier 2 capital) of 8.0%.
In addition, the Company and Lakeland are subject to a leverage ratio requirement of 4.0% (calculated as Tier 1 capital to average consolidated assets as reported on the consolidated financial statements).
The Basel Rules also require a “capital conservation buffer.” As of the full phase-in on January 1, 2019, the Company and Lakeland were required to maintain a 2.5% capital conservation buffer, in addition to the minimum capital ratios described above, effectively resulting in the following minimum capital ratios on January 1, 2019:
•CET1 of 7.0%;
•Tier 1 Capital Ratio of 8.5%; and
•Total Capital Ratio of 10.5%.
The purpose of the capital conservation buffer is to ensure that banking organizations conserve capital when it is needed most, allowing them to weather periods of economic stress. Banking institutions with a CET1, Tier 1 Capital Ratio and Total Capital Ratio above the minimum capital ratios but below the minimum capital ratios plus the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall.
The Basel Rules provide for several deductions from and adjustments to CET1, which were phased in as of January 1, 2018. For example, mortgage servicing rights and deferred tax assets dependent upon future taxable income were required to be deducted from CET1 to the extent that any one of those categories exceeds 10% of CET1 or all such categories in the aggregate exceeded 15% of CET1. However, subsequent regulatory amendments raised the limit on mortgage servicing rights and deferred tax assets to 25% of CETI and removed the aggregate limit.
Under prior capital standards, the effects of accumulated other comprehensive income items included in capital were excluded for the purposes of determining regulatory capital ratios. Under the Basel Rules, the effects of certain accumulated other comprehensive income items are not excluded; however, banking organizations such as the Company and Lakeland were permitted to make a one-time permanent election to continue to exclude these items effective as of January 1, 2015. Lakeland Bancorp and Lakeland Bank made such an election to continue to exclude these items.
While the Basel Rules generally require the phase-out of non-qualifying capital instruments such as trust preferred securities and cumulative perpetual preferred stock, holding companies with less than $15 billion in total consolidated assets as of December 31, 2009, such as the Company, were permitted to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.
The Basel Rules prescribe a standardized approach for calculating risk-weighted assets that expands the risk-weighting categories from the previous four categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. In addition, the Basel Rules provide more advantageous risk weights for derivatives and repurchase-style transactions clearedRule 10C-1(b)(4)(i) through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.
Consistent with the Dodd-Frank Act, the Basel Rules adopt alternatives to credit ratings for calculating the risk-weighting for certain assets.
With respect to Lakeland, the Basel Rules revise the “prompt corrective action” regulations under Section 38 of the Federal Deposit Insurance Act by (i) introducing a CET1 ratio requirement at each capital quality level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status (a new standard); (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (increased from 6%); and (iii) requiring a leverage ratio of 5% to be well-capitalized (increased from the previously required leverage ratio of 3% or 4%). The Basel Rules do not change the total risk-based capital requirement for any “prompt corrective action” category.
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Effective as of January 1, 2015, the FDIC’s regulations implementing these provisions of FDICIA provide that an institution will be classified as “well capitalized” if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 8.0 percent, (iii) has a CET1 ratio of at least 6.5 percent, (iv) has a Tier 1 leverage ratio of at least 5.0 percent, and (v) meets certain other requirements. An institution will be classified as “adequately capitalized” if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a CET1 ratio of at least 4.5 percent, (iv) has a Tier 1 leverage ratio of at least 4.0 percent, and (v) does not meet the definition of “well capitalized.” An institution will be classified as “undercapitalized” if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 6.0 percent, (iii) has a CET1 ratio of less than 4.5 percent or (iv) has a Tier 1 leverage ratio of less than 4.0 percent. An institution will be classified as “significantly undercapitalized” if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0 percent, (iii) has a CET1 ratio of less than 3.0 percent or (iv) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as “critically undercapitalized” if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination rating.
As of December 31, 2021, the Company and Lakeland met all capital requirements under the Basel Rules as then in effect, including the fully phased-in capital conservation buffer requirement. The Bank was classified as "well capitalized" on that date.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was signed into law in May 2018. The EGRRCPA, among other matters, amended the Federal Deposit Insurance Act to require federal banking agencies to develop a specified Community Bank Leverage Ratio (the ratio of a bank's Tier 1 capital to its average total consolidated assets) for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be deemed to comply with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from the Basel Rules calculations. Under the final rule, banks with less than $10 billion in assets may elect the Community Bank Leverage Ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance-sheet exposures, and 5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above 8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the generally applicable capital rule. An eligible financial institution that opts into this new framework and then fails to satisfy this new framework after expiration of the grace period will then be required to satisfy the generally applicable capital requirements. Management did not elect to use the Community Bank Leverage Ratio framework.
Federal Deposit Insurance and Premiums
Lakeland’s deposits are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. As a result of the Dodd-Frank Act, the basic federal deposit insurance limit was permanently increased to $250,000.
    In November 2010, the FDIC approved a rule to change the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act. The FDIC’s rule also lowered the total base assessment rates, which are now established for banks of less than $10 billion of assets at 1.5 to 16 basis points for banks with the strongest composite examination rating, and 11 to 30 basis points for banks in the highest risk category with the weakest examination rating.
Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), that is, the ratio of the DIF to insured deposits. The FDIC adopted a plan under which the DIF will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act required the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. In March 2016, the FDIC adopted a rule that imposes a surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10 billion or more. The surcharge equaled an annual rate of 4.5 basis points applied to the institution’s assessment base, with certain adjustments. When the DIF Reserve Ratio is at or above 1.38% in a given quarter, credits were applied to banks' assessment payments. The Company began receiving the Small Bank Assessment credit in the third quarter of 2019 and, as a result, made no FDIC assessment payments in the third and fourth quarter of 2019. Full payments to the FDIC resumed in the second quarter of 2020. The Company paid $2.3 million and $2.1 million in total FDIC assessments in 2021 and 2020, respectively.
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CARES Act
The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program ("PPP"). As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible business could apply for a PPP loan up to the lesser of (1) 2.5 times its average monthly payroll costs or (2) $10.0 million. PPP loans have (a) an interest rate of 1.00%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of the disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower's PPP loan is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.
In June 2020, Congress passed the Paycheck Protection Program Flexibility Act ("PPP Flexibility") to ease provisions of PPP related to the time period permitted to use the proceeds of loans, the deferral period of principal and interest payments on loans not forgiven and an extension of the maturity date of loan and loan forgiveness on loans. Key changes included (a) extending from two to five years the minimum maturity of any remaining loan balance after an application for loan forgiveness (for those loans closed after the enactment of PPP Flexibility); (b) extending the “covered period” (i.e., when costs that are eligible for forgiveness must be paid or incurred) from eight weeks to 24 weeks (or December 31, 2020, whichever is earlier); (c) reducing from 75 percent to 60 percent the amount of loan proceeds that must be used for payroll costs although the remainder must continue to be allocated to interest on mortgages, rent, and utilities; (d) permitting an exemption from reductions in loan forgiveness amounts based on reductions in full-time equivalent employees if the borrower, in good faith, documents an inability to return to the same level of business activity due to standards for sanitation, social distancing, or other worker or customer safety requirements established by the Department of Health and Human Services ("HHS"), the Center for Disease Control ("CDC") or Occupational, Safety and Health Administration ("OSHA"); and (e) allowing deferral of payments until the amount of forgiveness is remitted by the SBA to the lender or, if the borrower has not applied for forgiveness, ten months after the expiration of the covered period. The provisions of PPP Flexibility became effective upon enactment and will apply to all loans made under the PPP. The SBA released guidance on PPP loan forgiveness, which presently includes three different application methods depending primarily on the size of the PPP loan, reductions in staffing or salaries, or a business’ inability to operate at pre-COVID levels due to compliance with certain federally imposed requirements related to COVID-19. To qualify for full forgiveness, businesses must document that at least 60% of the PPP loan amount was used towards payroll costs and that the remaining 40% was used for other eligible costs such as mortgage interest, rent payments and/or utilities. Forgiveness was originally intended to be reduced by any Economic Injury Disaster Loan (“EIDL”) advance amount the business received.
Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (the “Revised Statement”), dated April 17, 2020, includes criteria that enable financial institutions to exclude from TDR status loans that are modified in connection with COVID-19. Under these provisions, TDR status is not required for the term of a loan modification if (i) the loan modification is made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31, 2019 and (iii) the loan modification is entered into during the period between March 1, 2020, and the earlier of (a) 60 days after COVID-19 is no longer characterized as a National Emergency or (b) December 31, 2020. Furthermore, pursuant to the Revised Statement, for loan modifications that do not meet these criteria but are made in connection with COVID-19, such loans may be presumed not to be TDR if they are current at a time the loan modification program was implemented and the modifications are short-term (e.g., six months). If the criteria are not met under either Section 4013 or the Revised Statement, banks are required to follow their existing accounting policies to determine whether COVID-related modifications should be accounted for as a TDR.
The CARES Act also provided financial institutions with the option to defer adoption of the Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) ("ASU 2016-13") until the earlier of the end of the national emergency or December 31, 2020. The CARES Act also required the federal banking agencies to temporarily lower the Community Bank Leverage Ratio from 9% of average total consolidated assets to 8% for the remainder of 2020. The ratio rose to 8.5% for calendar year 2021 and will revert to 9% thereafter.
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On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "CAA") was signed into law. In addition to providing funding for normal government operations, this bill provides for additional COVID-19 relief. The CAA extended certain provisions of the CARES Act, provided additional funding for others and contained new relief provisions. CAA eliminated the reduction PPP forgiveness by EIDL received and extended loan modification deadline to the end of the National Emergency or December 31, 2021. CAA further extended the option to delay ASU 2016-13 implementation until January 1, 2022; however, the Company has adopted this standard as of December 31, 2020, and has applied it retroactively to January 1, 2020. The Company has elected to suspend the classification of loan modifications as TDR if they qualify under all applicable guidance.
Change in Control Act
Under the Change in Bank Control Act, no person (including a company or other business entity) may acquire “control” of a bank or bank holding company, unless the appropriate federal agency has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. The agency takes into consideration certain factors, including the competence, experience, integrity and financial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock under certain circumstances, such as where the company involved has its shares registered(vi) under the Securities Exchange Act of 1934. Any “company”,1934, as defined inamended, and NASDAQ listing rules, the Bank Holding Company ActCompensation Committee determined that it is not aware of 1956, would be required to receive the prior approvalany conflict of the Federal Reserve Board to acquire “control” of the company or bank, as defined ininterest that statute and Federal Reserve Board regulations, and would then be regulated as a bank holding company.
New Jersey law specifies similar prior approval requirementshas been raised by the New Jersey Departmentwork performed by Aon.
Role of BankingManagement
The CEO; COO; Chief Administrative Officer, General Counsel and InsuranceCorporate Secretary; and Chief Human Resources Officer assist the Compensation Committee in recommending agenda items for acquisitionsits meetings and by gathering and producing information for these meetings. As requested by the Compensation Committee, the CEO; COO; Chief Administrative Officer, General Counsel and Corporate Secretary; and Chief Human Resources Officer participate in Compensation Committee meetings to discuss executive compensation, evaluate the performance of New Jersey banks or holding companies.
Proposed Legislation
From time to time proposals are made in the United States Congress, the New Jersey Legislature, and before various bank regulatory authorities, which would alter the powers of, and place restrictions on, different types of banking organizations. It is impossible to predict the impact, if any, of potential legislative trends on the business ofboth the Company and its subsidiaries.
ITEM 1A - Risk Factors.
Our business,individual executives, and provide pertinent financial, condition, operating resultslegal, or operational information. The CEO and cash flows can be affected by a number of factors, including,COO provide their insights and suggestions regarding compensation, but not limited to, those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.
Credit Risks
Our allowanceonly Compensation Committee members vote on executive compensation decisions and other Company compensation matters under their purview for credit losses on loans may not be adequate to cover actual losses.
Like all commercial banks, Lakeland Bank maintains an allowance for credit losses on loans to provide for loan defaults and non-performance. If our allowance for credit losses on loans is not adequate to cover actual loan losses, we may be required to significantly increase future provisions for credit losses on loans, which could materially and adversely affect our operating results. The Company adopted ASU 2016-13, pertainingrecommendation to the measurementBoard of credit losses on financial instruments ("CECL"), on December 31, 2020, effective January 1, 2020. This update requiresDirectors.
In 2022, the measurementCEO and COO made recommendations to the Compensation Committee regarding base salaries, incentive goals, and equity awards for executives other than themselves. The Compensation Committee retained discretion to approve or modify recommendations prior to approval or, in the case of all expected credit lossesequity awards, prior to presentation before the Board of Directors for financial instruments held atratification. The Compensation Committee discussed the reporting date based on historical experience, current conditions,CEO’s and reasonableCOO’s recommendations with them but made final deliberations and supportable forecasts. Financial institutions, such as Lakeland, and other organizations will now use forward-looking informationrecommendations to better inform their credit loss estimates.
Our CECL methodology includes the following key factors and assumptions for all loan portfolio segments: a) the calculation of a baseline lifetime loss by applying a segment-specific historical average annual loss rate, calculated using an open pool method, applied over the remaining life of each instrument; b) a single set of economic forecast inputs for the reasonable and supportable period; c) a reasonable and supportable forecast period, which reflects management's expectations of losses based on forward-looking economic scenarios over that time; d) baseline lifetime loss rates adjusted for changes in macroeconomic conditions over the reasonable and supportable forecast period via a series of adjustment factors developed using a third-party developed and supported top-down statistical model suite that uses a set of relevant economic forecast inputs sourced from a leading global forecasting firm; e) a reversion period (after the reasonable and supportable forecast period) using a straight-line approach; f) a historical loss period which represents a full economic credit cycle (with the exception of equipment finance loans which uses a shorter time period due to circumstances unique to that segment); and g) expected prepayment rates estimated on more recent historical experience adjusted for refinance incentive, seasoning and burnout, as applicable. The amount of future losses is affected by changes in economic, operating and other conditions, including changes in interest rates, many of which are beyond our control. These losses may exceed our current estimates. The Company alsoBoard.
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considers five standard qualitative general reserve factors ("qualitative adjustments"): nature and volume of loans, lending management, policy and procedures, independent review and changes in environment. Qualitative adjustments are designed to address risks that are not captured in the quantitative reserves (“quantitative reserve”). Other qualitative adjustments or model overlays may also be recorded based on expert credit judgment in circumstances where, inCompensation Risk Oversight
During 2022, the Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors. Federal regulatory agencies, as an integral part of their examination process, review our loans and the corresponding allowance for credit losses. While we believe that our allowance for credit losses on loans in relation to our current loan portfolio is adequate to cover current and expected losses, we cannot assure you that we will not need to increase our allowance for credit losses on loans or that the regulators will not require us to increase this allowance. Future increases in our allowance for credit losses on loans could materially and adversely affect our earnings and profitability.
Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. This differs significantly from the "incurred loss" model required under previous GAAP, which delayed recognition until it was probable a loss had been incurred. Accordingly, the adoption of the CECL model significantly affected how we determined our allowance for credit losses on loans and may create more volatility in the level of our allowance for credit losses.
Any future quarterly changes to our allowance will depend on the current state of the economy, forecasted macroeconomic conditions, the composition and performance of our loan portfolio at the time and other factors captured through qualitative adjustments, including idiosyncratic factors.
The concentration of our commercial real estate loan portfolio may subject us to increased regulatory analysis, or otherwise adversely affect our business and operating results.
The FDIC, the Federal Reserve and the OCC have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate (CRE) lending. The 2006 interagency guidance did not establish specific CRE lending limits or caps; rather, the guidance set forth supervisory criteria to serve as levels of bank CRE concentration above which certain financial institutions may be identified for further supervisory analysis. According to the guidelines, institutions could be subject to further analysis if (i) their loans for construction, land, and land development (CLD) represent 100% or more of the institution's total risk-based capital, or (ii) their total non-owner occupied CRE loans (including CLD loans), as defined, represent 300% or more of the institution’s total risk-based capital, and further, that the institution’s non-owner occupied CRE loan portfolio has increased by 50% or more during the previous 36 months.
The Bank’s total reported CLD loans represented 35% of total risk-based capital at December 31, 2021. The Bank’s total reported CRE loans to total capital was 423% at December 31, 2021, while the Bank’s CRE portfolio has increased by 40% over the preceding 36 months. The growth rate of the preceding 36 months included the acquisition of Highlands State Bank.
The Bank’s CRE portfolio is segmented and spread among various property types including retail, office, multi-family, mixed use, industrial, hospitality, healthcare, special use and residential and commercial construction. Management regularly reviews and evaluates its CRE portfolio, including concentrations within the various property types based on current market conditions and risk appetite as well as by utilizing stress testing on material exposures and believes its underwriting practices are sound.
There is no assurance that in the future we will not exceed the levels set forth in the guidelines. Furthermore, the concentration of our commercial real estate portfolio could materially and adversely affect our business and operating results, including our overall profitability, and/or adversely impact the growth of our business, including the growth and composition of our overall loan portfolio.
Our mortgage banking operations expose us to risks that are different than the risks associated with our retail banking operations.
The Bank’s mortgage banking operations are dependent upon the level of demand for residential mortgages. During higher and rising interest rate environments, the level of refinancing activity tends to decline, which can lead to reduced volumes of business and lower revenues that may not exceed our fixed costs to run the business. In addition, mortgages sold to third-party investors are typically subject to certain repurchase provisions related to borrower refinancing, defaults, fraud or other reasons stipulated in the applicable third-party investor agreements. If the fair value of a loan when repurchased is less than the fair value when sold, a bank may be required to charge such shortfall to earnings.
In addition, the “ability to repay” and “Qualified Mortgage” rules promulgated as required by the Dodd-Frank Act (as amended or supplemented to date, including by the EGRRCPA (see "Item 1. Business - Supervision and Regulation - Capital Requirements" above), may expose the Company to greater losses, reduced volume and litigation related expenses and delays in taking title to collateral real estate, if these loans do not perform and borrowers challenge whether the rules were satisfied when originating the loans.
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We are subject to various lending and other economic risks that could adversely affect our results of operations and financial condition.
Economic, political and market conditions, trends in industry and finance, legislative and regulatory changes, changes in governmental monetary and fiscal policies and inflation affect our business. These factors are beyond our control. A deterioration in economic conditions, particularly in the markets we lend in, could have the following consequences, any of which could materially adversely affect our business:
•loan delinquencies may increase;
•problem assets and foreclosures may increase;
•demand for our products and services may decrease; and
•collateral for loans made by us may decline in value, in turn reducing the borrowing ability of our customers.
Deterioration in the real estate market, particularly in New Jersey and the metropolitan New York area, could adversely affect our business. A decline in real estate values in New Jersey and the metropolitan New York area would reduce our ability to recover on defaulted loans by selling the underlying real estate, which would increase the possibility that we may suffer losses on defaulted loans.
We may suffer losses in our loan portfolio despite our underwriting practices.
We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. Although we believe that our underwriting criteria are appropriate for the various kinds of loans that we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for credit losses on loans.
Liquidity and Interest Rate Risks
We are subject to interest rate risk and variations in interest rates that may negatively affect our financial performance.
We are unable to predict actual fluctuations of market interest rates. Rate fluctuations are influenced by many factors, including:
•inflation or deflation
•excess growth or recession;
•a rise or fall in unemployment;
•tightening or expansion of the money supply;
•domestic and international disorder;
•instability in domestic and foreign financial markets; and
•actions taken or statements made by the Federal Reserve Board.
Both increases and decreases in the interest rate environment may reduce our profits. We expect that we will continue to realize income from the difference or “spread” between the interest we earn on loans, securities and other interest-earning assets and the interest we pay on deposits, borrowings and other interest-bearing liabilities. Our net interest spreads are affected by the differences between the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities. Our interest-earning assets may not reprice as slowly or rapidly as our interest-bearing liabilities. Changes in market interest rates could materially and adversely affect our net interest spread, asset quality, levels of prepayments, cash flows, market value of our securities portfolio, loan and deposit growth, costs and yields on loans and deposits and our overall profitability. Competition for our deposits can increase significantly as a result of the interest rate environment.
The Federal Open Market Committee of the Federal Reserve Board (the "FOMC") lowered the federal funds rate to near zero percent in 2020. However, the FOMC has indicated that it intends to raise interest rates beginning in 2022. A sustained increase in market interest rates could adversely affect our earnings. A significant portion of our loans have fixed interest rates and longer terms than our deposits and borrowings. As is the case with many banks and savings institutions, our emphasis on gathering core deposits, which have no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our asset. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans.
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A decrease in our ability to borrow funds could adversely affect our liquidity.
Our ability to obtain funding from the Federal Home Loan Bank ("FHLB") or through our overnight federal funds lines with other banks could be negatively affected if we experienced a substantial deterioration in our financial condition or if such funding became restricted due to deterioration in the financial markets. While we have a contingency funds management plan to address such a situation if it were to occur (such plan includes deposit promotions, the sale of securities and the curtailment of loan growth, if necessary), a significant decrease in our ability to borrow funds could adversely affect our liquidity.
Public funds deposits are an important source of funds for us and a reduced level of those deposits may hurt our profits and liquidity.
Public funds deposits are a significant source of funds for our lending and investment activities. The Company’s public funds deposits consist of deposits from local government entities, domiciled in the state of New Jersey, such as school districts, counties and other municipalities, and are collateralized by letters of credit from the FHLB and investment securities. Given our use of these high-average balance public funds deposits as a source of funds, our inability to retain such funds could adversely affect our liquidity. In addition, Governor Phil Murphy of New Jersey has proposed the creation of a state-owned bank which would accept public revenues to be invested in New Jersey. A bill was introduced in the New Jersey legislature in January 2018 that calls for the establishment of such a state-run bank. The legislation remains pending, and while no assurance can be provided that such a bank will be created, to the extent that a state-run bank is established and accepts public revenues, the amountCompensation Risk Task Force (consisting of the Company’s public funds deposits could be reduced, which could adversely affect our liquidity.
Further, our public funds deposits are primarily demand deposit accounts or short-term time depositsChief Human Resources Officer (Chair); Chief Financial Officer; Chief Risk Officer; and are therefore more sensitive to interest rate risks. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if we are unable to retain such fundsChief Administrative Officer, General Counsel and we are forced to resort to other sources of funds for our lending and investment activities, such as borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our public funds deposits, which would adversely affect our net income.
The transition from LIBOR as a reference rate may adversely impact our net income.
In 2017, the United Kingdom's Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"). The use of LIBOR in new contracts was discontinued on December 31, 2021. Certain USD LIBOR tenors will continue to be published on a representative basis until June 30, 2023. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.
    Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementationsCorporate Secretary) evaluated all of the recommended alternativescompensation plans in floating rate instruments. At this time, it is not possiblewhich the Company’s employees, including executive officers, participate and reported to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continuethe Compensation Committee that none individually, or taken together, was reasonably likely to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
    We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Declines in value may adversely impact our investment portfolio.
As of December 31, 2021, the Company had approximately $1.59 billion in its investment portfolio, with $770.0 million designated as available for sale and $825.0 million designated as held to maturity. For securities available for sale, ASU 2016-13 requires entities to determine if impairment is related to credit loss or non-credit loss. If an assessment of the security indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security, and if the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Held to maturity securities are evaluated under the allowance for credit losses model. Held to maturity securities are charged off against the allowance when deemed to be uncollectible and adjustments to the allowance are reported as aCompany. No component of credit loss expense. Ifcompensation was considered to encourage undue risk. The Compensation Committee accepted the credit loss expense is significant enoughCompensation Risk Task Force’s report.
Competitive Benchmarking and Peer Groups
The Compensation Committee believes that it could affect the ability of Lakeland to upstream dividends to the
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Company, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact our regulatory capital ratios.
Information Technology or Cybersecurity Risks
The occurrence of any failure, breach, or interruption in service involving our systems or those of our service providers could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny, or expose us to civil litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations and the market price of our stock.
    In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant disruption to our operations. Information security breaches and cybersecurity-related incidents may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems. Our technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and company data is important to our business and our reputation. Our collectionreview compensation in the context of such customer and company data is subject to extensive regulation and oversight.
Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, bank account information or other personal information or to introduce viruses or other malware through “Trojan horse” programs to our information systems and/or our customers' computers. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology and customer and employee education, such cyber attacks against us, our merchants and our third party service providers remain a serious issue. The pervasiveness of cybersecurity incidents in generalLakeland’s corporate performance and the risks of cyber crime are complex and continue to evolve. More generally, publicized information concerning security and cyber-related problems could inhibit the use or growth of electronic or web-based applications or solutions as a means of conducting commercial transactions.
Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber attacks and intrusions, or disruptions will occurcompensation offered by its peers in the future,market. In 2021, the Compensation Committee undertook a complete review of executive compensation for each of the NEOs, which was utilized in establishing 2022 compensation amounts and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. While we maintain specific “cyber” insurance coverage, which would applyprogram design features.
The peer group utilized in the event2021 compensation review for use in establishing 2022 compensation was determined using the following criteria as of various breach scenarios,June 30, 2021:
•Total assets between $5.5 billion and $20 billion.
•Located in Connecticut, Delaware, Maryland, New Jersey, New York, Pennsylvania or Rhode Island.
•Positive ROAA and Return on Average Equity ("ROAE").
•More than 10 branches.
•Commercial loans representing more than 40% of total loans.
An exception was made to the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat scenarios are inherently difficultcommercial loan criteria for Northfield due to predict and can take many forms, some breaches may not be covered under our cyber insurance coverage. A security breach or other significant disruption of our information systems or those relatedits geographic proximity to our customers, merchants and our third party vendors, including as a result of cyber attacks, could (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) resultLakeland.
The companies included in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting us to additional regulatory scrutiny and expose us to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.2021 peer group were:
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PeerStateTickerPeerStateTicker
Columbia Financial, Inc.NJCLBKNorthwest Bancshares, Inc.PANWBI
Community Bank System Inc.NYCBUOceanFirst Financial Corp.NJOCFC
ConnectOne Bancorp, Inc.NJCNOBPeapack-Gladstone Financial CorporationNJPGC
Customers Bancorp, Inc.PACUBIProvident Financial Services, Inc.NJPFS
Dime Community Bancshares Inc.NYDCOMS&T Bancorp, Inc.PASTBA
Eagle Bancorp Inc.MDEGBNSandy Spring Bancorp, Inc.MDSASR
First Commonwealth FinancialPAFCFTompkins Financial CorporationNYTMP
Flushing Financial CorporationNYFFICUnivest Financial CorporationPAUVSP
Kearny Financial Corp.NJKRNYWashington Trust Bancorp Inc.RIWASH
NBT Bancorp Inc.NYNBTBWSFS Financial CorporationDEWSFS
Northfield Bancorp (Staten Island)NJNFBK
The inability to stay current with technological change could adversely affect our business model.
Financial institutions continually are required to maintain and upgrade technology in order to providepeer group was selected following the most current products and services to their customers, as well as create operational efficiencies. This technology requires personnel resources, as well as significant costs to implement. Failure to successfully implement technological change could adversely affect the Company’s business, resultsannouncement of operations and financial condition.
The Company embarked on a digital strategy initiative in 2019, which impacts all operational areas of the Bank. There are no guarantees that enhancing the Company's digital capabilities will expand Lakeland's market presence as a community bank or result in an ability to better compete long-term in a fast-paced digital marketplace. In addition, the cost of implementation and the anticipated increase in revenue may not occur as expected.
Our operations rely on certain third party vendors.
We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. These third party vendors are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information. If these vendors encounter any of these issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. While we have selected these external vendors carefully, we do not control their actions. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also entail significant delay and expense.
Legal and Regulatory Risks
The Company and the Bank are subject to more stringent capital and liquidity requirements.
More stringent capital requirements have been imposed on bank holding companies such as Lakeland Bancorp by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred issuances from counting as Tier I capital. These restrictions limit our future capital strategies. Under the Dodd-Frank Act, our currently outstanding trust preferred securities will continue to count as Tier I capital, but we will be unable to issue replacement or additional trust preferred securities which would count as Tier I capital.
As further described above under “Item 1. Business-Supervision and Regulation-Capital Requirements,” banks and bank holding companies are required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios.
Banking institutions which do not maintain capital in excess of the Basel Rule standards including the capital conservation buffer face constraints on the payment of dividends, equity repurchases and compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions to Lakeland Bancorp may be prohibited or limited.
Future increases in minimum capital requirements could adversely affect our net income. Furthermore, our failure to comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us which could restrict our future growth or operations.
The extensive regulation and supervision to which we are subject impose substantial restrictions on our business.
The Company, Lakeland and certain non-bank subsidiaries are subject to extensive regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole. Such laws are not designed to protect our shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. We are also subject to numerous laws and regulations designed to protect consumers. The Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. Lakeland is also subject to a number of laws which, among other things, govern its lending practices and require the Bank to establish and maintain comprehensive programs relating to anti-money laundering and customer identification.
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The New Jersey Department of Banking and Insurance, the FDIC and the Federal Reserve Board periodically examine our business, including our compliance with laws and regulations, and the Consumer Financial Protection Bureau (the "CFPB") has the authority to examine us for compliance with federal consumer financial laws. The U.S. Department of Justice also has enforcement authority over fair lending laws. If a regulator were to determine that any aspect of our operations had become unsatisfactory or were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate, including enjoining “unsafe or unsound” practices, requiring affirmative action to correct any conditions resulting from any violation or practice, issuing an administrative order that can be judicially enforced, directing an increase in our capital, restricting our growth (including restrictions on mergers and acquisitions activity, geographic expansion or entering into new lines of business), assessing civil monetary penalties against our officers or directors, removing officers and directors or, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, terminating our deposit insurance and placing us into receivership or conservatorship. If we become subject to any regulatory actions, it could have a material adverse effect on our business, results of operations, financial condition and growth prospects. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition or results of operations.
The United States Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our business, financial condition and results of operations.
Lakeland’s ability to pay dividends is subject to regulatory limitations which, to the extent that our holding company requires such dividends in the future, may affect our holding company’s ability to pay its obligations and pay dividends to shareholders.
As a bank holding company, the Company is a separate legal entity from Lakeland Bank and its subsidiaries, and we do not have significant operations of our own. We currently depend on Lakeland Bank’s cash and liquidity to pay our operating expenses and dividends to shareholders. The availability of dividends from Lakeland Bank is limited by various statutes and regulations. The inability of the Company to receive dividends from Lakeland Bank could adversely affect our financial condition, results of operations, cash flows and prospects and the Company’s ability to pay dividends.
In addition, as described under “Item 1. Business-Supervision and Regulation-Capital Requirements,” as a general matter, banks and bank holding companies are required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios. Banking institutions which do not maintain capital in excess of the capital conservation buffer will face constraints on the payment of dividends, equity repurchases and compensation based on the amount of the shortfall. Accordingly, if Lakeland Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions to Lakeland Bancorp may be prohibited or limited.
The Company is subject to heightened regulatory requirements as a result of total assets exceeding $10 billion.
With the closing of the acquisition of 1st Constitution Bancorp on January 6, 2022,and Lakeland's anticipated post-acquisition asset size at the Company's total assets exceed $10 billion. Banks with assets in excess of $10 billion are subject to requirements imposed bytime placed it at the Dodd-Frank Act and its implementing regulations, including the examination authority51st percentile of the CFPB to assess compliance with Federal consumer financial laws, impositionpeer group in terms of higher FDIC premiums, reduced debit card interchange fees and enhanced risk management frameworks, all of which increase operating costs and reduce earnings. In addition, in accordance with a memorandum of understanding entered into between the CFPB and the U.S. Department of Justice, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations and have done so on a number of occasions.
Additional costs have been and will be incurred to implement processes, procedures and monitoring of compliance with these imposed requirements, including investing significant management attention and resources to make necessary changes to comply with the new statutory and regulatory requirements under the Dodd-Frank Act. The Company faces the risk of failing to meet these requirements, which may negatively impact results of operations and financial condition. While the effect of any presently contemplated or future changes in the laws or regulations or their interpretations would have is unpredictable, these changes could be materially adverse to the Company's investors.asset size.
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Strategic and External Risks
The effect of future tax reform is uncertain and may adversely affect our business.
    State and federal legislation for tax reform may increase our overall tax expense and negatively impact certain balance sheet and tax provisions taken by the Company.
The current national administration has indicated that tax reform, increasing the federal corporate tax rate, is a possibility. Such an increase would increase the Company's income tax expense as a percent of its taxable income. Other tax reform could adversely impact the property values of real estate used to secure loans or may create an additional tax burden for many borrowers, particularly in high tax jurisdictions such as the states of New Jersey and New York where the Company operates. These and other federal and state tax changes could significantly impact the financial health of our customers, potentially resulting, in among other things, an inability to repay loans or maintain deposits at the Bank. Any negative financial impact to our customers resulting from tax reform could adversely impact our financial condition and earnings.
In addition, in September 2020, the State of New Jersey enacted further changes in tax law, that were retroactive to the beginning of 2020, which extended a temporary surcharge of 2.5% on corporations earning New Jersey allocated income in excess of $1.0 million through 2023. In 2024, the New Jersey tax rate is scheduled to revert back to no surcharge.
    The ultimate impact of any tax reform on our business, customers and shareholders, whether federal or state, is uncertain and could be adverse.
Severe weather, acts of terrorism, geopolitical and other external events could impact our ability to conduct business.
Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the metropolitan New York area, including New Jersey, remain central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.
The outbreak of COVID-19 could continue to materially, adversely affect our business operations, financial condition, results of operations and cash flows.
The outbreak of COVID-19 has materially, adversely impacted supply chains and certain industries in which our customers operate and could materially impair their ability to fulfill their obligations to us. Further, additional outbreaks of COVID-19 variants could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.
Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. The spread of the highly infectious COVID-19 caused severe disruptions in the U.S. economy at large, and for small businesses in particular, which disrupted our operations. COVID-19 resulted in a decrease in our customers’ businesses, a decrease in consumer confidence and business generally and a disruption in the services provided by our vendors. Continued disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, declines in wealth management revenues, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy. Furthermore, COVID-19 could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects of COVID-19 and the additional restrictions imposed to contain COVID-19 in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.
Moreover, we rely on many third parties in our business operations, including the appraisers of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the extent of the measures taken in responding to a continuing pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC
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filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.
Further, the COVID-19 outbreak created increased operational challenges, as we worked to respond to customers' urgent needs. During 2020 and 2021, we processed more than 3,300 applications for PPP loans in excess of $475.7 million, which resulted in significant demands and pressures on our operations. We will continue to face increased operational demands and pressures as we process applications for loan forgiveness, monitor and service our book of PPP loans and pursue recourse under the SBA guarantees and against borrowers for any PPP loan defaults.
An outbreak of any other epidemic, pandemic or outbreak of a highly contagious disease, occurring in the United States or in the geographies in which we conduct operations could materially adversely affect our business operations, financial condition, results of operations and cash flows.
An outbreak of other highly infectious or contagious diseases, could have a materially adverse impact on certain industries in which our customers operate and could materially impair their ability to fulfill their obligations to us. Further, the spread of such an outbreak, could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.
Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. The spread of highly infectious or contagious diseases could cause severe disruptions in the U.S. economy at large, and for small businesses in particular, which could disrupt our operations and if the global response to contain the outbreak is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows. An outbreak of other highly infectious or contagious diseases may result in a decrease in our customers’ businesses, a decrease in consumer confidence and business generally or a disruption in the services provided by our vendors. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, declines in wealth management revenues, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy. Furthermore, such an outbreak could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects of the outbreak and the restrictions imposed to contain it in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.
Moreover, we rely on many third parties in our business operations, including the appraisers of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of developing measures responding to an outbreak or pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.
We face intense competition from other financial services and financial services technology companies, and competitive pressures could adversely affect our business or financial performance.
The Company faces intense competition in its markets and geographic region. The Company expects competitive pressures to intensify in the future, especially in light of legislative and regulatory initiatives arising out of the recent global economic crisis, technological innovations that alter the barriers to entry, current economic and market conditions, and government monetary and fiscal policies. Competition with financial services technology companies, or technology companies partnering with financial services companies, may be particularly intense, due to, among other things, differing regulatory environments. Competitive pressures may drive the Company to take actions that the Company might otherwise eschew, such as lowering the interest rates or fees on loans or raising the interest rates on deposits in order to keep or attract high-quality customers. These pressures also may accelerate actions that the Company might otherwise elect to defer, such as substantial investments in technology or infrastructure. Whatever the reason, actions that the Company takes in response to competition may adversely affect its results of operations and financial condition. These consequences could be exacerbated if the Company is not successful in introducing new products and other services, achieving market acceptance of its products and other services, developing and maintaining a strong customer base, or prudently managing expenses.
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The Company’s future growth may require the Company to raise additional capital in the future, but that capital may not be available when it is needed or may be available only at an excessive cost.
The Company is required by regulatory authorities to maintain adequate levels of capital to support its operations. The Company anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Company, however, may at some point choose to raise additional capital to support its continued growth. The Company’s ability to raise additional capital will depend, in part, on conditions in the capital markets at that time, which are outside of the Company’s control. Accordingly, the Company may be unable to raise additional capital, if and when needed, on terms acceptable to the Company, or at all. If the Company cannot raise additional capital when needed, its ability to further expand operations through internal growth and acquisitions could be materially impacted. In the event of a material decrease in the Company’s stock price, future issuances of equity securities could result in dilution of existing shareholder interests.
Operational Risks
The Company may incur impairment to goodwill.
    We are required to test our goodwill at least annually. Our valuation methodology for assessing impairment requires management to consider a variety of factors, including the current market price of our common shares, the estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository institutions.  We operate in a competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis results in an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such charge could have a material adverse effect on our results of operations and our stock price.
 We could be adversely affected by failure in our internal controls.
We continue to devote a significant amount of effort, time and resources to continually strengthen our controls and ensure compliance with complex accounting standards and banking regulations. A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us.
Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.
We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our risk management strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. As our products and services change and grow and the markets in which we operate evolve, our risk management strategies may not always adapt to those changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and management’s judgment. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. Management of market, credit, liquidity, operational, legal, regulatory and compliance risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events and these policies and procedures may not be fully effective. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. Any of these circumstances could have an adverse effect on our business, financial condition and results of operations.
The inability to attract and retain key personnel could adversely affect our Company’s business.
The success of the Company depends partially on the ability to attract and retain a high level of experienced personnel. The inability to attract and retain key employees, as well as find suitable replacements, if necessary, could adversely affect the Company’s customer relationships and internal operations.
The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.
The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Item 7 of this report captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describes our significant accounting policy and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policy, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures.
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If we do not successfully integrate any banks that we have acquired and may acquire in the future, the combined company may be adversely affected.
The Company has grown through a combination of organic growth and acquisitions. Since 1998, we have acquired nine community banks, including our most recent acquisition of 1st Constitution Bank and its parent, 1st Constitution Bancorp, which was completed on January 6, 2022. All of the acquired banks have been merged into Lakeland and the acquired holding companies, if applicable, have been merged into the Company.
Acquisitions involve a number of risks and challenges, including integrating the branches and operations acquired, and the associated internal controls and regulatory functions, into our operations; limiting the outflow of deposits held by new customers and successfully retaining and managing acquired loans; attracting new deposits and generating new interest-earning assets in geographic areas not previously served; and retaining key employees. Additionally, no assurance can be given that the operation of acquired branches would not adversely affect our existing profitability; that we would be able to achieve results in the future similar to those achieved by our existing banking business; that we would be able to compete effectively in the market areas served by acquired branches; or that we would be able to manage growth resulting from the transaction effectively. We face the additional risks that the anticipated benefits of the acquisition may not be realized fully or at all, or within the time period expected, and that integration may result in unforeseen expenses and divert management’s attention and resources. These integration risks could have an adverse effect on the Company for an undetermined period after completion of the merger. Acquisitions also typically involve the payment of a premium over book and trading values and, therefore, may result in dilution of our book and tangible book value per share.
ITEM 1B - Unresolved Staff Comments.
Not applicable.
ITEM 2 – Properties.
As of December 31, 2021, Lakeland operated 48 branch offices located throughout Bergen, Essex, Morris, Ocean, Passaic, Somerset, Sussex, and Union counties in New Jersey and in Highland Mills, New York. Lakeland also operatessix New Jersey regional commercial lending centers in Bernardsville, Iselin, Jackson, Montville, Teaneck and Waldwick and one New York commercial lending center to serve the Hudson Valley region. In addition to the Company’s principal office located at 250 Oak Ridge Road, Oak Ridge, New Jersey 07438, the Company leases two operations locations in Milton, New Jersey.
The aggregate net book value of premises and equipment was $45.9 million at December 31, 2021. As of December 31, 2021, 27 of the Company’s facilities were owned and 31 were leased for various terms.
ITEM 3 - Legal Proceedings.
There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.
ITEM 4 - Mine Safety Disclosures.
Not applicable.
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PART II
Item 5 - Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Shares of the common stock of Lakeland Bancorp, Inc. have been traded under the symbol “LBAI” on the NASDAQ Global Select Market (or the NASDAQ National Market) since February 22, 2000 and in the over the counter market prior to that date. As of February 22, 2022, there were approximately 3,298 shareholders of record of the common stock.
The following chart compares the Company’s cumulative total shareholder return (on a dividend reinvested basis) over the past five years commencing December 31, 2016 and ending December 31, 2021 with the NASDAQ Market Index and the Peer Group Index. The Peer Group Index is the Zacks Regional Northeast Banks Index, which consists of 95 Regional Northeast Banks.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 2021

lbai-20211231_g1.jpg
Company/Market/Peer Group12/31/201612/31/201712/31/201812/31/201912/31/202012/31/2021
Lakeland Bancorp, Inc.$100.00 $100.75 $79.37 $95.99 $73.18 $112.91 
NASDAQ Market Index100.00 129.64 125.96 172.18 249.52 304.85 
Regional Northeast Banks100.00 104.70 91.39 110.53 88.89 119.82 

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Discussion of Executive Compensation Components
The following table presents information regarding sharesoutlines the major elements of 2022 total compensation for our common stock repurchased during the fourth quarter of 2021.executives:
Period
Compensation
Element		Total Number of Shares (or Units) Purchased (1)
Description and Purpose		Weighted Average Price Paid per Share (or Unit)

Link to Performance		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or ProgramsFixed/
Performance Based		Maximum Number
Short/Long-
Term
Base SalaryHelps attract and retain executives through periodic payments of Shares (or Units)market-competitive base payBased on individual performance, experience, and scope of responsibility. Used to establish cash and equity incentive award opportunitiesFixedShort-Term
Annual Short-Term IncentivesEncourages achievement of financial performance metrics that May Yet Be Purchased Undercreate near-term shareholder value
Ties the Plans or Programsexecutive’s compensation directly to factors that we believe are important to the success of the Company and within each executive’s own sphere of influence.

Performance BasedShort-Term
The majority of incentives are based on the Company's profitability, while a portion of the incentives is tied to individual goals.
Incentives for all executives are conditioned on additional performance triggers that help ensure the Company remains positioned to perform over the long-term.
Annual short-term incentives are generally paid in cash.
Long-Term Equity Incentive AwardsAligns long-term interests of executives and shareholders while creating a retention incentive through multi-year vestingA portion of the LTIP awards vest based on future Company performance against multi-year goals established at the time of grant.Performance BasedLong-Term
Supplemental
Executive Retirement Plan		Provides market-competitive income security into retirement while creating a retention incentive through multi-year vesting
October 1 to October 31, 2021‑ ‑— $— — 2,393,423 
November 1 to November 30, 2021Fixed— Long-Term
Other Compensation— Dividend equivalents on restricted stock units, limited perquisites and health and welfare benefits on the same basis as other employees— 2,393,423 
December 1Dividend equivalents on restricted stock units further enhance the executive’s link to December 31, 2021shareholders by ensuring they share in the distribution of income generated from ongoing financial performance.— Fixed & Performance Based— Short-Term & Long-Term— 2,393,423 

(1)On October 24, 2019,Base Salary
We believe that a key objective of our salary process is to maintain reasonable “fixed” compensation costs, while taking into account the Company announced that its Boardperformance of Directors authorized a share repurchase program. Underour executive officers. In determining salary levels for our NEOs, the repurchase program,Compensation Committee reviews salary levels at our peer organizations, but always bases final determinations on the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to time through a combination of open marketqualifications, experience and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretionperformance of the Companyindividual executives and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. This program has no expiration date.

ITEM 6 - {Reserved}.
ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section presents a review of Lakeland Bancorp, Inc.’s consolidated results of operations and financial condition. You should read this section in conjunction with the consolidated financial statements and notes to financial statements. As used in the following discussion, the term “Company” refers to Lakeland Bancorp, Inc. and “Lakeland” refers to the Company’s wholly owned banking subsidiary, Lakeland Bank. The Company has omitted comparative discussion of 2020 and 2019 results, which are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 8, 2021.
Statements Regarding Forward-Looking Information
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 with respect to credit quality (including delinquency trends and the allowance for credit losses), corporate objectives and other financial and business matters. 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.
In addition to the risk factors disclosed in Item 1A in this Annual Report on Form 10-K, the following factors, among others, could cause the Company’s 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; changes in economic conditions nationally, regionally and in the Company’s markets; the ongoing COVID-19 outbreak and its effects on economic activity; government responses to the COVID-19 pandemic, including vaccination mandates, which may affect our workforce, human capital resources and infrastructure; the nature and timing of actions of the Federal Reserve Board and other regulators; the nature and timing of legislation affecting the financial services industry; government intervention in the U.S. financial system; changes in levels of market interest rates; pricing pressures on loan and deposit products; credit risks of Lakeland’s lending and equipment financing activities; successful implementation, deployment and upgrades of new and existing technology, systems, services and products; customers’ acceptance of Lakeland’s products and services; 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 unanticipated expenses, including litigation expenses, related to the merger.
The above-listed risk factors are not necessarily exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. 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.
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Strategy
The Company, through its wholly owned subsidiary, Lakeland Bank, operates 69 banking offices including those offices obtained in the acquisition of 1st Constitution Bank. The offices are located in northern and central New Jersey and Highland Mills, New York. Lakeland offers a broad range of lending, depository and related financial services to individuals and small to medium-sized businesses located in its market areas. Lakeland also offers a broad range of consumer banking services, including lending, depository, safe deposit services and wealth management services.
Lakeland’s growth has come from a combination of organic growth and acquisitions. In addition to organic growth, through December 31, 2021, the Company has acquired eight community banks with an aggregate asset total of approximately $2.28 billion at the date of the respective acquisitions. The Company completed its most recent acquisition of 1st Constitution Bancorp (NASDAQ: FCCY) (“1st Constitution”) effective January 6, 2022 with 1st Constitution merging into Lakeland Bancorp, Inc. and 1st Constitution’s wholly-owned subsidiary, 1st Constitution Bank, merging into Lakeland Bank. As of January 6, 2022, 1st Constitution had approximately $1.88 billion in assets, $1.12 billion in loans, $1.65 billion in deposits and 25 branches. The acquisition represents a significant addition to Lakeland’s New Jersey franchise and the combined organization will have over $10 billion in assets. 1st Constitution's financial information is not included in our December 31, 2021 and 2020 financial information contained herein. The Company’s strategy is to continue growing both organically and through acquisition should opportunities allow. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets.
The Company’s strategic aim is to provide an adequate return to its shareholders by focusing on profitable growth through services that meet the needs of its customers in its market areas. This will be accomplished by continuing to offer commercial and consumer loan, deposit and other financial product services in a changing economic and technological environment.
The Company offers online banking, mobile banking and cash management services to meet the needs of its business and consumer customers. In 2019, the Company embarked on a digital strategy initiative, impacting all operational areas of Lakeland, with a focus on providing a superior customer experience, evolving our product and service delivery and enhancing our operational functionality and cost-effectiveness. Throughout 2020 and 2021 the Company continued to build its infrastructure to implement the strategy. We hired a highly-skilled team, strengthened our project management and delivery capabilities and continue to organize data housed in various areas of the Company. Investments were also made in customer relationship management tools, which will provide an enhanced view of our customers. In the coming year, we will continue to apply these emerging capabilities to gain insights into our customers and align our products and services with their needs.
The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. For information on how interest rate change can influence the Company’s net interest income and how the Company manages its net interest income, see “Interest Rate Risk” in the discussion below.
The Company generates noninterest income such as income from retail and business account fees, loan servicing fees, loan origination fees, appreciation in the cash surrender value of bank owned life insurance, income from securities sales, fees from wealth management services and investment product sales, income from the origination and sale of residential mortgages and SBA loans and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense, premises and equipment expense, data processing expense, FDIC insurance expense, marketing and advertising expense and other general and administrative expenses. The Company’s results of operations are also affected by general economic conditions, changes in market interest rates, changes in asset quality, changes in asset values, actions of regulatory agencies and government policies.
The Company continues to control its expenses by continually reviewing its ongoing noninterest expense, including evaluating its compensation expense, ongoing service contract expense, marketing expenses and other expenses. The Company also controls its expenses by leveraging its technology investments that maximize the efficient delivery of products and services to its customers, which allows it further to evaluate its infrastructure. Lakeland will continue to consolidate and close branches when an evaluation determines a significant cost savings may be obtained through the consolidation or closure. In addition, opportunities to open new branches are also evaluated.
Critical Accounting Estimates
The accounting and reporting policies of the Company and Lakeland conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
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On December 31, 2020, effective January 1, 2020, the Company adopted new accounting guidance, which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost. Previously, an allowance was recognized based on probable and reasonably estimable incurred losses inherent in the loan portfolio at the balance sheet date. See Note 1 to the Company's financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of the Company's accounting policies and methodologies for establishing the allowance and the liability for off-balance-sheet commitments.
The allowance for credit losses is a critical accounting estimate for the following reasons:
•estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, delinquencies, charge-offs and collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate potential credit losses;
•the allowance for credit losses is influenced by factors outside of management's control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, interest rates, housing prices, GDP, inflation and unemployment; and
•judgment is required to determine whether the models used to generate the allowance for credit losses produce results that appropriately reflect a current estimate of lifetime expected credit losses.
The Company uses an open pool loss-rate method to calculate an institution-specific historical loss rate based on historical loan level loss experience for collectively assessed loans with similar risk characteristics. The Company’s methodology considers relevant information about past and current economic conditions, as well as a single economic forecast over a reasonable and supportable period. The loss rate is applied over the remaining life of loans to develop a “baseline lifetime loss.” The baseline lifetime loss is adjusted for changes in macroeconomic variables, including but not limited to interest rates, housing prices, GDP and unemployment, over the reasonable and supportable forecast period. After the reasonable and supportable forecast period, the adjusted loss rate reverts on a straight-line basis to the historical loss rate. The reasonable and supportable forecast and the reversion periods are established for each portfolio segment. The Company measures expected credit losses of financial assets by multiplying the adjusted loss rates to the amortized cost basis of each asset taking into consideration amortization, prepayment and defaults. Changes in any of these factors, assumptions or the availability of new information, could require that the allowance be adjusted in future periods, perhaps materially.
The Company considers five standard qualitative general reserve factors ("qualitative adjustments"): nature and volume of loans, lending management, policy and procedures, independent review and changes in environment. Qualitative adjustments are designed to address risks that are not captured in the quantitative reserves (“quantitative reserve”). Other qualitative adjustments or model overlays may also be recorded based on expert credit judgment in circumstances where, in the Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors. The use of qualitative reserves may require significant judgment that may impact the amount of allowance recognized.
Because management's estimates of the allowance for credit losses involve a high degree of judgment, the subjectivity of the assumptions used and the potential for changes in the forecasted economic environment that could result in changes to the amount of the allowance recorded, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.
The COVID-19 pandemic resulted in a deterioration in U.S. economic conditions and an increase in economic uncertainty. As a result, the Company's future loss estimates may vary considerably as a result of the changes in the economy compared to management's December 31, 2021 assumptions; the magnitude and duration of the pandemic; and the impact of the national monetary and fiscal response.
Use of Non-GAAP Disclosures
Reported amounts are presented in accordance with U.S. GAAP. The Company’s management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity, tangible assets and the efficiency ratio, which excludes certain items considered to be non-recurring from earnings, is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
Executive Summary
The Company reported earnings of $95.0 million and diluted earnings per share of $1.85 for 2021 and asset growth of 7%. Deposits grew 8% and non-performing assets declined 60% for the year. The 2021 results were favorably impacted by negative provisions for credit losses totaling $10.9 million due to improvements in asset quality and forecasted macroeconomic conditions. In addition, net interest income increased $27.1 million in 2021 when compared to 2020 and the net interest margin for 2021 was 3.13%.
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While we continue to monitor developments related to COVID-19, including its impact on our employees, our customers and the communities we serve, the level of inflation, unemployment and interest rate increases by the Federal Reserve Bank ("FRB") also can affect our business. The Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers andposition to the inability of borrowers to repay loans in accordance with their terms. Management is actively managing credit risk in the Company's commercial loan portfolio.
Our branch lobbies are open at normal operating hours for customers; however, we may close them from time to time as conditions warrant. Proper COVID-19 protocols are in place in our branches and corporate offices to ensure the continued safety of our associates and customers. Management identified that the COVID-19 pandemic could adversely affect the liquidity of the Company and took specific steps to minimize the risk. In addition to processes already in place to closely monitor changes in liquidity needs, including those that may result from the COVID-19 pandemic, the Company increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While the Company is unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.
On January 6, 2022, the Company completed its acquisition of 1st Constitution with 1st Constitution merging into Lakeland Bancorp and 1st Constitution’s wholly-owned subsidiary, 1st Constitution Bank, merging into Lakeland Bank. As of January 6, 2022, 1st Constitution had approximately $1.88 billion in assets, $1.12 billion in loans and $1.65 billion in deposits. The acquisition represents a significant addition to Lakeland’s New Jersey franchise and the combined organization will have over $10 billion in assets. Full systems integration was completed in February 2022.
Financial Overview
The following table presents certain key aspects of the Company's performance for the years ended December 31, 2021 and 2020 and will be discussed further in this management’s discussion and analysis:
At or for the Years Ended
(in thousands, except per share data)12/31/202112/31/2020Change
Income Statement
Interest income$257,318 $248,842 $8,476 
Interest expense22,483 41,155 (18,672)
Net interest income234,835 207,687 27,148 
(Benefit) provision for credit losses(10,896)27,222 (38,118)
Net interest income after (benefit) provision for credit losses245,731 180,465 65,266 
Total other income22,361 27,110 (4,749)
Total operating expense140,757 132,798 7,959 
Income before income tax expense127,335 74,777 52,558 
Income tax expense32,294 17,259 15,035 
Net income$95,041 $57,518 $37,523 
organization.
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At or for the Years Ended
(Dollars in thousands, except per share data)12/31/202112/31/2020Change
Share Data:
Basic earnings per common share$1.85 $1.13 $0.72 
Diluted earnings per common share1.85 1.13 0.72 
Average common shares outstanding50,62450,54084
Diluted average common shares outstanding50,87050,650220
Balance Sheet:
Total loans$5,976,148 $6,021,232 $(45,084)
Allowance for credit losses on loans58,047 71,124 (13,077)
Total assets8,198,056 7,664,297 533,759 
Total deposits6,965,823 6,455,783 510,040 
Stockholders' equity827,014 763,784 63,230 
Selected ratios of the Company:
Return on average assets1.19 %0.80 %0.39 %
Return on average common equity11.95 %7.74 %4.21 %
Return on average tangible common equity14.93 %9.86 %5.07 %
Leverage ratio8.51 %8.37 %0.14 %
Loans to deposits85.79 %93.27 %(7.48)%
Allowance for credit losses on loans to total loans0.97 %1.18 %(0.21)%
Non-performing loans to total loans0.28 %0.71 %(0.43)%
The Company recorded net income of $95.0 million, or $1.85 per diluted share, for the year ended December 31, 2021 compared to net income of $57.5 million, or $1.13 per diluted share, for 2020. The financial results for 2021 were favorably impacted by a negative provision for credit losses of $10.9 million compared to a provision for credit losses of $27.2 million for 2020. The Company's net interest margin was 3.13% for 2021 compared to 3.09% for 2020.
In 2021, return on average assets was 1.19%, return on average common equity was 11.95% and return on average tangible common equity was 14.93%. This compared to 2020 ratios of return on average assets of 0.80%, return on average common equity of 7.74% and return on average tangible common equity of 9.86%.
Total assets at December 31, 2021 were $8.20 billion, increasing $533.8 million or 7% compared to $7.66 billion at December 31, 2020. Total investment securities increased $648.4 million as the Company deployed excess cash into securities. Total loans declined $45.1 million during 2021 to $5.98 billion at December 31, 2021 in large part due to the decline in PPP loans of $228.1 million. Other loan segments experienced growth during the year, including $159.0 million in multifamily loans, $81.4 million in owner occupied commercial loans, $61.3 million in residential loans and $35.3 million in construction loans.
Non-performing assets declined by $25.8 million during 2021 to $17.0 million at December 31, 2021 compared to $42.8 million at December 31, 2020. During 2021, the Company sold $21.7 million in non-performing loans primarily in the commercial secured by real estate loan category, resulting in net charge offs to the allowance for credit losses of $706,000 as well as recovered interest on non-accrual loans of $755,000.
Total deposits increased $510.0 million, or 8%, from December 31, 2020 to December 31, 2021, including an increase of $222.2 million, or 15% in noninterest bearing deposits. During 2021, increases in savings and interest-bearing transaction accounts of $606.8 million and noninterest-bearing deposit accounts of $222.2 million were partially offset by a decline in time deposit balances of $319.0 million,
The Company issued $150 million of fixed-to-floating rate subordinated notes in September 2021 at 2.875% per annum until September 2026 when the interest rate will reset quarterly to the three-month Secured Overnight Financing Rate ("SOFR") plus a spread of 220 basis points. The Company also redeemed $75 million of 5.125% fixed-to-floating rate subordinated notes, that were scheduled to reset quarterly to the current three-month LIBOR rate plus 397 basis points in September 2021.
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Net Interest Income
Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. The Company’s net interest income is determined by: (i) the volume of interest-earning assets that it holds and the yields that it earns on those assets, and (ii) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities.
For 2021, the Company's net interest margin was 3.13% compared to 3.09% for 2020. The increase in net interest margin resulted primarily from a 41 basis point decrease in the cost of interest-bearing liabilities.
The following table reflects the components of the Company’s net interest income, setting forth for the years presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates are computed on a tax equivalent basis assuming a 21% tax rate.
 202120202019
(dollars in thousands)Average
Balance		Interest
Income/
Expense		Average
Rates
Earned/
Paid		Average
Balance		Interest
Income/
Expense		Average
Rates
Earned/
Paid		Average
Balance		Interest
Income/
Expense		Average
Rates
Earned/
Paid
Assets
Interest-earning assets:
Loans (1)$6,003,325 $237,037 3.95 %$5,626,273 $229,036 4.07 %$4,938,298 $233,535 4.73 %
Taxable investment securities and other1,017,140 17,208 1.69 %808,629 17,811 2.20 %799,103 19,722 2.47 %
Tax-exempt securities143,363 3,333 2.32 %80,594 2,085 2.59 %70,271 1,911 2.72 %
Federal funds sold (2)352,834 440 0.12 %220,329 348 0.16 %87,997 1,720 1.95 %
Total interest-earning assets7,516,662��258,018 3.43 %6,735,825 249,280 3.70 %5,895,669 256,888 4.36 %
Noninterest-earning assets:
Allowance for credit losses(64,537)(61,898)(39,840)
Other assets522,780 534,439 466,825 
Total Assets$7,974,905 $7,208,366 $6,322,654 
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings accounts$642,298 $334 0.05 %$535,754 $325 0.06 %$500,650 $335 0.07 %
Interest-bearing transaction accounts3,613,484 10,817 0.30 %3,035,626 17,396 0.57 %2,653,404 31,157 1.17 %
Time deposits882,379 5,642 0.64 %1,064,187 14,338 1.35 %922,412 17,756 1.92 %
Federal funds purchased2,287 8 0.35 %40,536 449 1.09 %52,421 1,341 2.52 %
Securities sold under agreements to repurchase92,824 70 0.07 %51,889 107 0.21 %42,615 130 0.30 %
Long -term borrowings162,643 5,612 3.40 %244,000 8,540 3.44 %290,329 9,734 3.31 %
Total interest-bearing liabilities5,395,915 22,483 0.42 %4,971,992 41,155 0.83 %4,461,831 60,453 1.35 %
Noninterest-bearing liabilities:
Demand deposits1,671,889 1,362,918 1,092,827 
Other liabilities111,547 130,231 70,959 
Stockholders’ equity795,554 743,225 697,037 
Total Liabilities and Stockholders' Equity$7,974,905 $7,208,366 $6,322,654 
Net interest income/spread235,535 3.02 %208,125 2.87 %196,435 3.00 %
Tax equivalent basis adjustment700 438 401 
Net Interest Income$234,835 $207,687 $196,034 
Net Interest Margin (3)3.13 %3.09 %3.33 %
(1)Includes non-accrual loans, loans held for sale and deferred loan fees. Average deferred loan fees totaled $9.7 million in 2021, $7.7 million in 2020 and $3.0 million in 2019.
(2)Includes interest-bearing cash accounts.
(3)Net interest income on a tax equivalent basis divided by interest-earning assets.


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Interest income and expense volume/rate analysis
The following table shows the impact that changes in average balances of the Company’s assets and liabilities and changes in average interest rates have had on the Company’s net interest income over the past two years. This information is presented on a tax equivalent basis assuming a 21% tax rate. If a change in interest income or expense is attributable to a change in volume and a change in rate, the amount of the change is allocated proportionately. There are no out-of-period items or adjustments in the table below.
2021 vs. 20202020 vs. 2019
 Increase (Decrease)
Due to Change in:		Total
Change		Increase (Decrease)
Due to Change in:		Total
Change
(in thousands)VolumeRateVolumeRate
Interest Income
Loans$15,031 $(7,030)$8,001 $30,269 $(34,768)$(4,499)
Taxable investment securities and other4,032 (4,635)(603)233 (2,144)(1,911)
Tax-exempt investment securities1,478 (230)1,248 270 (96)174 
Federal funds sold177 (85)92 1,111 (2,483)(1,372)
Total interest income20,718 (11,980)8,738 31,883 (39,491)(7,608)
Interest Expense
Savings deposits32 (23)9 30 (40)(10)
Interest-bearing transaction accounts4,360 (10,939)(6,579)5,388 (19,149)(13,761)
Time deposits(2,134)(6,562)(8,696)3,589 (7,007)(3,418)
Federal funds purchased(259)(183)(442)(262)(630)(892)
Securities sold under agreements to repurchase(183)147 (36)46 (69)(23)
Long -term borrowings(2,833)1,786 (95)(2,928)(1,610)2 416 (1,194)
Total interest expense(1,017)(17,655)(18,672)7,181 (26,479)(19,298)
Net Interest Income$21,735 $5,675 $27,410 $24,702 $(13,012)$11,690 
Net interest income on a tax equivalent basis for 2021 was $235.5 million, compared to $208.1 million in 2020, due primarily to lower interest rates on interest-bearing liabilities as well as growth in average earning assets of $780.8 million partially offset by lower yields on interest-earning assets. The unfavorable effect on net interest income due to the decrease in yield on interest-earning assets was partially mitigated by an increase in interest income earned on free funds (interest-earning assets funded by noninterest-bearing liabilities) resulting from an increase in average noninterest-bearing deposits of $309.0 million.
Interest income on a tax equivalent basis increased from $249.3 million in 2020 to $258.0 million in 2021, an increase of $8.7 million, or 4%. The increase in interest income resulted from a $780.8 million increase in average interest-earning assets partially offset by lower yields on interest-earning assets. The decrease in yield on interest-earning assets was due primarily to a reduction in the yield on loans and investment securities due to decreases in the prime rate and LIBOR during 2020 and 2021. The average balance of loans increased $377.1 million compared to 2020, while the yield on average loans of 3.95% in 2021 was 12 basis points lower than 2020. The yield on average taxable investment securities decreased 51 basis points, while the yield on tax-exempt investment securities decreased 27 basis points compared to 2020.
Total interest expense decreased $18.7 million from $41.2 million in 2020 to $22.5 million in 2021. Total average interest-bearing liabilities increased $423.9 million, mostly due to the increase in total average interest-bearing deposits of $502.6 million as a result of organic growth, offset in part by a decrease in average long-term borrowings of $81.4 million. The cost of average interest-bearing liabilities decreased from 0.83% in 2020 to 0.42% in 2021, largely driven by lower market interest rates as well as a change in the mix of interest-bearing liabilities. The cost of interest-bearing transaction accounts, time deposits and long-term borrowings decreased by 27 basis points, 71 basis points, and four basis points, respectively, compared to 2020.
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Provision for Credit Losses
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost at December 31, 2020, effective January 1, 2020. The Company applied the standard's provisions as a cumulative-effect adjustment of $3.4 million to retained earnings as of January 1, 2020. ASU 2016-13 requires the measurement of expected credit losses for financial assets, including investments, loans and certain off-balance-sheet credit exposures, measured at amortized cost. See Note 1 - Summary of Significant Accounting Policies to the Company's financial statements for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.
In determining the allowance for credit losses on investments, loans and off-balance-sheet credit exposures, management measures expected credit losses based on relevant information about past events, current conditions, reasonable and supportable forecasts, prepayments and future economic conditions. The key assumptions of the methodology include the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The Company uses its best judgment to assess economic conditions and loss data in estimating the allowance for credit losses.
In 2021, the Company recorded a $10.9 million benefit for credit losses compared to a $27.2 million provision for 2020. The benefit is comprised of a benefit for credit losses on loans of $10.9 million, a benefit for off-balance-sheet exposures of $243,000 and a provision for credit losses on securities of $262,000. The benefit for credit losses on loans was due primarily to an improvement in forecasted macroeconomic conditions, a decrease in nonperforming assets and continued strength in the asset quality of loans. The Company charged off $4.6 million and recovered $2.4 million in 2021 compared to $2.1 million and $541,000, respectively, in 2020.
Noninterest Income
Noninterest income of $22.4 million in 2021 decreased by $4.7 million compared to 2020. The decrease in noninterest income was due primarily to a $4.1 million reduction in swap income compared to 2020 as demand for swap transactions waned due to changes in the yield curve, which decreased demand for these transactions. Service charges on deposit accounts increased $708,000 compared to 2020 due primarily to increases in debit card income. Commissions and fees in 2021 increased $1.1 million compared to 2020 due primarily to increases in commercial loan fees and investment commission income. Gains on sales of loans decreased $1.1 million compared to 2020, due primarily to the Company retaining more originated residential mortgage loans in the loan portfolio. Gain on sales and calls of investment securities totaled $9,000 in 2021 compared to $1.2 million in 2020. Noninterest income represented 9% of total revenue in 2021. Total revenue is defined as net interest income plus noninterest income.
Noninterest Expense
Noninterest expense in 2021 totaled $140.8 million, an increase of $8.0 million from the $132.8 million recorded for 2020. The increase in noninterest expense was due primarily to an increase in compensation and employee benefit expense of $6.1 million in 2021, from 2020, as a result of an increase in staffing levels and normal merit increases. In 2021, premises and equipment expense increased $2.9 million compared to 2020 due primarily to an increase in information technology service agreement expense. The increase was expected as part of the Company's digital strategy initiative, which began in 2019. Noninterest expense in 2021 also included merger-related expenses of $1.8 million for the acquisition of 1st Constitution Bancorp. Other operating expense decreased $3.6 million due primarily to the long-term debt prepayment fees totaling $4.1 million recorded in 2020 resulting from the prepayment of $114.9 million in FHLB debt at a weighted average rate of 2.11%. In addition, the Company recorded $831,000 of long-term debt extinguishment costs in 2021 as a result of the redemption of $75.0 million of fixed-to-floating rate subordinated notes.
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The efficiency ratio, a non-GAAP measure, expresses the relationship between noninterest expense (excluding long-term debt prepayment fees, merger related expenses and core deposit amortization) to total tax-equivalent revenue (excluding gains and/or losses on securities and gain and/or losses on debt extinguishment).
 For the Years Ended December 31,
(dollars in thousands)20212020
Calculation of Efficiency Ratio (a Non-GAAP Measure)
Total noninterest expense$140,757 $132,798 
Amortization of core deposit intangibles(868)(1,025)
Merger related expenses(1,782)— 
Long-term debt prepayment fees— (4,133)
Long-term debt extinguishment costs(831)— 
Noninterest expense, as adjusted$137,276 $127,640 
Net interest income$234,835 $207,687 
Noninterest income22,361 27,110 
Total revenue257,196 234,797 
Tax-equivalent adjustment on municipal securities700 438 
Gains on sales of investment securities and debt extinguishment(9)(1,213)
Total revenue, as adjusted$257,887 $234,022 
Efficiency ratio (Non-GAAP)53.23 %54.54 %
Income Taxes
The Company’s effective income tax rate was 25.4% and 23.1% in the years ended December 31, 2021 and 2020, respectively. The increased effective tax rate for 2021 was primarily a result of tax advantaged items declining as a percentage of pretax income due to the increase in pretax income.
Financial Condition
Total assets at December 31, 2021 were $8.20 billion, an increase of $533.8 million, or 7%, from $7.66 billion at December 31, 2020. Loans, net of deferred fees, were $5.98 billion and $6.02 billion at December 31, 2021 and 2020, respectively, a decrease of $45.1 million, or 1% during 2021. Investment securities were $1.62 billion and $973.2 million December 31, 2021 and 2020, respectively an increase of $648.1 million or 67% during 2021, as the Company deployed excess cash into investment securities. Total deposits were $6.97 billion at December 31, 2021, an increase of $510.0 million, or 8%, from December 31, 2020. Borrowings were $310.5 million at December 31, 2021 a decrease of $2.3 million or 1% from December 31, 2020.
Loans
Lakeland primarily serves New Jersey, the Hudson Valley region in New York and the surrounding areas. Its equipment finance division serves a broader market with a primary focus on the Northeast. At the time of adoption of CECL, the loan portfolio segmentation was expanded to nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. See Note 1 to the Company's financial statements for a full description of the segments. The information below for December 31, 2021 and December 31, 2020, is presented in accordance with ASU 2016-13. The Company did not reclassify comparative financial periods prior to December 31, 2020, and has presented those disclosures under previously applicable U.S. GAAP.
At December 31, 2021, the amortized cost of loans totaled $5.98 billion, an decrease of $45.1 million when compared to the balance at December 31, 2020 of $6.02 billion. Commercial, industrial and other loans decreased $255.8 million in 2021 due primarily to a decline in PPP loans which totaled $56.6 million and $284.6 million, at December 31, 2021 and December 31, 2020, respectively. Partially offsetting this decrease was increases in other loan categories, including multifamily loans of $159.0 million, owner occupied commercial loans of $81.4 million and residential loans of $61.3 million. For detailed information on the composition of the Company’s loan portfolio, see Note 5 in Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.
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The following table presents the classification of Lakeland's loans by major category:
(in thousands)December 31, 2021December 31, 2020
Non-owner occupied commercial$2,316,284 $2,398,946 
Owner occupied commercial908,449 827,092 
Multifamily972,233 813,225 
Non-owner occupied residential177,097 200,229 
Commercial, industrial and other462,406 718,189 
Construction302,228 266,883 
Equipment finance123,212 116,690 
Residential mortgage438,710 377,380 
Consumer275,529 302,598 
Total$5,976,148 $6,021,232 
At December 31, 2021, concentrations of loans exceeding 10% by segment of total loans outstanding included non-owner occupied commercial loans, owner occupied commercial loans, multifamily loans and commercial, industrial and other loans. Commercial, industrial and other includes $56.6 million of PPP loans, which are expected to be fully guaranteed by the SBA. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions.
The following tables present loan maturities and sensitivity to changes in interest rates at December 31, 2021:    
(in thousands)Within
One Year		After One
but Within
Five Years		After Five
Years but Within Fifteen Years		After Fifteen YearsTotal
Non-owner occupied commercial$113,472 $593,974 $1,500,937 $107,901 $2,316,284 
Owner occupied commercial78,719 229,672 534,745 65,313 908,449 
Multifamily35,685 190,370 707,115 39,063 972,233 
Non-owner occupied residential15,675 36,778 116,176 8,468 177,097 
Commercial, industrial and other186,313 193,871 74,098 8,124 462,406 
Construction108,102 80,036 114,090 — 302,228 
Equipment finance4,238 112,145 6,829 — 123,212 
Residential Mortgage2,252 18,079 91,981 326,398 438,710 
Consumer2,128 13,294 65,696 194,411 275,529 
Total loans$546,584 $1,468,219 $3,211,667 $749,678 $— $5,976,148 
(in thousands)Amounts due after one year at predetermined ratesAmount due after one year at floating or adjustable rates
Non-owner occupied commercial$580,502 $1,622,310 
Owner occupied commercial245,353 584,377 
Multifamily258,979 677,569 
Non-owner occupied residential46,078 115,344 
Commercial, industrial and other155,751 120,342 
Construction29,522 164,604 
Equipment finance118,974 — 
Residential Mortgage324,252 112,206 
Consumer81,681 191,720 
Total loans$1,841,092 $3,588,472 
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Risk Elements
Commercial loans are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower, they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment of all contractual principal and interest is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid and satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.
Non-accrual loans decreased to $17.0 million at December 31, 2021 from $42.8 million at December 31, 2020 primarily due to sales of non-performing loans of $21.3 million. Commercial, industrial and other non-accruals increased $4.1 million when compared to December 31, 2020 as a result of one new non-accrual totaling $6.1 million. Non-accruals as of December 31, 2021 include three loan relationships between $500,000 and $1.0 million totaling $1.8 million, and three loan relationships exceeding $1.0 million totaling $13.1 million. All non-accrual loans are in various stages of litigation, foreclosure, or workout. Non-accrual loans included $127,000 and $1.1 million in troubled debt restructurings as of December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, Lakeland had $3.3 million and $3.9 million, respectively, in loans that are TDRs and still accruing. Restructured loans that are still accruing are those loans where Lakeland has granted concessions to the borrower in payment terms, in rate and/or in maturity as a result of the financial difficulties of the borrower where the borrower has demonstrated the ability to repay based on the modified terms of the loan.
At December 31, 2021 and 2020, the Company had $102.3 million and $139.4 million, respectively, of loans that were rated substandard that were not classified as non-performing. There were no additional loans at December 31, 2021, other than those designated non-performing or substandard, where Lakeland was aware of any credit conditions of any borrowers that would indicate a possibility of the borrowers not complying with the present terms and conditions of repayment and which may result in such loans being included as non-accrual, past due or renegotiated at a future date.
The Company adopted ASU 2016-13 in 2020, with an adjustment to the allowance for credit losses on loans of $6.7 million, using a modified retrospective approach. For further information see Notes 1, 5 and 6 to the Company's Consolidated Financial Statements.
The following tables present the historical relationships between credit ratios, including allowance for credit losses to total loans, non-accrual loans to total loans, allowance for credit losses to non-accrual loans and net charge-offs to average loans by loan category:
 As of and for the Year Ended December 31,
(dollars in thousands)202120202019
Allowance for credit losses on loans to total loans outstanding0.97 %1.18 %0.78 %
Allowance for credit losses on loans$58,047 $71,124 $40,003 
Total loans outstanding5,976,148 6,021,232 5,137,823 
Non-accrual loans to total loans outstanding0.28 %0.71 %0.41 %
Non-accrual loans$16,981 $42,763 $21,138 
Total loans outstanding5,976,148 6,021,232 5,137,823 
Allowance for credit losses on loans to non-accrual loans341.83 %166.32 %189.25 %
Allowance for credit losses on loans$58,047 $71,124 $40,003 
Non-accrual loans16,981 42,763 21,138 



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 As of and for the Year Ended December 31,
(dollars in thousands)202120202019
Net charge-offs (recoveries) during the period to average loans outstanding:(1)
Non-owner occupied commercial (1)0.10 %— %
Net charge-offs during the period$2,246 $24 
Average amount outstanding2,347,575 2,252,386 
Owner occupied commercial (1)— %0.05 %
Net (recoveries) charge-offs during the period$(20)$348 
Average amount outstanding870,727 763,183 
Multifamily (1)— %— %
Net charge-offs during the period$28 $— 
Average amount outstanding889,456 675,633 
Non owner occupied residential (1)0.03 %(0.01)%
Net charge-offs (recoveries) during the period$58 $(22)
Average amount outstanding188,166 202,555 
Total Commercial, secured by real estate (1)0.05 %0.01 %0.01 %
Net charge-offs during the period$2,312 $350 $293 
Average amount outstanding4,295,924 3,893,757 3,440,392 
Commercial, industrial and other(0.08)%0.09 %(0.11)%
Net (recoveries) charge-offs during the period$(487)$607 $(455)
Average amount outstanding593,979 644,844 399,432 
Construction(0.01)%(0.01)%(0.04)%
Net recoveries during the period$(21)$(23)$(126)
Average amount outstanding312,107 300,434 318,075 
Equipment finance0.24 %0.19 %0.08 %
Net charge-offs during the period$285 $219 $82 
Average amount outstanding120,252 117,158 99,378 
Residential mortgage(0.02)%0.03 %— %
Net (recoveries) charge-offs during the period$(64)$95 $(16)
Average amount outstanding398,141 340,356 336,566 
Consumer0.05 %0.08 %0.01 %
Net charge-offs during the period$137 $264 $37 
Average amount outstanding281,896 327,567 343,158 
Total loans0.04 %0.03 %— %
Net charge-offs (recoveries) during the period$2,162 $1,512 $(185)
Average amount outstanding6,002,299 5,624,116 4,937,001 
(1)    The Company expanded its loan segments withAfter reviewing certain market salary information provided by Aon and noting the adoption of ASU 2016-13 on December 31, 2020.
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For 2021 and 2020, the ratioperformance of the allowanceCompany and individual executives, the Committee determined to increase base salaries of each of our NEOs for credit losses on loans to total loans outstanding was 0.97% and 1.18%, respectively. The Company recorded a benefit to the provision of credit losses on loans in 2021 of $10.9 million due to an improvement in forecasted macroeconomic conditions, a decrease in nonperforming loans and continued improvement in asset quality. The ratio of non-accrual loans to total loans improved to 0.28% in 2021 from 0.71% in 2020 due to a reduction in non-accrual loans of $25.8 million. In addition, the reduction2022.


Name

Title
2021
Salary
($)
2022
Salary
($)

%
Change
Thomas J. SharaPresident and CEO870,324 905,000 4%
Thomas F. Splaine, Jr.EVP and CFO391,666 430,000 10%
Ronald E. SchwarzSr. EVP and COO427,908 460,000 7%
Timothy J. MattesonEVP, Chief Administrative Officer, General Counsel and Corporate Secretary348,032 390,000 12%
James M. NigroEVP, Chief Risk Officer348,032 390,000 12%
Salaries reported in the allowanceSummary Compensation Table below represent actual salary paid in 2022 for credit losseseach executive under SEC reporting rules.
2022 Annual Short-Term Incentive Plan
Our 2022 Annual Incentive Plan, or AIP, is designed to motivate executives to attain superior annual performance in key areas that we believe create long-term value to Lakeland and its shareholders. Awards under the plan were payable in cash and were contingent on loans and in non-accrual loans causedperformance against pre-established corporate financial measures as well as a subjective review of individual performance.
AIP Award Opportunities
The table below shows the ratio of allowanceannual award opportunities for credit losses on loans to non-accrual loans to improve 341.83% from 166.32%.
Management believes, based on appraisals and estimated selling costs, that the majority of its non-performing loans are well secured and that the reserves on its non-performing loans are adequate. Based upon the process employed and giving recognition to all accompanying factors related to the loan portfolio, management considers the allowance for credit losses on loans to be adequate at December 31, 2021.
Net charge-offseach NEO as a percentage of average loans outstanding remain at low levels at 0.04% and 0.03%his base salary, as well as the weightings on the various performance objectives used to calculate awards. These award opportunities were considered in determining annual incentive awards for 2021 and 2020, respectively. The primary category showing an increase in net charge-offs was non-owner occupied commercial loans, totaling $2.2 million in 2021.2022.
Cash Incentive Award
Opportunity as % of SalaryGoal Weighting
NameThresholdPlan TargetMaximumCorporateIndividual
Thomas J. Shara35%70%105%80%20%
Thomas F. Splaine, Jr.25%50%75%80%20%
Ronald E. Schwarz25%50%75%80%20%
Timothy J. Matteson25%50%75%80%20%
James M. Nigro25%50%75%80%20%
AIP Corporate Performance Objectives
The following table presents the allowancedepicts our 2022 corporate performance objectives and performance results for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses on loans allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.measures selected by the Committee.
 December 31, 2021December 31, 2020
(dollars in thousands)Allowance% of Loans in
Each Category		Allowance% of Loans in
Each Category
Non-owner occupied commercial$20,071 38.7 %$25,910 39.9 %
Owner occupied commercial3,964 15.2 %3,955 13.7 %
Multifamily8,309 16.3 %7,253 13.5 %
Non-owner occupied residential2,380 3.0 %3,321 3.3 %
Commercial, industrial and other9,891 7.7 %13,665 11.9 %
Construction838 5.1 %786 4.4 %
Equipment finance3,663 2.1 %6,552 1.9 %
Residential mortgage3,914 7.3 %3,623 6.4 %
Consumer5,017 4.6 %6,059 5.0 %
Total$58,047 100.0 %$71,124 100.0 %
Annual Corporate Performance GoalsWeightingThresholdPlan TargetMaxActual
Pre-Tax Net Income (in thousands)62.50%$100,649$122,810$136,172$153,883
Efficiency Ratio37.50%57.44%54.70%51.97%51.79%
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Investment Securities
Investment securities totaled $1.59 billion at December 31, 2021, increasing $648.4 million compared to $946.5 million at December 31, 2020. The Company has classified its investment securities into the available for sale and held to maturity categories based on its intent and ability to hold the securities to maturity. During the third quarter of 2021, the Company transferred $494.2 million of previously designated available for sale securities to a held to maturity designation at estimated fair value. The securities transferred had an unrealized net gain of $3.8 million at the time of transfer, which was reflected, net of taxes, in accumulated other comprehensive income. Subsequent amortization will be recognized over the life of the securities. The Company recorded net amortization of $383,000 during 2021. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 4 in Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.





The incentive results shown above exclude $4.6 million in total additional net income due to the day one loan loss provision for the 1st Constitution Bank acquisition, one-time merger-related expenses and loss on equity securities.

For any of the performance measures shown above, performance below threshold would have resulted in no award payout for that measure, while payouts for any one measure and the plan as a whole are capped at maximum performance level.

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In addition to the primary plan goals typically established under the annual incentive plan, the plan includes minimum performance triggers that must be met in order for any incentive payments to be made under the plan. The purpose of the minimum performance triggers is to ensure that no incentive awards will be paid in a situation where the safety and soundness of the organization is at risk, and failure to meet these triggers would have resulted in no annual incentive awards being paid for 2022 performance.
The following tablechart presents the maturity distributionminimum performance triggers and weighted average yields (calculatedactual performance on the basis of the stated yields to maturity, considering applicable premium or discount), on a fully taxable equivalent basis, of investment securitiesthose measures as of December 31, 2021, at book value:2022.
(dollars in thousands)Within
One Year		Over One
but Within
Five Years		Over Five
but Within
Ten Years		After Ten
Years		Total
Available for Sale
U.S. Treasury and U.S. government agencies
Amount$12,063 $54,788 $82,897 $53,639 $203,387 
Yield2.03 %1.36 %1.49 %1.93 %1.60 %
Mortgage-backed securities, residential
Amount1 2,411 18,051 217,512 237,975 
Yield5.15 %2.39 %2.29 %1.32 %1.40 %
Collateralized mortgage obligations, residential
Amount518 1,628 4,693 184,452 191,291 
Yield3.55 %2.65 %1.72 %1.48 %1.50 %
Mortgage-backed securities, multifamily
Amount— — — 1,741 1,741 
Yield— %— %— %(0.70)%(0.70)%
Collateralized mortgage obligations, commercial
Amount4,661 6,274 6,046 15,538 32,519 
Yield2.44 %2.86 %2.09 %2.19 %2.34 %
Asset-backed securities
Amount— — — 52,584 52,584 
Yield— %— %— %0.77 %0.77 %
Debt securities
Amount— 3,621 42,838 4,000 50,459 
Yield— %1.87 %3.72 %3.25 %3.55 %
Total securities
Amount$17,243 $68,722 $154,525 $529,466 $769,956 
Yield2.19 %1.59 %2.23 %1.42 %1.61 %

Capital Trigger		Must Exceed
Actual
Leverage Ratio5%9.16%
Tier 1 Capital Ratio6%11.24%
Total Risk-Based Capital Ratio10%13.83%
Asset Quality TriggerMust Not ExceedActual
Non-Performing Assets/Total Assets2%0.22%
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(dollars in thousands)Within
One Year		Over One
but Within
Five Years		Over Five
but Within
Ten Years		After Ten
Years		Total
Held to Maturity
U.S. Treasury and U.S. government agencies
Amount$10,013 $7,011 $1,648 $— $18,672 
Yield2.16 %1.76 %2.09 %— %2.00 %
Mortgage-backed securities, residential
Amount— 50 14 370,183 370,247 
Yield— %5.05 %5.04 %1.48 %1.48 %
Collateralized mortgage obligations, residential
Amount— 1 967 12,953 13,921 
Yield— %1.30 %2.27 %2.05 %2.07 %
Mortgage-backed securities, multifamily
Amount— — 2,710 — 2,710 
Yield— %— %1.91 %— %1.91 %
Obligations of states and political subdivisions
Amount11,332 27,036 37,880 340,318 416,566 
Yield1.21 %0.76 %1.51 %1.94 %1.80 %
Debt securities
Amount— — 2,840 — 2,840 
Yield— %— %3.00 %— %3.00 %
Total securities
Amount$21,345 $34,098 $46,059 $723,454 $824,956 
Yield1.66 %0.97 %1.67 %1.71 %1.67 %
Other Assets
Assets included within "other assets" on the Company's balance sheet decreased from $110.3 million at December 31, 2020 to $71.8 million at December 31, 2021 primarily due to a reduction in swap assets of $36.9 million. Demand for swap transactions declined in 2021 because of changes in the yield curve.
Deposits
Total deposits increased from $6.46 billion at December 31, 2020 to $6.97 billion at December 31, 2021, an increase of $510.0 million, or 8%. Savings and interest-bearing transaction accounts and noninterest-bearing deposits increased $606.8 million and $222.2 million, respectively, while time deposits decreased $319.0 million. The increase in deposits during 2021 can be attributed to organic growth, PPP-related deposits and money market promotions.
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The average amount of deposits, the average rates paid on deposits and the balance of uninsured deposits (i.e., the portion of deposit accounts that exceed the FDIC insurance limit) for the years indicated are summarized in the following table:
  Year Ended December 31,
202120202019
(dollars in thousands)Average
Balance		Average
Rate		Average
Balance		Average
Rate		Average
Balance		Average
Rate
Noninterest-bearing demand deposits$1,671,889 — %$1,362,918 — %$1,092,827 — %
Interest-bearing transaction accounts3,613,484 0.30 %3,035,626 0.57 %2,653,404 1.17 %
Savings642,298 0.05 %535,754 0.06 %500,650 0.07 %
Time deposits882,379 0.64 %1,064,187 1.35 %922,412 1.92 %
Total$6,810,050 0.25 %$5,998,485 0.53 %$5,169,293 0.95 %
December 31, 2021December 31, 2020December 31, 2019
Uninsured deposits$3,256,006$3,059,345$2,429,110
The aggregate amount of outstanding time deposits that are uninsured in excess of $250,000, broken down by time remaining to maturity at December 31, 2021, was as follows:
(in thousands)
Within 3 months$30,293 
Over 3 through 6 months44,429 
Over 6 through 12 months25,626 
Over 12 months8,594 
Total$108,942 
Federal Home Loan Bank Advances and Other Borrowings
    Lakeland may borrow from time to time from the Federal Home Loan Bank ("FHLB") and other correspondent banks as part of its overall funding and liquidity management program. FHLB advances totaled $25.0 million at December 31, 2021 and December 31, 2020, with a weighted average interest rate of 0.77%. These advances are collateralized by first mortgage loans and have prepayment penalties. In 2020, the Company repaid an aggregate of $114.9 million in advances and recorded $4.1 million in long-term prepayment fees.
Derivatives
Lakeland enters into interest rate swaps (“swaps”) with loan customers to provide a facility to mitigate the fluctuations in the variable rate on the respective loans. These swaps are matched in offsetting terms to swaps that Lakeland enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities. Lakeland’s swaps qualify as derivatives, but are not designated as hedging instruments; thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income.
In 2016, the Company entered into two five-year cash flow hedges in order to hedge the variable cash outflows associated with its subordinated debentures. The notional value of these hedges was $30.0 million. The Company’s objectives in using the cash flow hedge was to add stability to interest expense and to manage its exposure to interest rate movements. The Company used interest rate swaps designated as cash flow hedges which involved the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the lifeEach of the agreements without exchange of the underlying notional amount. In these particular hedges the Companyperformance triggers listed above was paying a third party an average of 1.10% in exchange for a payment at three-month LIBOR over a five-year period. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges were recorded in accumulated other comprehensive income and were subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2021, the Company did not record any hedge ineffectiveness. During 2021, the $30.0 million in notional value of the swaps matured and the Company did not enter into any additional hedges. Further discussion of Lakeland’s financial derivatives can be found in Note 20 to the Consolidated Financial Statements.
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Liquidity
“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary bank has the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.
Lakeland funds loan demand and operation expenses from several sources:
•Net income. Cash provided by operating activities was $95.1 million in 2021 compared to $85.0 million in 2020.
•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In 2021, Lakeland generated $510.1 million in deposit growth compared to $1.16 billion in 2020.
•Sales of securities and overnight funds. At year-end 2021, the Company had $770.0 million in securities designated “available for sale.” Of these securities, $528.5 million was pledged to secure public deposits and for other purposes required by applicable laws and regulations.
•Repayments on loans and investments can also be a source of liquidity to fund further loan growth.
•Overnight credit lines. As a member of the Federal Home Loan Bank of New York (“FHLB”), Lakeland has the ability to borrow overnight and short term based on the market value of collateral pledged. Lakeland had no overnight and short-term borrowings from the FHLB on December 31, 2021. Lakeland also has overnight federal funds lines available for it to borrow up to $215.0 million from correspondent banks. Lakeland had no borrowings against these lines at December 31, 2021. Lakeland also has the ability to utilize a line of credit from the FHLB to secure a portion of its public deposits. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New Yorksatisfied as of December 31, 2021.2022.
•Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires the Company to pledge additional collateral to meet that margin call. For more information regarding the Company’s borrowings, see Note 10 to the Consolidated Financial Statements.2022 AIP Individual Performance Assessment
Management and the Board of Directors monitor the Company’s liquidity through the Asset/Liability Committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines.
The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. Cash and cash equivalents totaling $228.5 million at December 31, 2021, decreased $41.6 million from December 31, 2020. Operating activities provided $95.1 million in net cash. Investing activities used $615.3 million in net cash, primarily reflecting net purchases of investments securities. Financing activities provided $478.6 million in net cash primarily reflecting a net increase in deposits and subordinated debt of $510.1 million and $59.4 million, respectively, partially offset by a decrease in federal funds purchased and securities sold under agreements to repurchase and dividends paid of $63.1 million and $27.1 million, respectively.
The Company’s management believes that its current level of liquidity is sufficient to meet its current and anticipated operational needs, including current loan commitments, deposit maturities and other obligations. Actual results could differ materially from anticipated results due to a variety of factors, including uncertainties relating to the effects of the COVID-19 pandemic; general economic conditions; unanticipated decreases in deposits; changes in or failure to comply with governmental regulations; and uncertainties relating to the analysis of the Company’s assessment of rate sensitive assets and rate sensitive liabilities and the extent to which market factors indicate that a financial institution such as Lakeland should match such assets and liabilities.
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Off Balance Sheet Arrangements and Aggregate Contractual Obligations
The following table sets forth contractual obligations and other commitments representing required cash outflows as of December 31, 2021. Interest on subordinated debentures and other borrowings is calculated based on current contractual interest rates.
 Payment Due Period
(in thousands)TotalWithin
One Year		After
One but
Within Three
Years		After Three
but Within
Five Years		After
Five Years
 
Minimum annual rentals or noncancellable operating leases$19,595 $3,077 $5,467 $4,033 $7,018 
Benefit plan commitments4,521 397 798 745 2,581 
Remaining contractual maturities of time deposits759,227 653,645 87,845 17,737 — 
Subordinated debentures179,043 — — — 179,043 
Loan commitments and lines of credit1,141,138 783,038 158,937 30,115 169,048 
Other borrowings25,000 — — 25,000 — 
Interest on other borrowings (1)53,178 5,375 10,764 10,390 26,649 
Standby letters of credit19,486 19,041 445 — — 
Total$2,201,188 $1,464,573 $264,256 $88,020 $384,339 
(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 2.63%.
Interest Rate Risk
Closely related to the concept of liquidity is the concept of interest rate sensitivity (i.e., the extent to which assets and liabilities are sensitive to changes in interest rates). As a financial institution, the Company’s potential interest rate volatility is a primary component of its market risk. Fluctuations in interest rates will ultimately impact the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets, other than those which possess a short term to maturity. Based upon the Company’s nature of operations, the Company is not subject to foreign currency exchange or commodity price risk. The Company does not own any trading assets.
The Company’s net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. For example, when interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market interest rates could adversely affect net interest income. Conversely, when interest-earning assets reprice more quickly than interest-bearing liabilities, an increase in market interest rates could increase net interest income.
The Company’s Board of Directors has adopted an Asset/Liability Policy designed to stabilize net interest income and preserve capital over a broad range of interest rate movements. This policy outlines guidelines and ratios dealing with, among others, liquidity, volatile liability dependence, investment portfolio composition, loan portfolio composition, loan-to-deposit ratio and gap analysis ratio. Key quantitative measurements include the percentage change of net interest income in various interest rate scenarios (net interest income at risk) and changes in the market value of equity in various rate environments (net portfolio value at risk). The Company’s performance as compared to the Asset/Liability Policy is monitored by its Risk Committee. In addition to effectively administer the Asset/Liability Policy and to monitor exposure to fluctuations in interest rates, the Company maintains an Asset/Liability Committee (the “ALCO”), consistingcorporate performance goals listed above, 20% of the Chief Executive Officer, the Chief Financial Officer, Chief Operating Officer, Chief Lending Officer, Chief Banking Officer, Chief Credit Officer, Chief Risk Officer and certain other senior officers. This committee meets quarterly to review the Company’s financial results and to develop strategies to implement the Asset/Liability Policy and to respond to market conditions.
The Company monitors and controls interest rate risk through a variety of techniques, including use of an interest rate risk management model. With the interest rate risk management model, the Company projects future net interest income, and then estimates the effect of various changes in interest rates and balance sheet growth rates on that projected net interest income. The Company also uses the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios.
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Interest rate sensitivity modeling is done at a specific point in time and involves a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates.
Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits, decay rates and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.
Management reviews the accuracy of its model by back testing its results (comparing predicted results in past models with current data), and it periodically reviews its prepayment assumptions, decay rates and other assumptions.
The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at year-end levels. The net interest income estimated for 2021 (the base case) is $223.7 million. The information provided for net interest income assumes that changes in interest rates change gradually in equal increments (“rate ramp”) over the twelve month period.
 Changes in Interest Rates
Rate Ramp+200 bp-100 bp
Asset/Liability Policy limit(5.0)%(5.0)%
December 31, 2021(0.9)%0.8 %
December 31, 20200.2 %1.4 %
The ALCO’s policy review of interest rate risk includes policy limits for net interest income changes in various “rate shock” scenarios. Rate shocks assume that current interest rates change immediately. The information provided for net interest income assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below.
 Changes in Interest Rates
Rate Shock+300 bp+200 bp+100 bp-100 bp
Asset/Liability Policy limit(15.0)%(10.0)%(5.0)%(5.0)%
December 31, 2021(0.9)%(0.7)%(0.5)%(0.4)%
December 31, 20200.5 %0.4 %0.6 %1.5 %
The base case for the following table is an estimate of the Company’s net portfolio value for the periods presented using current discount rates, and assuming the Company’s interest-sensitive assets and liabilities remain at year-end levels. The net portfolio value at December 31, 2021 (the base case) was $1.28 billion. The information provided for the net portfolio value assumes fluctuations or rate shocks for changes in interest rates as shown in the table below.
 Changes in Interest Rates
Rate Shock+300 bp+200 bp+100 bp-100 bp
Asset/Liability Policy limit(25.0)%(20.0)%(10.0)%(10.0)%
December 31, 2021(10.9)%(7.0)%(2.7)%(7.0)%
December 31, 20200.3 %1.5 %2.8 %(10.1)%
The Company's net portfolio value change in the -100 basis point scenario was -10.1% for 2020 compared to its policy limit of -10.0% resulting from the effects of the extremely low interest rate environment at the time. Management determined that no corrective action was necessary at the time and the portfolio value change was within policy limits during 2021.
The information in the above tables represent the policy scenario that the ALCO reviews on a quarterly basis. There are also other scenarios run that the ALCO examines that vary depending on the economic environment. These scenarios include a yield curve flattening scenario and scenarios that show more dramatic changes in rates. The Committee uses alternative scenarios, depending on the economic environment, in its interest rate management decisions.
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Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
Effects of Inflation
The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks have assets which are primarily monetary in nature and which tend to move with inflation. This is especially true for banks with a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive assets and interest rate sensitive liabilities. Lakeland attempts to structure its assets and liabilities and manages its gap to protect against substantial changes in interest rate scenarios, in order to minimize the potential effects of inflation.
Capital Resources
Stockholders’ equity increased from $763.8 million on December 31, 2020 to $827.0 million on December 31, 2021, which was primarily due to $95.0 million of net income, partially offset by the payment of cash dividends on common stock of $27.1 million.
Book value per common share (total common stockholders’ equity divided by the number of shares outstanding) increased from $15.13 on December 31, 2020 to $16.34 on December 31, 2021, primarily as a result of an increase in retained net income. Tangible book value per share was $13.21 on December 31, 2021, increasing from $11.97 on December 31, 2020. For more information see “Non-GAAP Financial Measures.”
The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal and state banking agencies. Failure to meet minimum capital requirements can lead to certain supervisory actions by regulators; any supervisory action could have a direct material adverse effect on the Company or Lakeland’s financial statements. As of December 31, 2021, the Company and Lakeland met all capital adequacy requirements to which they are subject.
The following table reflects capital ratios of the Company and Lakeland as of December 31, 2021 and 2020:
 Tier 1 Capital
to Total Average
Assets Ratio
December 31,		Common Equity Tier 1
to Risk-Weighted
Assets Ratio
December 31,		Tier 1 Capital
to Risk-Weighted
Assets Ratio
December 31,		Total Capital
to Risk-Weighted
Assets Ratio
December 31,
20212020202120202021202020212020
Company8.51 %8.37 %10.67 %9.73 %11.15 %10.22 %14.48 %12.84 %
Lakeland9.70 %9.04 %12.71 %11.03 %12.71 %11.03 %13.67 %12.22 %
Required capital ratios including conservation buffer4.00 %4.00 %7.00 %7.00 %8.50 %8.50 %10.50 %10.50 %
“Well capitalized” institution under FDIC regulations5.00 %5.00 %6.50 %6.50 %8.00 %8.00 %10.00 %10.00 %
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The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) was signed into law during the second quarter of 2018. The Act, among other matters, amends the Federal Deposit Insurance Act to require federal banking agencies to develop a specified Community Bank Leverage Ratio (the ratio of a bank's equity capital to its average total consolidated assets) for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be deemed to comply with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from the Basel Calculation. Under the final rule, banks with less than $10 billion in assets may elect the community bank leverage ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance-sheet exposures, and 5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above 8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the generally applicable capital rule. In 2020, the CARES Act required the federal banking agencies to temporarily lower the Community Bank Leverage Ratio from 9% of average total consolidated assets to 8% for the remainder of 2020. The ratio rose to 8.5% for calendar year 2021 and will revert to 9% thereafter. Management did not elect to use the Community Bank Leverage Ratio framework for Lakeland Bancorp or Lakeland Bank.
Non-GAAP Financial Measures
Calculation of Tangible Book Value Per Common Share
December 31,
(in thousands, except per share amounts)20212020
Total common stockholders’ equity at end of period - GAAP$827,014 $763,784 
Less:
Goodwill156,277 156,277 
Other identifiable intangible assets, net2,420 3,288 
Total tangible common stockholders’ equity at end of period - Non-GAAP$668,317 $604,219 
Shares outstanding at end of period50,606 50,480 
Book value per share - GAAP$16.34 $15.13 
Tangible book value per share - Non-GAAP$13.21 $11.97 

Calculation of Tangible Common Equity to Tangible Assets
December 31,
(dollars in thousands)20212020
Total tangible common stockholders’ equity at end of period - Non-GAAP$668,317$604,219
Total assets at end of period - GAAP$8,198,056$7,664,297
Less:
Goodwill156,277156,277
Other identifiable intangible assets, net2,4203,288
Total tangible assets at end of period - Non-GAAP$8,039,359$7,504,732
Common equity to assets - GAAP10.09 %9.97 %
Tangible common equity to tangible assets - Non-GAAP8.31 %8.05 %
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Calculation of Return on Average Tangible Common Equity:
For the Years Ended December 31,
(dollars in thousands)202120202019
Net income - GAAP$95,041$57,518$70,672
Total average common stockholders’ equity - GAAP$795,554$743,225$697,037
Less:
Average goodwill156,277156,277154,971
Average other identifiable intangible assets, net2,8663,8164,883
Total average tangible common stockholders’ equity - Non-GAAP$636,411$583,132$537,183
Return on average common stockholders’ equity - GAAP11.95 %7.74 %10.14 %
Return on average tangible common stockholders’ equity - Non-GAAP14.93 %9.86 %13.16 %
Recent Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board ("FASB") issued Update 2021-08, an update to Topic 805, Business Combinations. The update provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this ASU apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations - Overall. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2022. The Company does not expect the ASU to have a material impact on the Company's financial statements.
In March 2020, FASB issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be material.
In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and Topic 815, Derivatives and Hedging. The update clarifies the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting in accordance with Topic 321. In addition, the update clarifies scope considerations for forward contracts and purchased options on certain securities. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2020. The update did not have a material impact on the Company's financial statements.
In December 2019, FASB issued Update 2019-12, an update to Topic 740, Income Taxes, as part of an initiative to reduce complexity in accounting standards for income taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company does not expect the update to have a material impact on the Company's financial statements.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk.
See Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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Item 8 - Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Lakeland Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lakeland Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flowsoverall plan target annual incentive award for each of our NEOs was contingent on their individual performance or the years inperformance of their area of oversight within the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issuedCompany. Individual performance is assessed subjectively by the Committee of Sponsoring Organizations of the Treadway Commission,CEO for executives other than himself, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of December 31, 2020, applied retroactively to January 1, 2020, due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for credit losses for loans evaluated on a collective basis
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s total allowance for credit losses on loans as of December 31, 2021 was $58.0 million, of which $53.8 million related to the allowance for credit losses on loans evaluated on a collective basis (collective ACL). Loans that share similar risk characteristics are grouped into respective portfolio segments for collective assessment, and as such make up the collective ACL. The Company uses an open pool loss-rate methodology that considers relevant information about past and current economic conditions, as well as a single economic forecast over a reasonable and supportable period. The company’s historical loss rate is adjusted for changes in economic forecast over the reasonable and supportable forecast period. The expected credit losses are the product of multiplying the Company’s adjusted loss rate by the amortized cost basis of each asset taking into consideration amortization, prepayment and defaults. After the reasonable and supportable forecast period, the adjusted loss rate reverts
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on a straight-line basis to the historical loss rate. The reasonable and supportable and the reversion periods are established for each portfolio segment. A portion of the collective ACL is comprised of qualitative adjustments designed to address risks that are not previously captured in the open pool loss-rate model.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including methods and models used to estimate the (1) adjusted loss rate and its significant assumptions, comprising the economic forecast and macroeconomic variables, the reasonable and supportable forecast period including the reversion period, and estimated prepayments, and (2) the qualitative adjustments. The assessment also included an evaluation of the conceptual soundness and performance of the open pool loss-rate model. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimate, including controls over the:
•development of the collective ACL methodology, including the selection of the open pool loss-rate model
•continued use and appropriateness of changes made to the open pool loss-rate model
•performance monitoring of the open pool loss-rate model
•identification and determination of the significant assumptions used to measure the adjusted loss rate in the open pool loss-rate model
•development of the qualitative adjustments
•analysis of the collective ACL results, trends and ratios.
We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles
•evaluating judgments made by the Company relative to the assessment of the open-pool loss-rate model by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
•assessing the conceptual soundness and performance monitoring of the open pool loss-rate model by inspecting the model documentation to determine whether the model is suitable for its intended use
•evaluating the selection of the economic forecast and macroeconomic variables by comparing it to the Company’s business environment and relevant industry practices
•evaluating the length of the reasonable and supportable forecast period and reversion period, by comparing them to specific portfolio risk characteristics and trends
•evaluating the judgments made by management in developing estimated prepayments by comparing to specific portfolio risk characteristics and trends
•evaluating the methodology used to develop the qualitative adjustments and the effect of those on the collective ACL compared with relevant credit risk factors and consistency with credit trends.
We also assessed the sufficiency of the audit evidence obtained related to the collective ACL by evaluating the:
•cumulative results of the audit procedures
•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimates

/s/ KPMG LLP
We have served as the Company’s auditor since 2013.
Short Hills, New Jersey
February 28, 2022
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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
 December 31,
(dollars in thousands)20212020
Assets
Cash$199,158 $262,327 
Interest-bearing deposits due from banks29,372 7,763 
Total cash and cash equivalents228,530 270,090 
Investment securities, available for sale, at estimated fair value (allowance for credit losses of $83 at December 31, 2021, and $2 at December 31, 2020)769,956 855,746 
Investment securities, held to maturity (estimated fair value of $815,211 at December 31, 2021, and $93,868 at December 31, 2020, and allowance for credit losses of $181 at December 31, 2021, and none at December 31, 2020)824,956 90,766 
Equity securities, at fair value17,368 14,694 
Federal Home Loan Bank and other membership stock, at cost9,049 11,979 
Loans held for sale1,943 1,335 
Loans, net of deferred fees5,976,148 6,021,232 
Less: Allowance for credit losses58,047 71,124 
Total loans, net5,918,101 5,950,108 
Premises and equipment, net45,916 48,495 
Operating lease right-of-use assets15,222 16,772 
Accrued interest receivable19,209 19,339 
Goodwill156,277 156,277 
Other identifiable intangible assets2,420 3,288 
Bank owned life insurance117,356 115,115 
Other assets71,753 110,293 
Total Assets$8,198,056 $7,664,297 
Liabilities and Stockholders' Equity
Liabilities
Deposits$6,965,823 $6,455,783 
Federal funds purchased and securities sold under agreements to repurchase106,453 169,560 
Other borrowings25,000 25,000 
Subordinated debentures179,043 118,257 
Operating lease liabilities16,523 18,183 
Other liabilities78,200 113,730 
Total Liabilities7,371,042 6,900,513 
Stockholders’ Equity
Common stock, no par value; authorized 100,000,000 shares; issued 50,737,400 shares and outstanding 50,606,365 shares at December 31, 2021, and issued 50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020565,862 562,421 
Retained earnings259,340 191,418 
Treasury shares, at cost, 131,035 shares at December 31, 2021 and December 31, 2020(1,452)(1,452)
Accumulated other comprehensive income3,264 11,397 
Total Stockholders’ Equity827,014 763,784 
Total Liabilities and Stockholders’ Equity$8,198,056 $7,664,297 
The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
 Years Ended December 31,
(in thousands, except per share data)202120202019
Interest Income
Loans and fees$237,037 $229,036 $233,535 
Federal funds sold and interest-bearing deposits with banks440 348 1,720 
Taxable investment securities and other17,208 17,811 19,722 
Tax-exempt investment securities2,633 1,647 1,510 
Total Interest Income257,318 248,842 256,487 
Interest Expense
Deposits16,793 32,059 49,248 
Federal funds purchased and securities sold under agreements to repurchase78 556 1,471 
Other borrowings5,612 8,540 9,734 
Total Interest Expense22,483 41,155 60,453 
Net Interest Income234,835 207,687 196,034 
(Benefit) provision for credit losses (1)(10,896)27,222 2,130 
Net Interest Income after (Benefit) Provision for Credit Losses245,731 180,465 193,904 
Noninterest Income
Service charges on deposit accounts9,856 9,148 11,205 
Commissions and fees6,939 5,868 6,230 
Income on bank owned life insurance2,676 2,657 2,740 
(Loss) gain on equity securities(285)(552)496 
Gains on sales of loans2,264 3,322 1,660 
Gains on investment securities transactions, net9 1,213 — 
Swap income634 4,719 3,231 
Other income268 735 1,234 
Total Noninterest Income22,361 27,110 26,796 
Noninterest Expense
Compensation and employee benefits82,589 76,470 75,347 
Premises and equipment24,773 21,871 19,710 
FDIC insurance expense2,341 2,123 431 
Data processing expense5,454 4,964 4,913 
Merger related expenses1,782 — 3,178 
Other operating expenses23,818 27,370 23,177 
Total Noninterest Expense140,757 132,798 126,756 
Income before provision for income taxes127,335 74,777 93,944 
Provision for income taxes32,294 17,259 23,272 
Net Income$95,041 $57,518 $70,672 
Per Share of Common Stock
Basic earnings$1.85 $1.13 $1.39 
Diluted earnings$1.85 $1.13 $1.38 
Cash dividends paid$0.53 $0.50 $0.49 
(1) The Company adopted ASU 2016-13 as of December 31, 2020. Prior year periods have not been restated.
The accompanying notes are an integral part of these statements.
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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
 For the Years Ended December 31,
(in thousands)202120202019
 
Net Income$95,041 $57,518 $70,672 
Other Comprehensive Income (Loss), Net of Tax:
Unrealized (losses) gains on securities available for sale(10,651)10,338 10,718 
Reclassification for securities gains included in net income(6)(872)— 
Net gain on securities reclassified from available for sale to held to maturity2,784 — — 
Amortization of gain on debt securities reclassified to held to maturity(265)— — 
Unrealized losses on derivatives(25)(292)(586)
Change in pension liability, net30 (25)(46)
Other comprehensive (loss) income(8,133)9,149 10,086 
Total Comprehensive Income$86,908 $66,667 $80,758 
The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2021, 2020 and 2019
(in thousands)Common  StockRetained
Earnings		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Total
Balance at January 1, 2019$514,703 $116,874 $— $(7,838)$623,739 
Cumulative adjustment for adoption of ASU 842
— 125 — — 125 
Net income— 70,672 — — 70,672 
Other comprehensive income, net of tax— — — 10,086 10,086 
Issuance of stock for Highlands acquisition43,417 — — — 43,417 
Stock based compensation2,545 — — — 2,545 
Retirement of restricted stock(715)— — — (715)
Exercise of stock options313 — — — 313 
Cash dividends on common stock— (24,919)— — (24,919)
Balance at December 31, 2019$560,263 $162,752 $— $2,248 $725,263 
Cumulative adjustment for adoption of ASU 2016-13
— (3,395)— — (3,395)
Net income— 57,518 — — 57,518 
Other comprehensive income, net of tax— — — 9,149 9,149 
Treasury stock— — (1,452)— (1,452)
Stock based compensation2,659 — — — 2,659 
Retirement of restricted stock(501)— — — (501)
Cash dividends on common stock— (25,457)— — (25,457)
Balance at December 31, 2020$562,421 $191,418 $(1,452)$11,397 $763,784 
Net income— 95,041 — — 95,041 
Other comprehensive loss, net of tax— — — (8,133)(8,133)
Stock based compensation4,073 — — — 4,073 
Retirement of restricted stock(651)— — — (651)
Exercise of stock options19 — — — 19 
Cash dividends on common stock— (27,119)— — (27,119)
Balance at December 31, 2021$565,862 $259,340 $(1,452)$3,264 $827,014 
The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Years Ended December 31,
(in thousands)202120202019
Cash Flows from Operating Activities:
Net income$95,041 $57,518 $70,672 
Adjustments to reconcile net income to net cash provided by operating activities:
Net (accretion) amortization of premiums, discounts and deferred loan fees and costs(3,981)(728)3,660 
Depreciation and amortization5,126 3,858 1,645 
Amortization of intangible assets868 1,025 1,182 
Amortization of operating lease right-of-use assets2,267 2,668 2,592 
(Benefit) provision for credit losses(10,896)27,222 2,130 
Stock-based compensation4,073 2,659 2,545 
Loans originated for sale(56,956)(113,203)(57,605)
Proceeds from sales of loans held for sale58,612 116,933 59,748 
Gains on investment securities transactions, net(9)(1,213)— 
Gains on sales of loans held for sale(2,264)(3,322)(1,660)
Income on bank owned life insurance(2,550)(2,657)(2,740)
Gain on death benefit from bank owned life insurance(126)— — 
Change in fair value of equity securities285 552 (496)
(Gains) losses on other real estate and other repossessed assets(32)(88)72 
Loss on sale of premises and equipment281 77 497 
Long-term debt prepayment penalty— 4,133 — 
Long-term debt extinguishment costs831 — — 
Deferred tax expense (benefit)5,422 (6,763)2,854 
Excess tax (deficiencies) benefits(89)(132)189 
Decrease (increase) in other assets36,589 (53,982)(13,246)
(Decrease) increase in other liabilities(37,389)50,434 15,092 
Net Cash Provided by Operating Activities95,103 84,991 87,131 
Cash Flows from Investing Activities:
Net cash acquired in acquisitions— — 13,454 
Proceeds from repayments and maturities of available for sale securities181,706 700,409 147,130 
Proceeds from repayments and maturities of held to maturity securities66,709 38,941 31,457 
Proceeds from sales of equity securities— 4,148 1,287 
Proceeds from sales of available for sale securities4,402 130,912 — 
Purchase of available for sale securities(611,589)(921,343)(211,503)
Purchase of held to maturity securities(310,128)(6,377)(21,453)
Purchase of equity securities(2,959)(2,772)(1,343)
Proceeds from redemptions of Federal Home Loan Bank stock13,817 106,808 95,643 
Purchases of Federal Home Loan Bank stock(10,887)(96,282)(103,080)
Death benefit proceeds from bank owned life insurance470 — 121 
Net decrease (increase) in loans35,945 (876,021)(252,441)
Proceeds from sales of loans previously held for investment21,765 — — 
Proceeds from dispositions and sales of bank premises and equipment278 50 1,827 
Purchases of premises and equipment(4,851)(7,539)(5,936)
Proceeds from sales of other real estate and other repossessed assets32 1,044 860 
Net Cash Used in Investing Activities:(615,290)(928,022)(303,977)
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Years Ended December 31,
(in thousands)202120202019
Cash Flows from Financing Activities:
Net increase in deposits510,077 1,162,206 264,279 
(Decrease) increase in federal funds purchased and securities sold under agreements to repurchase(63,107)(159,098)94,753 
Proceeds from other borrowings— 25,000 46,260 
Repayments of other borrowings— (169,948)(89,353)
Purchase of treasury stock— (1,452)— 
Net proceeds from issuance of subordinated debt147,738 — — 
Redemption of subordinated debentures(88,330)— — 
Exercise of stock options19 — 313 
Retirement of restricted stock(651)(501)(715)
Dividends paid(27,119)(25,457)(24,919)
Net Cash Provided by Financing Activities:478,627 830,750 290,618 
Net (decrease) increase in cash and cash equivalents(41,560)(12,281)73,772 
Cash and cash equivalents, beginning of year270,090 282,371 208,599 
Cash and cash equivalents, end of year$228,530 $270,090 $282,371 

Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes$29,111 $22,486 $15,944 
Cash paid during the period for interest23,372 42,600 59,949 
Transfer of debt securities to held to maturity at fair value494,164 — — 
Transfer of loans to loans held for sale21,689 — — 
Transfer of loans into other real estate owned— 393 665 
Initial recognition of operating lease right-of-use assets— — 18,651 
Initial recognition of operating lease liabilities— — 20,203 
Right-of-use assets obtained in exchange for new lease liabilities717 1,159 1,748 
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock— — 1,767 
Investment securities— — 22,734 
Loans, including loans held for sale— — 426,118 
Goodwill and other intangible assets, net— — 23,125 
Other assets— — 9,304 
Total non-cash assets acquired— — 483,048 
Liabilities assumed:
Deposits— — 409,638 
Other borrowings— — 40,957 
Other liabilities— — 2,490 
Total liabilities assumed— — 453,085 
Common stock issued for acquisitions— — 43,417 
The accompanying notes are an integral part of these statements.

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Lakeland Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Lakeland Bancorp, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Lakeland Bank (“Lakeland”). Lakeland operates under a state bank charter and provides full banking services and, as a state bank, is subject to regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. Lakeland generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in northern and central New Jersey and the metropolitan New York area. Lakeland also provides non-deposit products, such as securities brokerage services including mutual funds, variable annuities and insurance.
Lakeland operates as a commercial bank offering a wide variety of commercial loans and, to a lesser degree, consumer credits. Its primary strategic aim is to establish a reputation and market presence as the “small and middle market business bank” in its principal markets. Lakeland funds its loans primarily by offering demand deposit, savings and money market, and time deposit accounts to commercial enterprises, individuals and municipalities in the communities we serve. Additionally, it originates residential mortgage loans, and services such loans which are owned by other investors. Lakeland also has an equipment finance division which provides loans to finance equipment primarily to small and medium-sized business clients and an asset-based lending department which specializes in utilizing particular assets to fund the working capital needs of borrowers.
The Company and Lakeland are subject to regulations of certain state and federal agencies and, accordingly, are periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, Lakeland’s business is particularly susceptible to being affected by state and federal legislation and regulations.
Basis of Financial Statement Presentation
The accounting and reporting policies of the Company and its subsidiaries conform with U.S.generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland, Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The principal estimate that is particularly susceptible to significant change in the near term relates to the allowance for credit losses. The policies regarding this estimate are discussed below.
The Company’s chief operating decision maker is its Chief Executive Officer. All of the Company’s financial services activities are interrelated and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, commercial lending is dependent upon the ability of the Company to fund itself with deposits and other borrowings and to manage interest rate and credit risk. The situation is also similar for consumer and residential mortgage lending. Moreover, the Company primarily operates in one market area, northern and central New Jersey, metropolitan New York and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as 1 operating segment or unit. Accordingly, the Company has determined that it has 1 operating segment and thus 1 reporting segment.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash items in the process of collection, amounts due from banks and federal funds sold with an original maturity of three months or less. A portion of Lakeland’s cash on hand and on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
Securities
Debt investment securities are classified as held to maturity or available for sale. Management determines the appropriate classification of securities at the time of purchase. Investments in securities, for which management has both the ability and intent to hold to maturity, are classified as held to maturity and carried at cost, adjusted for the amortization of premiums and accretion of discounts computed by the effective interest method. Investments in debt securities, which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements or other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are reported as other comprehensive income or loss in stockholders' equity and excluded from the determination of net income.
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Gains or losses on disposition of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.
For securities available for sale, the Company adopted Accounting Standards Update ("ASU") 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") on December 31, 2020, effective January 1, 2020, which eliminates the concept of other than temporary impairment and instead requires entities to determine if impairment is related to credit loss or non-credit loss. In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Subsequent activity related to the credit loss component in the form of write-offs or recoveries is recognized as part of the allowance for credit losses on securities available for sale.
The allowance for credit losses on held-to-maturity debt securities under ASU 2016-13 is initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring basis. Held-to-maturity securities are reviewed upon acquisition to determine whether it has experienced a more-than-insignificant deterioration in credit quality since its original issuance date, i.e., if they meet the definition of a purchased credit impaired asset (“PCDs”). Non-PCD held-to-maturity securities are carried at cost and adjusted for amortization of premiums or accretion of discounts. Expected credit losses on held-to-maturity debt securities through the life of the financial instrument are estimated and recognized as an allowance for credit losses on the balance sheet with a corresponding adjustment to current earnings. Subsequent favorable or adverse changes in expected cash flow will first decrease or increase the allowance for credit losses.
Management measures expected credit losses on held to maturity securities on a collective basis by major security type. The held to maturity portfolio is classified into the following major security types: U.S. government agencies, mortgage-backed securities-residential, collateralized mortgage obligations-residential, mortgage-backed securities-multi-family, collateralized mortgage obligations-multi-family and obligations of states and political subdivisions. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero.
At each reporting period, the Company evaluates whether the securities in a segment continue to exhibit similar risk characteristics as the other securities in the segment. If the risk characteristics of a security change, such that they are no longer similar to other securities in the segment, the Company will evaluate the security with a different segment that shares more similar risk characteristics. A range of historical losses method is utilized in estimating the net amount expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.
A debt security, either available for sale or held to maturity, is designated as non-accrual if the payment of interest is past due and unpaid for 30 days or more. Once a security is placed on non-accrual, accrued interest receivable is reversed and further interest income recognition is ceased. Since the non-accrual policy results in a timely reversal of interest receivable, the Company does not record an allowance for credit losses on interest receivable. The security will not be restored to accrual status until the security has been current on interest payments for a sustained period, i.e., a consecutive period of six months or two quarters; and the Company expects repayment of the remaining contractual principal and interest. However, if the security continues to be in deferral status, or the Company does not expect to collect the remaining interest payments and the contractual principal, charge-off is to be assessed. Upon charge-off, the allowance is written off and the loss represents a permanent write-down of the cost basis of the security. The Company made the election to exclude accrued interest receivable on securities from the estimate of credit losses. Accrued interest receivable totaled $5.3 million and $3.3 million on securities at December 31, 2021 and 2020, respectively.
Prior to January 1, 2020, we regularly evaluated our debt securities to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security was considered impaired if the fair value was less than its amortized cost basis at the reporting date. If impaired, the Company then assessed whether the unrealized loss was other-than-temporary. An unrealized loss on a debt security was generally deemed to be other-than-temporary and a credit loss was deemed to exist if the present value, discounted at the security’s effective rate, of the expected future cash flows was less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities was recorded in earnings while the remaining portion of the impairment loss was recognized, net of tax, in other comprehensive income provided that the Company did not intend to sell the underlying debt security and it was more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it was more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.
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The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds and investments in other financial institutions for market appreciation purposes. During the fourth quarter of 2020, the Company sold the remainder of its investments in other financial institutions. Net unrealized gains and losses for this portfolio are recognized through net income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for credit losses. The Company elected to exclude accrued interest receivable balances from the amortized cost basis. Interest receivable is included as a separate line item on the consolidated balance sheets. The Company also elected not to estimate an allowance on interest receivable balances because it has policies in place that provide for the accrual of interest to cease on a timely basis when all contractual amounts due are not expected and accrued and unpaid interest is reversed.
Interest income is accrued as earned on a simple interest basis, adjusted for prepayments. All unamortized fees and costs related to the loan are amortized over the life of the loan using the interest method. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of interest and principal is doubtful. When a loan is placed on such non-accrual status, all accumulated accrued interest receivable is reversed out of current period income.
At the time of adoption of ASU 2016-13, the Company expanded its portfolio of collectively assessed loans to include nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. Loan attributes and risk characteristics considered in segmentation include: borrower type, repayment source, collateral type, product type, purpose or nature of financing, typical contractual maturity and repayment terms, interest rate structure, credit management metrics, lending policies and procedures, and personnel responsible for underwriting, approval, monitoring, and collections. The close alignment of the portfolio segments is consistent with shared drivers of credit loss (e.g., unemployment, interest rates, property values, etc.) expected among loans within the various segments.
The nine segments include:
1.Non-owner Occupied Commercial: Permanent mortgages extended to investors and secured by non-owner occupied commercial real estate, such as office, retail, industrial and mixed-use properties. Primary source of repayment for these loans is rental income. These loans are generally originated with contractual terms of up to ten years with amortization based on a 25-year schedule. They are generally fully advanced with no unfunded commitment.
2.Owner Occupied Commercial: Permanent mortgages extended to businesses and secured by owner occupied commercial real estate, such as office, retail, and industrial properties. Primary source of repayment for these loans is operating cash flow. These loans are generally originated with contractual terms of up to ten years with amortization based on a 25-year schedule. They are generally fully advanced with no unfunded commitment.
3.Multifamily: Permanent mortgages extended to investors and secured by multifamily residential real estate. Primary source of repayment for these loans is rental income. These loans are generally originated with contractual terms of up to ten years with amortization based on a 30-year schedule. They are generally fully advanced with no unfunded commitment.
4.Non-owner Occupied Residential: Permanent mortgages extended to investors and secured by one to four family residential real estate. Primary source of repayment for these loans is rental income. These loans are generally originated with contractual terms of up to ten years with amortization based on a 25-year schedule. They are generally fully advanced with no unfunded commitment.
5.Commercial, Industrial and Other: Commercial loans extended to businesses. These loans may be either unsecured or secured by various types of collateral, such as accounts receivable, inventory, equipment, and/or real estate. Primary source of repayment for these loans is operating cash flow. These loans are generally originated with terms of one to seven years and may be used for working capital (i.e. revolving lines of credit) or purchase of fixed assets (i.e. term loans). This category includes loans originated under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), which has no corresponding allowance for credit loss because they are 100% guaranteed by the SBA.
6.Construction: Interim loans for the development or construction of commercial or residential property. Repayment may come from either the sale or refinance of the real estate that secures the loan. These loans are typically originated with a term of one to three years with interest-only payments. These loans are advanced as development or construction progresses and usually reflect an unfunded commitment during the loan term.
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7.Equipment Finance: Term financing extended to businesses. These loans are typically originated for the purchase of fixed assets, such as machinery, equipment, and vehicles and are secured by the acquired assets. Primary source of repayment for these loans is operating cash flow. These loans are generally originated with terms of three to five years with repayment in equal monthly installments over the term of the loan.
8.Residential: Permanent mortgages extended to consumers and secured by owner occupied one to four family residential real estate held in portfolio. Primary source of repayment for these loans is personal income. These loans are generally originated with contractual terms of 15 to 30 years and are fully amortizing over their term. They are fully advanced at closing with no unfunded commitment.
9.Consumer: Loans extended to consumers with primary source of repayment being personal income. The Consumer segment includes home equity lines of credit, closed-end home equity loans (secured by both first and junior liens) and other consumer loans, such as automobile and revolving credit plans.
Commercial loans are placed on non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrowers they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment in full of interest or principal is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid, satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.
With the adoption of ASU 2016-13, loans acquired in a business combination that have experienced a more-than-significant deterioration in credit quality since origination are considered purchased credit deteriorated ("PCD") loans. Management evaluates acquired loans for deterioration in credit quality based on the following: (a) non-accrual status; (b) troubled debt restructured designation; (c) risk rating lower than "Pass," and (d) delinquency status. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium, which is recognized through interest income on a level-yield basis over the lives of the related loans. All loans considered to be purchased credit-impaired ("PCI") prior to the adoption of ASU 2016-13 were converted to PCD upon adoption.
For acquired loans not deemed to be PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.
Allowance for Credit Losses
Upon the adoption of ASU 2016-13, the allowance for credit losses reserve including the allowance for the funded portion and the reserve for the unfunded portion, represents management’s estimate of current expected credit losses in the Company’s loan portfolio over its expected life, which is the contract term adjusted for expected prepayments and options to extend the contractual term that are not unconditionally cancellable by us. Management’s measurement of expected credit losses is based on relevant information about past events, current conditions, prepayments and reasonable and supportable forecasts of future economic conditions. It is presented as an offset to the amortized cost basis or as a separate liabilityCompensation Committee in the case of off-balance-sheet credit exposures. The Company uses an open pool loss-rate method to calculate an institution-specific historical loss rate based on historical loan level loss experience for collectively assessed loans with similar risk characteristics. The Company’s methodology considers relevant information about past and current economic conditions, as well asthe CEO. Each NEO is assigned a single economic forecast over a reasonable and supportable period. The loss rate is applied over the remaining life of loans to develop a “baseline lifetime loss.” The baseline lifetime loss is adjusted for changes in macroeconomic variables, including but not limited to interest rates, housing prices, GDP and unemployment, over the reasonable and supportable forecast period. After the reasonable and supportable forecast period, the adjusted loss rate revertsscore on a straight-line basisrange from threshold of 85% to the historical loss rate. The reasonable and supportable forecast and the reversion periods are established for each portfolio segment. The Company measures expected credit lossesmaximum of financial assets by multiplying the adjusted loss rates to the amortized cost basis of each
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asset taking into consideration amortization, prepayment and defaults. Changes in any of these factors, assumptions or the availability of new information, could require that the allowance be adjusted in future periods, perhaps materially.
Qualitative Adjustments: The Company considers five standard qualitative general reserve factors ("qualitative adjustments"): nature and volume of loans, lending management, policy and procedures, independent review and changes in environment. Qualitative adjustments are designed to address risks that are not captured in the quantitative reserves (“quantitative reserve”)115%. Other qualitative adjustments or model overlays may also be recorded based on expert credit judgment in circumstances where, in the Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors. The use of qualitative reserves may require significant judgment that may impact the amount of allowance recognized.
Prior to the adoption of ASU 2016-13, the allowance for loan losses was determined in accordance with previous applicable U.S. GAAP and was the estimated amount considered necessary to cover probable and reasonably estimable incurred losses inherent in the loan portfolio at the balance sheet date. In determining the allowance, management would make significant estimates and judgments. The allowance was established through a provision for loan losses charged against income. Loan principal considered to be uncollectible by management was charged against the allowance. Management believed that the allowance was adequate to cover identifiable losses, as well as estimated losses inherent in the portfolio for which certain losses are probable but not specifically identifiable.
When an individual loan no longer demonstrates the similar credit risk characteristics as other loans within its current segment, the Company evaluates each for expected credit losses on an individual basis. All non-accrual loans $500,000 and above and all loans designated as troubled debt restructured loans (“TDRs”) are individually evaluated. For collateral-dependent loans, the Company considers the fair value of the collateral, net of anticipated selling costs and other adjustments. For non collateral-dependent individually evaluated loans, the impairment will be measured using the present value of expected future cash flows discounted at the loan's effective interest rate. Shortfalls in collateral or cash flows are charged-off or specifically reserved for in the period the short-fall is identified. Charge-offs are recommended by the Chief Credit Officer and approved by the Company's Board of Directors.
TDRs are those loans where significant concessions have been made to borrowers experiencing financial difficulties. Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate lower than the current market rate of a new loan with similar risk, an extended moratorium of principal payments and/or an extension of the maturity date. Insignificant delays in payments are not considered TDRs. Loans that are classified as TDRs will continue to be classified as a TDR until it is fully repaid or until it meets all of the following criteria: 1) the borrower is no longer experiencing financial difficulties, 2) the rate is not less than the rate provided for similar credit risk, 3) other terms are no less favorable than similar new debt and 4) no concessions were granted. Prior to the adoption of ASU 2016-13, all loans with the TDR designation were considered to be impaired, even if they were accruing. With the adoption of ASU 2016-13, the definition of impaired loans was removed from accounting guidance.
To identify loans which meet the definition of a reasonably expected TDR under ASC 326-20, the Company has determined the following criteria to be used in assessing whether a loan is considered a reasonably expected TDR:
•A loan with a risk rating of Special Mention, or worse;
•A loan identified as a foreclosure in process;
•Indicated via review and assessment that a modification is probable; and
•A modification approved, on a net concession/modification basis, that benefits the customer.
The methods for estimating expected credit losses on reasonably expected TDRs are the same as those specified for existing TDRs. Reasonably expected TDR’s $500,000 and above that are anticipated to remain on accrual status will normally have their reserves determined using the discounted cash flow method, while those below $500,000 will be included in, and be assessed as part of, the population of collectively evaluated pooled loans. Reasonably expected TDRs that are anticipated to be placed on non-accrual status will be considered collateral-dependent.
Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (“Revised Statement”), dated April 17, 2020, includes criteria that enable financial institutions to exclude from TDR status loans that are modified in connection with COVID-19. Under these provisions, TDR status is not required for the term of a loan modification if (i) the loan modification was made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31, 2019 and (iii) the loan modification was entered into during the period between March 1, 2020, and the earlier of (a) 60 days after COVID-19 was no longer characterized as a National Emergency or (b) December 31, 2020. In December 2020, CAA extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. Furthermore, pursuant to the Revised Statement, for loan modifications that do not meet these criteria but are made in connection with COVID-19, such loans may be presumed not to be TDR if the loan was current at the time the loan modification program was implemented and the modifications are short-term (e.g., six months). If the criteria are not met under either Section 4013 or the Revised Statement, banks are required to follow their existing accounting policies to determine
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whether COVID-related modifications should be accounted for as a TDR. The Company has elected to suspend the classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement. For past due status, the CARES Act also provides for lenders to continue to report loans in the same delinquency bucket they were in at the time of modification. The Company applied this guidance beginning in 2020.
Prior to the adoption of ASU 2016-13, the Company defined impaired loans, a concept that is eliminated in Topic 326, as all non-accrual loans with recorded investments of $500,000 or greater. Impaired loans also included all loans modified as troubled debt restructurings. Loans were considered impaired when, based on current information and events, it was probable that Lakeland would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.
Impairment was measured based on the present value of expected cash flows discounted at the loan’s effective interest rate, or as a practical expedient, Lakeland measured impairment based on a loan’s observable market price, or the fair value of the collateral, less estimated costs to sell, if the loan was collateral-dependent. Regardless of the measurement method, Lakeland measured impairment based on the fair value of the collateral when it was determined that foreclosure was probable. Most of Lakeland’s impaired loans were collateral-dependent. Shortfalls in collateral or cash flows were charged-off or specifically reserved for in the period the short-fall was identified. Charge-offs were recommended by the Chief Credit Officer and approved by the Company's Board of Directors.
Lakeland grouped impaired commercial loans under $500,000 into homogeneous pools and collectively evaluated them. Interest received on impaired loans was recorded as interest income. However, if management was not reasonably certain that an impaired loan would be repaid in full, or if a specific time frame to resolve full collection could not yet be reasonably determined, all payments received were recorded as reductions of principal.
A loan that management designated as impaired was reviewed for charge-off when it was placed on non-accrual status with a resulting charge-off if the loan was not secured by collateral having sufficient liquidation value to repay the loan if the loan was collateral dependent or charged off if deemed uncollectible. For a loan that was not collateral dependent, a reserve would be established for any shortfall in expected cash flows. Charge-offs were recommended by the Chief Credit Officer and approved by the Board of Directors.
Off-Balance Sheet Credit Exposures
The Company is required to include the unfunded commitment that is expected to be funded in the future within the allowance calculation. The Company participates in lending that results in an off-balance-sheet unfunded commitment balance. Funding commitments are currently underwritten with conditionally cancellable language by the Company. To determine the expected funding balance remaining, the Company uses a historical utilization rateindividual performance scores for each of the segments to calculate the expected commitment balance and determines the expected credit loss based on the same method used to calculate the quantitative reserve for funded loans, applied to the expected balance over the remaining life of the loan, taking into consideration amortization, prepayments and defaults. The allowance for credit reserve for unfunded lending commitments is recorded in other liabilities in the consolidated balance sheets and the corresponding provision is included in the provision for credit losses. Prior to the adoption of ASU 2016-13, the Company recorded a provision for unfunded lending commitments in its other noninterest expense in the consolidated statements of income.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans are specifically identified and accounted for in accordance with U.S. GAAP which requires that an entity engaged in mortgage banking activities classify the retained mortgage-backed security or other interest, which resulted from the securitization of a mortgage loan held for sale, based upon its ability and intent to sell or hold these investments.
Premises and Equipment, Net
Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the terms of the related leases.
Other Real Estate Owned and Other Repossessed Assets
Other real estate owned ("OREO") and other repossessed assets, representing property acquired through foreclosure (or deed-in-lieu-of-foreclosure), are carried at fair value less estimated disposal costs of the acquired property. Costs relating to holding the assets are charged to expense. An allowance for OREO or other repossessed assets is established, through charges to expense, to maintain properties at fair value less estimated costs to sell. Operating results of OREO and other repossessed assets, including rental income and operating expenses, are included in other expenses.
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Mortgage Servicing
Lakeland performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for these services. At December 31, 2021 and 2020, Lakeland was servicing approximately $35.3 million and $34.1 million, respectively, of loans for others.
Lakeland originates certain mortgages under a definitive plan to sell those loans and service the loans owned by the investor. Upon the transfer of the mortgage loans in a sale, Lakeland records the servicing assets retained. Lakeland records mortgage servicing rights and the loans based on relative fair values at the date of origination and evaluates the mortgage servicing rights for impairment at each reporting period. Lakeland also originates loans that it sells to other banks and investors and does not retain the servicing rights.
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. As of December 31, 2021 and 2020, Lakeland had originated mortgage servicing rights of $188,000 and $129,000, respectively.
Under the amortization measurement method, Lakeland subsequently measures servicing rights at fair value at each reporting date and records any impairment in value of servicing assets in earnings in the period in which the impairment occurs. The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Servicing fee income, which is reported on the income statement as commissions and fees, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan, and are recorded as income when earned.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, put presumptively beyond the reach of the transferor and its creditors even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Derivatives
Lakeland enters into interest rate swaps (“swaps”) with loan customers to provide a facility to mitigate the fluctuations in the variable rate on the respective loans. These swaps are matched in offsetting terms to swaps that Lakeland enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities. Lakeland’s swaps qualify as derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in swap income.
The credit risk associated with derivatives executed with customers is similar as that involved in extending loans and is subject to normal credit policies. Collateral is obtained based on management’s assessment of the customer. The positions of customer derivatives are recorded at fair value and changes in value are included in swap income on the consolidated statement of income.
Cash flow hedges are used primarily to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item.
Further discussion of Lakeland’s financial derivatives is set forth in Note 20 to the Consolidated Financial Statements.
Earnings Per Share
Earnings per share is calculated on the basis of the weighted average number of common shares outstanding during the year. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stockour NEOs were exercised and converted into common stock.
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Employee Benefit Plans
The Company has certain employee benefit plans covering substantially all employees. The Company accrues such costs as incurred. We recognize the overfunded or underfunded status of pension and postretirement benefit plans in accordance with U.S. GAAP. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations are recognized as a component of Accumulated Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in addition to net income from operations. Other comprehensive income or loss includes items recorded directly in equity such as unrealized gains or losses on securities available for sale, net gain on securities transferred from available for sale to held to maturity and unrealized gains or losses recorded on derivatives and benefit plans.
Goodwill and Other Identifiable Intangible Assets
    Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and other intangible assets. On January 1, 2020, we adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which simplifies how an entity is required to test goodwill for impairment. The guidance removed step two of the goodwill impairment test, which had required a hypothetical purchase price allocation. The ASU does not change the optional qualitative assessment which allows companies to assess qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value, commonly referred to as the qualitative assessment or step zero. Goodwill is allocated to Lakeland's one reporting unit at the date goodwill is actually recorded.
    As of December 31, 2021, the carrying value of goodwill totaled $156.3 million. The Company performed its annual goodwill impairment test, as of November 30, 2021, and determined that the fair value of the Company’s single reporting unit to be in excess of its carrying value. The Company qualitatively assessed the current economic environment, including the estimated impact of the COVID-19 pandemic on macroeconomic variables and economic forecasts, and on the Company's stock price, considering how these might impact the fair value of its reporting unit. After consideration of these items, the Company determined that it was more-likely-than-not that the fair value of its reporting unit was above its book value as of our goodwill impairment test date. The Company will test goodwill for impairment between annual test dates if an event occurs or circumstances change that would indicate the fair value of the reporting unit is below its carrying amount. No events have occurred and no circumstances have changed since the annual impairment test date that would indicate the fair value of the reporting unit is below its carrying amount.
Bank Owned Life Insurance
Lakeland invests in bank owned life insurance (“BOLI”). BOLI involves the purchasing of life insurance by Lakeland on a chosen group of employees. Lakeland is the owner and beneficiary of the policies. At December 31, 2021 and 2020, Lakeland had $117.4 million and $115.1 million, respectively, in BOLI. Income earned on BOLI was $2.7 million for the each of the years ended December 31, 2021, 2020 and 2019. BOLI is accounted for using the cash surrender value method and is recorded at its net realizable value.
Income Taxes
The Company accounts for income taxes under the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for credit losses, core deposit intangibles, deferred loan fees and deferred compensation.
Variable Interest Entities
Management has determined that Lakeland Bancorp Capital Trust II and Lakeland Bancorp Capital Trust IV (collectively, “the Trusts”) qualify as variable interest entities. The Trusts issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trusts hold, as their sole asset, subordinated debentures issued by the Company. The Company is not considered the primary beneficiary of the Trusts, therefore the Trusts are not consolidated in the Company’s financial statements.
The Company’s maximum exposure to the Trusts is $30.0 million at December 31, 2021, which is the Company’s liability to the Trusts and includes the Company’s investment in the Trusts.
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The Federal Reserve has issued guidance on the regulatory capital treatment for the trust preferred securities issued by the Trusts. The rule retains the current maximum percentage of total capital permitted for trust preferred securities at 25%, but enacts other changes to the rules governing trust preferred securities that affect their use as part of the collection of entities known as “restricted core capital elements.” The rule allows bank holding companies to continue to count trust preferred securities as Tier 1 Capital. The Company’s capital ratios continue to be categorized as “well-capitalized” under the regulatory framework for prompt corrective action. Under the Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, any new issuance of trust preferred securities by the Company would not be eligible as regulatory capital.
Note 2 - Business Combinations
The Company completed its acquisition of Highlands Bancorp, Inc. ("Highlands"), a bank holding company headquartered in Vernon, New Jersey, on January 4, 2019. Highlands was the parent of Highlands State Bank, which operated 4 branches in Sussex, Passaic and Morris Counties in New Jersey. This acquisition enabled the Company to broaden its presence in those counties.
The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date. Highlands' assets were recorded at their fair values as of January 4, 2019 and Highlands' results of operations are included in the Company's Consolidated Statements of Income from that date forward.
Direct costs related to acquisitions were expensed as incurred. In 2021 and 2019, the Company recorded $1.8 million and $3.2 million of merger and integration-related expenses, respectively, which have been separately stated in the Company’s Consolidated Statements of Income. The Company recorded no merger related expenses in 2020.
Note 3 - Earnings Per Share
The Company uses the two class method to compute earnings per common share. Participating securities include non-vested restricted stock and non-vested restricted stock units. The following tables present the computation of basic and diluted earnings per share for the periods presented.
Year Ended December 31, 2021Income
(Numerator)		Shares
(Denominator)		Per Share
Amount
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders$95,041 50,624 $1.87 
Less: earnings allocated to participating securities1,142 — 0.02 
Net income available to common shareholders93,899 50,624 1.85 
Effect of dilutive securities
Stock options and restricted stock— 246 — 
Diluted earnings per share
Net income available to common shareholders plus assumed conversions$93,899 50,870 $1.85 
Year Ended December 31, 2020Income
(Numerator)		Shares
(Denominator)		Per Share
Amount
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders$57,518 50,540 $1.14 
Less: earnings allocated to participating securities511 — 0.01 
Net income available to common shareholders57,007 50,540 1.13 
Effect of dilutive securities
Stock options and restricted stock— 110 — 
Diluted earnings per share
Net income available to common shareholders plus assumed conversions$57,007 50,650 $1.13 
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Year Ended December 31, 2019Income
(Numerator)		Shares
(Denominator)		Per Share
Amount
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders$70,672 50,477 $1.40 
Less: earnings allocated to participating securities596 — 0.01 
Net income available to common shareholders70,076 50,477 1.39 
Effect of dilutive securities
Stock options and restricted stock— 165 (0.01)
Diluted earnings per share
Net income available to common shareholders plus assumed conversions$70,076 50,642 $1.38 
There were no antidilutive options to purchase common stock to be excluded from the above computations.
Note 4 - Securities
The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's investment securities available for sale are as follows:
 December 31, 2021
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
U.S. Treasury and U.S. government agencies$202,961 $1,215 $(789)$— $203,387 
Mortgage-backed securities, residential238,456 1,250 (1,731)— 237,975 
Collateralized mortgage obligations, residential191,086 1,693 (1,488)— 191,291 
Mortgage-backed securities, multifamily1,816 — (75)— 1,741 
Collateralized mortgage obligations, multifamily32,254 511 (246)— 32,519 
Asset-backed securities52,518 153 (87)— 52,584 
Debt securities49,598 959 (15)(83)50,459 
Total$768,689 $5,781 $(4,431)$(83)$769,956 
December 31, 2020
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
U.S. Treasury and U.S. government agencies$63,868 $1,447 $(313)$— $65,002 
Mortgage-backed securities, residential224,978 3,718 (540)— 228,156 
Collateralized mortgage obligations, residential204,093 4,967 (22)— 209,038 
Mortgage-backed securities, multifamily1,944 — — — 1,944 
Collateralized mortgage obligations, multifamily39,628 1,909 (2)— 41,535 
Asset-backed securities40,915 — (225)— 40,690 
Obligations of states and political subdivisions228,790 5,149 (228)(1)233,710 
Debt securities35,056 616 — (1)35,671 
Total$839,272 $17,806 $(1,330)$(2)$855,746 




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The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's investment securities held to maturity are as follows:
 December 31, 2021
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
U.S. government agencies$18,672 $293 $— $— $18,965 
Mortgage-backed securities, residential370,247 718 (5,989)— 364,976 
Collateralized mortgage obligations, residential13,921 168 — — 14,089 
Mortgage-backed securities, multifamily2,710 26 (2)— 2,734 
Obligations of states and political subdivisions416,587 810 (5,800)(21)411,576 
Debt securities3,000 31 — (160)2,871 
Total$825,137 $2,046 $(11,791)$(181)$815,211 
 December 31, 2020
(in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
U.S. government agencies$25,565 $779 $— $— $26,344 
Mortgage-backed securities, residential39,276 1,469 (12)— 40,733 
Collateralized mortgage obligations, residential14,590 532 — — 15,122 
Mortgage-backed securities, multifamily705 54 — — 759 
Obligations of states and political subdivisions10,630 280 — — 10,910 
Total$90,766 $3,114 $(12)$— $93,868 
During the third quarter of 2021, the Company transferred $494.2 million of previously designated investment securities available for sale to a held to maturity designation at estimated fair value. The reclassification for the period ended September 30, 2021 is permitted as the Company has appropriately determined the ability and intent to hold these securities as an investment until maturity or call. The securities transferred had an unrealized net gain of $3.8 million at the time of transfer, which is reflected, net of taxes, in accumulated other comprehensive income on the consolidated balance sheet. Subsequent amortization will be recognized over the life of the securities. The Company recorded net amortization of $383,000 during the year ended December 31, 2021.
The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of December 31, 2021. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 Available for SaleHeld to Maturity
(in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Due in one year or less$12,005 $12,063 $21,345 $21,497 
Due after one year through five years58,188 58,409 34,047 34,192 
Due after five years through ten years124,825 125,735 42,528 42,315 
Due after ten years57,541 57,639 340,339 335,408 
252,559 253,846 438,259 433,412 
Mortgage-backed and asset-backed securities516,130 516,110 386,878 381,799 
Total$768,689 $769,956 $825,137 $815,211 
For the year ended December 31, 2021, there were proceeds from sales of available for sale securities of $4.4 million with gross gains on sales of securities of $9,000 and no gross losses on sales of securities. There were proceeds from sales of available for sale securities of $130.9 million with gross gains on sales of securities of $1.3 million and gross losses on sales of securities of $248,000 for the year ended December 31, 2020. There were no sales of securities for the year ended
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December 31, 2019. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.
Securities with a carrying value of approximately $1.04 billion and $578.0 million at December 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:
December 31, 2021Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Number of
Securities		Fair ValueUnrealized
Losses
AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies$76,106 $322 $14,670 $467 15 $90,776 $789 
Mortgage-backed securities, residential176,990 1,465 14,582 266 45 191,572 1,731 
Collateralized mortgage obligations, residential86,749 1,429 5,000 59 18 91,749 1,488 
Mortgage-backed securities, multifamily— — 1,741 75 1 1,741 75 
Collateralized mortgage obligations, multifamily9,083 210 1,072 36 4 10,155 246 
Asset-backed securities14,688 87 — — 3 14,688 87 
Debt securities15,325 (5)980 20 8 16,305 15 
Total$378,941 $3,508 $38,045 $923 $94 $416,986 $4,431 
HELD TO MATURITY
Mortgage-backed securities, residential$340,474 $5,882 $2,376 $107 96 $342,850 $5,989 
Mortgage-backed securities, multifamily2,051 2 — — 1 2,051 2 
Obligations of states and political subdivisions307,827 5,800 — — 239 307,827 5,800 
Total$650,352 $11,684 $2,376 $107 $336 $652,728 $11,791 
December 31, 2020Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Number of
Securities		Fair ValueUnrealized
Losses
AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies$4,966 $29 $17,652 $284 6 $22,618 $313 
Mortgage-backed securities, residential84,137 471 5,656 69 30 89,793 540 
Collateralized mortgage obligations, residential23,858 22 — — 7 23,858 22 
Mortgage-backed securities, multifamily1,943 — — — 1 1,943 — 
Collateralized mortgage obligations, multifamily2,527 2 — — 1 2,527 2 
Asset-backed securities40,690 225 — — 640,690 225 
Obligations of states and political subdivisions15,901 228 — — 10 15,901 228 
Total$174,022 $977 $23,308 $353 61 $197,330 $1,330 
HELD TO MATURITY
Mortgage-backed securities, residential$2,561 $12 $— $— 4 $2,561 $12 
Total$2,561 $12 $— $— 4 $2,561 $12 
For available for sale securities, the Company assesses whether a loss is from credit or other factors and considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.
For held to maturity securities, management measures expected credit losses on a collective basis by major security type. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero. A range of historical losses method is utilized in estimating the net amount expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.
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The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
Credit Quality Indicators
Credit ratings, which are updated monthly, are a key measure for estimating the probability of a bond's default and for monitoring credit quality on an on-going basis. For bonds other than U.S. Treasuries and bonds issued or guaranteed by U.S. government agencies, credit ratings issued by one or more nationally recognized statistical rating organization are considered in conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of A or above.
The tables below indicate the credit profile of the Company's investment securities held to maturity at amortized cost for the periods presented:
December 31, 2021 AAA AA A BBB Not Rated Total
(in thousands)
U.S. Treasury and U.S. government agencies$18,672 $— $— $— $— $18,672 
Mortgage-backed securities, residential370,247 — — — — 370,247 
Collateralized mortgage obligations, residential13,921 — — — — 13,921 
Mortgage-backed securities, multifamily2,710 — — — — 2,710 
Obligations of states and political subdivisions143,777 270,909 1,068 — 833 416,587 
Debt securities— — — 3,000 — 3,000 
Total$549,327 $270,909 $1,068 $3,000 $833 $825,137 
December 31, 2020 AAA AA Total
(in thousands)
U.S. Treasury and U.S. government agencies$25,565 $— $25,565 
Mortgage-backed securities, residential39,276 — 39,276 
Collateralized mortgage obligations, residential14,590 — 14,590 
Mortgage-backed securities, multifamily705 — 705 
Obligations of states and political subdivisions2,959 7,671 10,630 
Total$83,095 $7,671 $90,766 
Equity securities at fair value
The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds. The fair value of the equity portfolio was $17.4 million and $14.7 million at December 31, 2021 and December 31, 2020, respectively. The Company recorded no sales of equity securities for the year ended December 31, 2021 and recorded $4.1 million and $1.3 million of proceeds from sales of equity securities for the years ended December 31, 2020 and 2019, respectively. The Company recorded $285,000 and $552,000 in fair value losses on equity securities in noninterest income for the year ended December 31, 2021 and 2020, respectively. and fair value gains on equity securities of $496,000 during 2019.
As of December 31, 2021, the Company's investments in Community Reinvestment funds include $6.8 million that are primarily invested in community development loans that are guaranteed by the SBA. Because the funds are primarily guaranteed by the federal government, there are minimal changes in fair value between accounting periods. These funds can be redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of December 31, 2021, the net amortized cost equaled the fair value of the investment. There are no unfunded commitments related to these investments.
The Community Reinvestment funds also include $10.5 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of December 31, 2021. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager. There are no unfunded commitments related to these investments.
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Note 5 – Loans
The following table summarizes the composition of the Company’s loan portfolio.
(in thousands)December 31, 2021December 31, 2020
Non-owner occupied commercial$2,316,284 $2,398,946 
Owner occupied commercial908,449 827,092 
Multifamily972,233 813,225 
Non-owner occupied residential177,097 200,229 
Commercial, industrial and other462,406 718,189 
Construction302,228 266,883 
Equipment finance123,212 116,690 
Residential mortgage438,710 377,380 
Consumer275,529 302,598 
Total$5,976,148 $6,021,232 
Loans are recognized at amortized cost, which includes principal balance and net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled $13.9 million at December 31, 2021 and $16.1 million at December 31, 2020. Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income as an adjustment of yield. Net deferred loan fees are included in loans by respective segment and total $5.8 million and $10.0 million at December 31, 2021 and December 31, 2020, respectively.
At December 31, 2021 and December 31, 2020, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $56.6 million and $284.6 million, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $184,000 and $650,000 at December 31, 2021 and December 31, 2020, respectively. Loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB") totaled $2.30 billion and $2.28 billion at December 31, 2021 and December 31, 2020, respectively.
Credit Quality Indicators
Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.
Management categorizes loans and commitments into the following risk ratings:
Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral.
Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share.
Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date.
Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.
Doubtful: "Doubtful" assets that exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.
Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.

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The following table presents the risk category of loans by class of loan and vintage as of December 31, 2021.
Term Loans by Origination Year
(in thousands)20212020201920182017Pre-2017Revolving LoansRevolving to TermTotal
Non-owner occupied commercial
  Pass$363,459 $516,131 $295,944 $189,592 $195,733 $562,338 $18,795 $— $2,141,992 
  Watch— — 25,292 14,660 4,641 47,011 130 — 91,734 
  Special mention— 458 — 5,749 14,639 6,602 — — 27,448 
  Substandard119 431 332 2,656 8,000 43,572 — — 55,110 
    Total363,578 517,020 321,568 212,657 223,013 659,523 18,925 — 2,316,284 
Owner occupied commercial
  Pass209,515 133,292 83,395 54,019 48,850 252,001 8,343 108 789,523 
  Watch— 5,757 2,134 900 280 24,873 — — 33,944 
  Special mention— 9,694 21,837 12,632 95 17,851 — — 62,109 
  Substandard5 — — 2,597 1,299 18,972 — — 22,873 
    Total209,520 148,743 107,366 70,148 50,524 313,697 8,343 108 908,449 
Multifamily
  Pass225,060 255,016 72,438 71,366 73,122 207,509 18,161 1,281 923,953 
  Watch— 966 — 13,709 854 6,497 — — 22,026 
  Special mention— 2,470 — — 8,944 2,948 — — 14,362 
  Substandard— — 5,485 1,321 — 4,987 99 — 11,892 
    Total225,060 258,452 77,923 86,396 82,920 221,941 18,260 1,281 972,233 
Non-owner occupied residential
  Pass28,476 18,527 16,928 15,695 18,048 51,194 7,288 — 156,156 
  Watch— — — — 651 5,057 — — 5,708 
  Special mention— — 523 837 1,205 284 515 — 3,364 
  Substandard— 3,062 510 4,797 988 2,512 — — 11,869 
    Total28,476 21,589 17,961 21,329 20,892 59,047 7,803 — 177,097 
Commercial, industrial and other
  Pass100,921 23,940 65,225 11,636 3,808 37,479 191,293 872 435,174 
  Watch939 461 446 — 1,378 173 5,056 — 8,453 
  Special mention— — — — 1,896 443 1,365 — 3,704 
  Substandard101 7,352 — 1,276 496 422 5,428 — 15,075 
    Total101,961 31,753 65,671 12,912 7,578 38,517 203,142 872 462,406 
Construction
  Pass108,585 84,993 40,847 30,125 23,578 3,654 — — 291,782 
  Special mention— — — — 10,446 — — — 10,446 
    Total108,585 84,993 40,847 30,125 34,024 3,654 — — 302,228 
Equipment finance
  Pass50,482 30,486 27,626 10,238 3,128 803 — — 122,763 
  Substandard— — 216 177 56 — — — 449 
    Total50,482 30,486 27,842 10,415 3,184 803 — — 123,212 
Residential mortgage
  Pass171,442 112,680 27,228 20,784 9,103 96,510 — — 437,747 
  Substandard12 — — 123 694 134 — — 963 
    Total171,454 112,680 27,228 20,907 9,797 96,644 — — 438,710 
Consumer
  Pass35,283 10,476 5,358 4,561 3,260 24,888 190,481 34 274,341 
  Substandard32 — — — — 630 526 — 1,188 
    Total35,315 10,476 5,358 4,561 3,260 25,518 191,007 34 275,529 
Total loans$1,294,431 $1,216,192 $691,764 $469,450 $435,192 $1,419,344 $447,480 $2,295 $5,976,148 

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The following table presents the risk category of loans by class of loan and vintage as of December 31, 2020.
Term Loans by Origination Year
(in thousands)20202019201820172016Pre-2016Revolving LoansRevolving to TermTotal
Non-owner occupied commercial
  Pass$570,665 $376,681 $217,931 $251,751 $187,605 $509,573 $50,071 2,246 $2,166,523 
  Watch770 638 8,498 5,936 19,579 47,680 315 — 83,416 
  Special mention3,400 3,131 8,377 9,115 19,936 7,894 2,895 — 54,748 
  Substandard— — 2,809 15,903 14,844 60,703 — — 94,259 
    Total574,835 380,450 237,615 282,705 241,964 625,850 53,281 2,246 2,398,946 
Owner occupied commercial
  Pass116,512 76,224 80,244 81,215 62,118 245,330 11,072 179 672,894 
  Watch11,347 22,932 411 3,651 8,038 23,612 673 — 70,664 
  Special mention— 2,218 929 113 4,317 38,638 — — 46,215 
  Substandard434 16 3,038 641 5,770 27,376 44 — 37,319 
    Total128,293 101,390 84,622 85,620 80,243 334,956 11,789 179 827,092 
Multifamily
  Pass251,708 59,694 85,748 93,368 117,155 145,786 21,713 — 775,172 
  Watch— — 600 — — 8,472 — — 9,072 
  Special mention9,781 — — 2,399 — 1,124 — — 13,304 
  Substandard— 5,481 — — 9,512 684 — — 15,677 
    Total261,489 65,175 86,348 95,767 126,667 156,066 21,713 — 813,225 
Non-owner occupied residential
  Pass23,506 24,378 27,752 24,344 21,488 53,200 8,180 171 183,019 
  Watch— 300 — 1,174 — 5,757 — — 7,231 
  Special mention— 496 1,199 392 293 656 655 — 3,691 
  Substandard876 512 1,200 1,295 692 1,713 — — 6,288 
    Total24,382 25,686 30,151 27,205 22,473 61,326 8,835 171 200,229 
Commercial, industrial and other
  Pass299,091 84,917 16,245 7,216 18,358 41,900 208,519 531 676,777 
  Watch287 3,701 156 1,643 301 369 2,324 — 8,781 
  Special mention— — 884 764 2,275 — 4,727 — 8,650 
  Substandard7,177 50 3,559 1,547 1,497 729 9,422 — 23,981 
    Total306,555 88,668 20,844 11,170 22,431 42,998 224,992 531 718,189 
Construction
  Pass56,734 77,117 69,627 29,303 7,681 328 2,190 — 242,980 
  Watch— — 2,183 11,959 — — — — 14,142 
  Special mention— — — 8,321 — — — — 8,321 
  Substandard— — — 206 719 515 — — 1,440 
    Total56,734 77,117 71,810 49,789 8,400 843 2,190 — 266,883 
Equipment finance
  Pass41,528 41,717 20,697 8,834 3,162 426 — — 116,364 
  Substandard— 98 88 74 64 2 — — 326 
    Total41,528 41,815 20,785 8,908 3,226 428 — — 116,690 
Residential mortgage
  Pass127,336 43,910 34,252 17,548 12,108 139,616 — — 374,770 
  Substandard— 52 233 1,015 — 1,310 — — 2,610 
    Total127,336 43,962 34,485 18,563 12,108 140,926 — — 377,380 
Consumer
  Pass15,999 9,844 7,490 5,333 4,632 31,861 224,549 166 299,874 
  Substandard33 57 31 2 — 2,208 263 130 2,724 
    Total16,032 9,901 7,521 5,335 4,632 34,069 224,812 296 302,598 
Total loans$1,537,184 $834,164 $594,181 $585,062 $522,144 $1,397,462 $547,612 $3,423 $6,021,232 

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Past Due and Non-accrual Loans
Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.
In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria included in an interagency statement issued by bank regulatory agencies.
The following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.
December 31, 2021Past Due
(in thousands)Current30 - 59 Days60 - 89 DaysGreater than 89 daysTotalTotal Loans
Non-owner occupied commercial$2,312,557 $— $718 $3,009 $3,727 $2,316,284 
Owner occupied commercial905,751 20 — 2,678 2,698 908,449 
Multifamily972,233 — — — — 972,233 
Non-owner occupied residential174,245 — 136 2,716 2,852 177,097 
Commercial, industrial and other461,659 154 — 593 747 462,406 
Construction302,228 — — — — 302,228 
Equipment finance122,923 211 41 37 289 123,212 
Residential mortgage437,574 255 64 817 1,136 438,710 
Consumer274,426 705 135 263 1,103 275,529 
Total$5,963,596 $1,345 $1,094 $10,113 $12,552 $5,976,148 
December 31, 2020Past Due
(in thousands)Current30-59 Days60-89 DaysGreater than 89 daysTotalTotal Loans
Non-owner occupied commercial$2,384,233 $1,256 $306 $13,151 $14,713 $2,398,946 
Owner occupied commercial811,408 2,759 350 12,575 15,684 827,092 
Multifamily812,597 208 — 420 628 813,225 
Non-owner occupied residential197,802 482 294 1,651 2,427 200,229 
Commercial, industrial and other716,337 125 — 1,727 1,852 718,189 
Construction265,649 — — 1,234 1,234 266,883 
Equipment finance115,124 1,338 98 130 1,566 116,690 
Residential mortgage374,370 1,046 156 1,808 3,010 377,380 
Consumer300,127 1,041 73 1,357 2,471 302,598 
Total$5,977,647 $8,255 $1,277 $34,053 $43,585 $6,021,232 
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The following tables present information on non-accrual loans at December 31, 2021 and December 31, 2020.
December 31, 2021
(in thousands)Non-accrualInterest Income Recognized on Non-accrual LoansAmortized Cost Basis of Loans >= 90 days Past due but still accruingAmortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial$3,009 $— $— $2,624 
Owner occupied commercial2,810 — — 2,398 
Non-owner occupied residential2,852 — — 2,567 
Commercial, industrial and other6,763 — — 1,122 
Equipment finance43 — — — 
Residential mortgage817 — — 694 
Consumer687 — 1 — 
Total$16,981 $— $1 $9,405 
December 31, 2020
(in thousands)Non-accrualInterest Income Recognized on Non-accrual LoansAmortized Cost Basis of Loans >= 90 days Past due but still accruingAmortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial$16,537 $— $— $14,719 
Owner occupied commercial14,271 — — 12,371 
Multifamily626 — — — 
Non-owner occupied residential2,217 — — 1,580 
Commercial, industrial and other2,633 — — 1,418 
Construction1,440 — — 1,234 
Equipment finance327 — — — 
Residential mortgage2,469 — — 1,015 
Consumer2,243 — 1 — 
Total$42,763 $— $1 $32,337 
At December 31, 2021 and December 31, 2020, there was 1 loan with a recorded investment of $1,000 that was past due more than 89 days and still accruing. The Company had $930,000 and $1.7 million in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2021 and December 31, 2020, respectively.

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Impaired Loans
The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by the portfolio segments existing at December 31, 2019.
Recorded
Investment in
Impaired Loans		Contractual
Unpaid
Principal
Balance		Related
Allowance		Interest
Income
Recognized		Average
Investment in
Impaired Loans
(in thousands)
Loans without related allowance:
Commercial, secured by real estate$12,478 $12,630 $— $164 $10,386 
Commercial, industrial and other1,391 1,381 — 16 1,334 
Construction1,663 1,661 — 2 82 
Equipment finance— — — — — 
Residential mortgage803 815 — — 233 
Consumer— — — — — 
Loans with related allowance:
Commercial, secured by real estate3,470 3,706 228 190 4,554 
Commercial, industrial and other113 113 5 6 113 
Construction— — — — — 
Equipment finance23 23 10 — 21 
Residential mortgage1,512 1,682 104 19 926 
Consumer671 765 5 29 693 
Total:
Commercial, secured by real estate$15,948 $16,336 $228 $354 $14,940 
Commercial, industrial and other1,504 1,494 5 22 1,447 
Construction1,663 1,661 — 2 82 
Equipment finance23 23 10 — 21 
Residential mortgage2,315 2,497 104 19 1,159 
Consumer671 765 5 29 693 
$22,124 $22,776 $352 $426 $18,342 
Troubled Debt Restructurings
Loans are classified as troubled debt restructured loans ("TDR") in cases where borrowers experience financial difficulties and Lakeland makes certain concessionary modifications to contractual terms. Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate, a moratorium of principal payments and/or an extension of the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk.
The CARES Act provided relief from TDR classification for certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020. Additionally, banking regulatory agencies issued interagency guidance that COVID-19 related short-term modifications (i.e., six months or less) granted to borrowers that were current as of the loan modification program implementation date do not need to be considered TDRs. The Consolidated Appropriations Act, 2021 (the "CAA"), which was signed into law on December 27, 2020, extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. The Company elected this provision of the CARES Act and excluded modified loans that met the required guidelines for relief from its TDR classification. At December 31, 2021, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers began paying their pre-deferral loan payments in the first quarter of 2021. For most commercial loans, borrowers are paying their pre-deferral loan payments plus an additional monthly amount to catch up on the payments that were deferred. None of these modifications were considered TDRs.
At December 31, 2021 and 2020, TDRs totaled $3.5 million and $5.0 million, respectively. Accruing TDRs totaled $3.3 million and non-accrual TDRs totaled $127,000 at December 31, 2021. Accruing TDRs and non-accrual TDRs totaled $3.9 million and $1.1 million, respectively, at December 31, 2020. There was 1 consumer loan totaling $115,000 that was restructured during 2021 that met the definition of a TDR, while no loans were restructured during 2020 that met the definition of a TDR. There were no restructured loans that subsequently defaulted in 2021; however, 2 consumer loans totaling $83,000 that were TDRs within the previous twelve months had subsequently defaulted in 2020.

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Related Party Loans
Lakeland has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on similar terms, including interest rates and collateral, as those prevailing for comparable transactions with other borrowers not related to Lakeland. At December 31, 2021 and 2020, loans to these related parties amounted to $64.0 million and $75.7 million, respectively. There were new loans of $5.0 million to related parties and repayments of $16.7 million from related parties in 2021.
Mortgages Held for Sale
Residential mortgages originated by the bank and held for sale in the secondary market are carried at the lower of cost or fair market value. Fair value is generally determined by the value of purchase commitments on individual loans. Losses are recorded as a valuation allowance and charged to earnings. As of December 31, 2021, Lakeland had $1.9 million in mortgages held for sale compared to $1.3 million as of December 31, 2020.
Equipment Finance Receivables
Future minimum payments of equipment finance receivables at December 31, 2021 are expected as follows:
(in thousands)
2022$40,997 
202334,476 
202425,736 
202515,388 
20265,885 
Thereafter730 
$123,212 
Other Real Estate and Other Repossessed Assets
At December 31, 2021 and December 31, 2020, Lakeland had no other real estate owned and held no other repossessed assets. For the year ended December 31, 2021, Lakeland had no writedowns of other real estate owned and for the years ended December 31, 2020 and 2019 had writedowns of $39,000 and $153,000, respectively, recorded in other expense in the Consolidated Statement of Income.
Note 6 - Allowance for Credit Losses
The Company adopted ASU 2016-13, which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures on December 31, 2020, effective January 1, 2020. See Note 1 - Summary of Significant Accounting Policies for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.
Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At December 31, 2021, loans totaling $5.95 billion were evaluated collectively and the allowance on these balances totaled $53.8 million and loans evaluated on an individual basis totaled $21.2 million with the specific allocations of the allowance for credit losses totaling $4.3 million.
Federal regulatory agencies, as an integral part of their examination process, review our loans and the corresponding allowance for credit losses. While we believe that our allowance for credit losses on loans in relation to our current loan portfolio is adequate to cover current and expected losses, we cannot assure you that we will not need to increase our allowance for credit losses on loans or that the regulators will not require us to increase this allowance. Future increases in our allowance for credit losses on loans could materially and adversely affect our earnings and profitability.

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Allowance for Credit Losses - Loans
The allowance for credit losses is summarized in the following table:
(in thousands)20212020
Balance at beginning of the period$71,124 $40,003 
Impact of adopting ASU 2016-13— 6,656 
Charge-offs(4,589)(2,053)
Recoveries2,427 541 
  Net charge-offs(2,162)(1,512)
Provision for credit loss - loans(10,915)25,977 
Balance at end of the period$58,047 $71,124 
Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheet, totaled $13.9 million and $16.1 million at December 31, 2021 and December 31, 2020, respectively. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.
The following table details activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2021 and 2020:
(in thousands)Balance at December 31, 2020Charge-offsRecoveries(Benefit) Provision for Credit Loss - LoansBalance at December 31, 2021
Non-owner occupied commercial$25,910 $(2,708)$462 $(3,593)$20,071 
Owner occupied commercial3,955 (282)302 (11)3,964 
Multifamily7,253 (28)— 1,084 8,309 
Non-owner occupied residential3,321 (223)165 (883)2,380 
Commercial, industrial and other13,665 (401)888 (4,261)9,891 
Construction786 (54)75 31 838 
Equipment finance6,552 (346)61 (2,604)3,663 
Residential mortgage3,623 (113)177 227 3,914 
Consumer6,059 (434)297 (905)5,017 
Total$71,124 $(4,589)$2,427 $(10,915)$58,047 
(in thousands)Balance at December 31, 2019 (1)Impact of adopting ASU 2016-13Charge-offsRecoveries(Benefit) Provision for Credit Loss - LoansBalance at December 31, 2020
Non owner occupied commercial$— $17,027 $(53)$29 $8,907 $25,910 
Owner occupied commercial— 3,080 (369)21 1,223 3,955 
Multifamily— 3,717 — — 3,536 7,253 
Non owner occupied residential— 2,801 — 22 498 3,321 
Commercial, secured by real estate28,950 (28,950)— — — — 
Commercial, industrial and other3,289 2,850 (814)207 8,133 13,665 
Construction2,672 (2,396)(77)100 487 786 
Equipment finance957 2,481 (284)65 3,333 6,552 
Residential mortgage1,725 1,217 (116)21 776 3,623 
Consumer2,410 4,829 (340)76 (916)6,059 
Total$40,003 $6,656 $(2,053)$541 $25,977 $71,124 
(1) With the adoption of ASU 2016-13 in 2020, the Company expanded its portfolio segments.
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The allowance for credit losses decreased to $58.0 million, 0.97% of total loans, at December 31, 2021, compared to $71.1 million, 1.18% of total loans, at December 31, 2020. The decrease from December 31, 2020, was primarily due to an improvement in forecasted macroeconomic conditions, a reduction in nonperforming assets and continued strength in asset quality. The change in the allowance within the loan segments during the two comparable periods is principally due to changes in the Company's level of loan growth and the impact of changes in various economic factors on particular segments. The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020.
The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit or loan losses for the years ended December 31, 2021 and 2020:
December 31, 2021Loans Allowance for Credit Losses
(in thousands) Individually evaluated Collectively evaluatedAcquired with deteriorated credit qualityTotalIndividually evaluatedCollectively evaluated Total
Non-owner occupied commercial$3,063 $2,313,047 $174 $2,316,284 $— $20,071 $20,071 
Owner occupied commercial6,678 901,638 133 908,449 69 3,895 3,964 
Multifamily— 972,233 — 972,233 — 8,309 8,309 
Non-owner occupied residential2,567 174,463 67 177,097 — 2,380 2,380 
Commercial, industrial and other6,537 455,306 563 462,406 4,182 5,709 9,891 
Construction— 302,228 — 302,228 — 838 838 
Equipment finance— 123,212 — 123,212 — 3,663 3,663 
Residential mortgage1,416 437,294 — 438,710 — 3,914 3,914 
Consumer— 275,529 — 275,529 — 5,017 5,017 
Total loans$20,261 $5,954,950 $937 $5,976,148 $4,251 $53,796 $58,047 
December 31, 2020Loans Allowance for Credit Losses
(in thousands)Individually evaluated for impairmentCollectively evaluated for impairmentAcquired with deteriorated credit qualityTotalIndividually evaluated for impairmentCollectively evaluated for impairmentTotal
Non owner occupied commercial$12,112 $2,382,717 $4,117 $2,398,946 $355 $25,555 $25,910 
Owner occupied commercial16,547 809,935 610 827,092 96 3,859 3,955 
Multifamily— 813,225 — 813,225 — 7,253 7,253 
Non owner occupied residential1,459 198,334 436 200,229 43 3,278 3,321 
Commercial, industrial and other1,596 715,129 1,464 718,189 830 12,835 13,665 
Construction515 265,649 719 266,883 — 786 786 
Equipment finance— 116,690 — 116,690 — 6,552 6,552 
Residential mortgage1,490 375,482 408 377,380 — 3,623 3,623 
Consumer— 302,099 499 302,598 31 6,028 6,059 
Total loans$33,719 $5,979,260 $8,253 $6,021,232 $1,355 $69,769 $71,124 
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Allowance for Credit Losses - Securities
At December 31, 2021, the balance of the allowance for credit loss on available for sale and held to maturity securities was $83,000 and $181,000, respectively. At December 31, 2020, the Company reported an allowance for credit losses on available for sale securities of $2,000 and no allowance for credit losses on held to maturity securities. For the year ended December 31, 2021, the Company recorded a provision for credit losses of $84,000 and $178,000 on securities available for sale and held to maturity, respectively, in the provision for credit losses on the Consolidated Statement of Income. For the year ended December 31, 2020, the Company, recorded a provision of $2,000 on securities available for sale and a benefit of $30,000 on securities held to maturity. The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on held to maturity securities of $30,000 effective January 1, 2020. Prior year disclosures have not been restated.
Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheet and totaled $5.3 million and $3.3 million at December 31, 2021 and December 31, 2020, respectively. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.
Allowance for Credit Losses - Off-Balance-Sheet Exposures
The allowance for credit losses on off-balance-sheet exposures is reported in other liabilities in the Consolidated Balance Sheets. The liability represents an estimate of expected credit losses arising from off balance sheet exposures such as letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by the Company. Adjustments to the liability are reported as a component of credit loss expense.
At December 31, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance-sheet exposures was $2.3 million and $2.6 million, respectively. The Company recorded a benefit for credit losses on off-balance-sheet exposures in other noninterest expense of $243,000 for the year ended December 31, 2021 and a provision for unfunded lending commitments in other noninterest expense of $1.3 million for the year ended December 31, 2020. The Company adopted ASU 2016-13 at December 31, 2020, and recorded a decrease in the allowance for credit losses for off-balance-sheet exposures of $498,000 effective January 1, 2020. Prior year disclosures have not been restated.
Note 7 - Premises and Equipment
 EstimatedDecember 31,
(in thousands)Useful Lives20212020
  
LandIndefinite$9,444 $9,926 
Buildings and building improvements10 to 50 years42,115 44,312 
Leasehold improvements10 to 25 years13,976 14,017 
Furniture, fixtures and equipment2 to 30 years32,569 35,046 
98,104 103,301 
Less accumulated depreciation and amortization52,188 54,806 
$45,916 $48,495 
Depreciation expense was $6.8 million, $6.5 million and $5.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Note 8 – Leases
The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2027. At December 31, 2021, the Company had lease liabilities totaling $16.5 million and right-of-use assets totaling $15.2 million related to these leases. At December 31, 2020, the Company had lease liabilities totaling $18.2 million and right-of-use assets totaling $16.8 million. The calculated amount of the right-of-use asset and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.
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For the year ended December 31, 2021, the weighted average remaining lease term for operating leases was 9.16 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.41%. For the year ended December 31, 2020, the weighted average remaining lease term for operating leases was 9.69 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.41%.
As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Lease costs were as follows:
(in thousands)202120202019
Operating lease cost$3,154 $3,312 $3,293 
Variable lease cost67 90 133 
Sublease income(121)(122)(122)
Net lease cost$3,100 $3,280 $3,304 
The table below presents other information on the Company's operating leases for the years ended December 31, 2021 and 2020:
(in thousands)202120202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,757 $2,790 $2,654 
Right-of-use asset obtained in exchange for new operating lease liabilities717 1,159 1,748 
There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the year ended December 31, 2021 and 2020. At December 31, 2021 and 2020, the Company had no leases that had not yet commenced.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability at December 31, 2021 is as follows:
(in thousands)Name2022 Performance Score
Within one yearThomas J. Shara$115%
Thomas F. Splaine, Jr.3,077 115%
Ronald E. Schwarz115%
Timothy J. Matteson115%
James M. Nigro115%
26



AIP Awards
In February 2023, the Compensation Committee determined the degree to which our financial performance goals were achieved during 2022. The CEO (or the Compensation Committee, in the case of the CEO) then determined the degree to which the individual performance goals were achieved during 2022 for each executive. In connection with the pending merger with Provident Financial Services, Inc., the Compensation Committee accelerated the payment of a portion of the 2022 bonuses for Messrs. Splaine, Schwarz, Matteson, and Nigro into December 2022 for Section 280G tax planning purposes and the remaining portion of the bonuses were paid in the normal course.
The following cash payments under the 2022 AIP were made upon approval by the Compensation Committee:
Name2022 AIP AwardAIP Award as % of Plan Target
Thomas J. Shara$950,250 150%
Thomas F. Splaine, Jr.322,500 150%
Ronald E. Schwarz345,000 150%
Timothy J. Matteson292,500 150%
James M. Nigro292,500 150%
Long-Term Equity Incentive Awards
2022 Long-Term Incentive Plan (LTIP) Awards
The purpose of our long-term incentive program is to ensure that our executives focus not only on short-term returns but also on achieving long-term Company goals, growth and creation of shareholder value. We further believe that equity ownership by our executive officers aligns executives’ interests with those of our shareholders. In 2022, the Compensation Committee used both performance-based stock unit awards (PSUs) and time-based restricted stock unit awards (RSUs) for long-term incentive compensation.
The Compensation Committee sets the target value of the equity awards granted as a percentage of each executive’s base salary. For 2022, the long-term incentive allocations for the NEOs were set as follows:
After one year but within three yearsName5,467 2022 LTI Award Plan Target as % of Salary
Thomas J. Shara100%
Thomas F. Splaine, Jr.70%
Ronald E. Schwarz70%
Timothy J. Matteson70%
James M. Nigro70%
By default, RSUs with a value equal to the plan target award value above are granted and consist of the following types of equity awards:
a.Performance-vesting RSUs consisting of 50% of the plan target award value
b.Time-vesting RSUs consisting of 50% of the plan target award value
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Performance-Vested RSUs
Performance-vested RSUs awarded under this plan will vest 100% after three years. The number of RSUs that vest, if any, will be dependent on performance against pre-established goals during the three-year performance period as well as participants’ continued service through the vesting date.
The evaluation of performance will use a two-step measurement process:
1.Primary Goal – Return on Average Equity: Lakeland’s ROAE will be measured on a three-year average basis against an index of similarly-sized banks. Performance against the ROAE goal will determine initial share vesting.
ThresholdPlan TargetMaximum
Performance Level25th Percentile50th Percentile75th Percentile
Payout Level (% of plan target)50%100%150%
2.    Modifier – Total Shareholder Return: After determining the initial vesting amount based on ROAA performance, the Company’s total shareholder return (TSR) performance will be measured against an index of 68 banks between $7 billion and $20 billion in total assets as of December 31, 2021. The number of initially earned shares from Step 1 will be adjusted upward or downward by up to 25% based on the Company’s TSR performance against the banking index.
The table below illustrates the TSR modifier.
After three years but within five years3-Year Total Shareholder Return
Lakeland TSR Compared to Index 50th Percentile4,033 Modifier
After 5 yearsUnderperform the 50th by 25% or more7,018 (25)%
Total undiscounted cash flowsPerform at the 50th19,595 No Modifier
Discount on cash flowsOutperform the 50th by 25% or more(3,072)25%
Total lease liability$16,523 
Time-Vested RSUs
One-third of the time-vested RSUs awarded under this plan will vest on each of the first three anniversaries of the grant date, provided the participant is employed on the vesting date.
At plan target, the time-vested RSUs comprise 50% of the overall equity award. However, the Compensation Committee has limited flexibility in determining the number of time-vested awards to grant to each plan participant, with the actual number of time-vested awards granted to each participant ranging from 75% to 125% of the plan target level.
The time-vested awards under the 2022 LTIP were granted at 125% of plan target for each NEO due to Lakeland's exceptional financial performance in 2021 and the executive team's role in achieving that performance.
28



2022 LTIP Awards
The table below details the awards under the 2022 LTIP that were granted in 2022 to each of our NEOs.
2022 LTIP Award
 
Name		# of Time-Vested RSUs# of Performance-Vested RSUsGrant Date Fair Value
Thomas J. Shara31,30125,041$1,018,100
Thomas F. Splaine, Jr.10,4108,328338,596
Ronald E. Schwarz11,1378,909362,231
Timothy J. Matteson9,4427,553307,100
James M. Nigro9,4427,553307,100
Acceleration of RSU Vesting
In connection with the pending merger with Provident Financial Services, Inc., the Compensation Committee accelerated the vesting of certain RSU awards, which were granted in prior years, into December 2022 for Messrs. Splaine, Schwarz, Matteson, and Nigro for Section 280G tax planning purposes. These amounts are included in the "Options Exercised and Stock Awards Vested" table.
Other Elements of Compensation for Executive Officers
In order to attract and retain qualified executives, we provide executives with a variety of benefits and perquisites, consisting primarily of retirement benefits through our 401(k) plan and deferred compensation plan, group-term life insurance, executive health exams and the use of automobiles. Details of the values of these benefits and perquisites may be found in the footnotes and narratives to the Summary Compensation Table. Lakeland has also entered into a Supplemental Executive Retirement Plan Agreement with Mr. Shara. See “Employment Agreements and Other Arrangements with Named Executive Officers.”
Employment and Other Agreements
Our employment and change in control agreements with the Named Executive Officers are described elsewhere in this document. See “Employment Agreements and Other Arrangements with Named Executive Officers.”
Compliance with Sections 162(m) and 409A of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code denies a tax deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation exceeds $1,000,000 for a covered employee.
The Compensation Committee believes that tax deductibility is one of many factors that should be considered in developing an appropriate compensation program for its executive officers, but reserves the right to approve compensation for an executive officer that exceeds the deduction limit of Section 162(m) in order to provide competitive compe0nsation packages.
It is our intention to maintain our executive compensation arrangements in conformity with the requirements of Section 409A of the Internal Revenue Code, which imposes certain restrictions on deferred compensation arrangements.
29



Clawback Policies
Compensation recovery policies, or “clawbacks,” began to be used with the enactment of the Sarbanes-Oxley Act in 2002, which required that in the event of any financial statement restatement based on executive misconduct, public companies must recoup incentives paid to the company’s CEO and CFO within 12 months preceding the restatement. The Company’s CEO and CFO are currently subject to the Sarbanes-Oxley clawback provision which is set forth in Section 304 of the Sarbanes-Oxley Act, and provides that if an issuer “is required to prepare an accounting restatement due to material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws,” the CEO and CFO shall reimburse the issuer for any bonus or other incentive-based or equity-based compensation received, and any profits realized from the sale of the securities of the issuer, during the year following issuance of the original financial report.

Note 9 - DepositsCompensation Committee Report
The Compensation Committee has reviewed and discussed with management the information provided under the caption “Compensation Discussion and Analysis” set forth in this document. Based on that review and those discussions, the Compensation Committee recommended to our Board that such “Compensation Discussion and Analysis” be included in this document.
Robert E. McCracken (Chair)
Bruce D. Bohuny
Lawrence R. Inserra, Jr.
Robert B. Nicholson, III
30



Summary of Cash and Certain Other Compensation
The following table presents, for the three years ended December 31, 2022, a summary of the compensation earned by Thomas J. Shara, our President and Chief Executive Officer, Thomas F. Splaine, Jr., our Chief Financial Officer, and our three other most highly compensated executive officers for 2022, provided they were NEOs during that time. None of the NEOs received option awards during the years presented in the table.
SUMMARY COMPENSATION TABLE
Name and Principal PositionYearSalary ($)Bonus ($) (1)Stock Awards ($) (2) (3) (4)Non-Equity
Plan Incentive Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5)All Other Compensation ($) (6)Total ($)
Thomas J. Shara, President and Chief Executive Officer2022905,000 — 1,018,100 950,250 128,255 96,312 3,097,917 
2021870,324 — 1,376,018 783,292 370,774 86,744 3,487,152 
2020903,798 443,866 591,199 — 460,229 60,009 2,459,101 
Thomas F. Splaine, Jr., Executive Vice President and Chief Financial Officer2022424,103 — 338,596 322,500 1,236 52,178 1,138,613 
2021388,796 — 440,394 293,749 — 52,850 1,175,789 
2020383,301 158,531 206,126 — — 37,183 785,141 
Ronald E. Schwarz,
Senior Executive Vice President and Chief Operating Officer		2022455,063 — 362,231 345,000 20,771 58,312 1,241,377 
2021424,773 — 481,165 320,931 15,484 57,990 1,300,343 
2020419,474 173,201 227,053 — 20,545 42,565 882,838 
Timothy J. Matteson,
Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary		2022383,543 — 307,100 292,500 1,555 52,323 1,037,021 
2021345,482 — 391,340 261,024 594 41,693 1,040,133 
2020341,172 140,870 184,670 — 748 39,914 707,374 
James M. Nigro,
Executive Vice President and Chief Risk Officer		2022383,543 — 307,100 292,500 7,691 61,743 1,052,577 
2021345,483 — 391,340 261,024 3,830 47,137 1,048,814 
2020341,172 140,871 184,671 — 3,818 44,178 714,710 
(1)    The 2020 bonus represents the annual incentive plan award, which the NEOs elected to take in the form of RSUs in lieu of cash, which were granted in February 2021.
(2)    The 2022 awards for all NEOs reflect the aggregate fair value of the 2021 LTIP RSUs granted in February 2022 which were determined in accordance with FASB ASC Topic 718. A portion of the shares vest in equal increments on each of the three anniversaries of the grant date, and a portion vest at the end of the three-year period based on continued service and the satisfaction of specified performance goals at each year end of that three-year period, provided that, subject to certain exceptions, the NEO remains continuously employed as of each anniversary date. See "Grants of Plan Based Awards" below for more details.

31



(3) The 2021 awards for all NEOs reflect the sum of (1) the aggregate grant fair value of the 2020 LTIP RSUs granted in February 2021, plus (2) the aggregate fair value of the 2021 LTIP RSUs granted in May 2021, which were determined in accordance with FASB ASC Topic 718. Mr. Shara's 2021 awards also include the RSUs granted in January in lieu of a salary increase, which ratably vest in one-third increments on each of the first three anniversaries of the grant date, provided the executive remains employed by the Company and/or Lakeland Bank. The RSUs granted in February 2021 were granted based on Company and individual performance in 2020 and vest at the end of a three-year period based on continued service and the satisfaction of specified performance goals at each year end of that three-year period. Of the RSUs granted in May 2021, 50% vest ratably in one-third increments on each of the first three anniversaries of the grant date and 50% vest at the end of a three-year period based on continued service and the satisfaction of specified performance goals at each year end of that three-year period, provided that, subject to certain exceptions, the NEO remains continuously employed as of each anniversary date.
(4)    The 2020 awards reflect the sum of (1) the aggregate grant fair value of the RSUs granted in February 2020, plus (2) the portion of the aggregate grant date fair value of the RSUs granted to the NEO in lieu of cash in February 2021 that exceeded the NEO’s cash incentive awards earned for 2020, which was determined in accordance with FASB ASC Topic 718. The stock awards granted in February 2020 were granted based on Company and individual performance in 2020 and vest at the end of a three-year period based on continued service and the satisfaction of specified performance goals at each year end of that three-year period. The RSUs granted in February 2021 vest ratably in one-third increments on each of the first three anniversaries of the grant date, provided that, subject to certain exceptions, the NEO remains continuously employed as of each anniversary date.
(5)    The aggregate change in the present value of Mr. Shara’s accumulated benefits for 2022 under his Supplemental Executive Retirement Plan Agreement and, with respect to Messrs. Shara, Splaine, Schwarz, Matteson and Nigro, above-market or preferential earnings (in accordance with SEC rules, the amount of interest in excess of 120% of the applicable federal rate, with compounding, is deemed to be above-market or preferential) of $260,383, $1,236, $20,771, $1,555 and $7,691, respectively, on deferred compensation that is not tax-qualified. See “Deferred Compensation” for further details.
(6)    All Other Compensation for the NEOs is as follows:
Name Use of Car
($)		Premiums for
Group Term
Life Insurance
($)		Cash Dividends
Paid on
Restricted
Stock and
Restricted
Stock Units ($)		Cost of Coverage under Executive Health Care Program ($)Contributions to 401(k) Plan to match Pre-tax
Deferral Contributions ($)
Thomas J. Shara6,918 3,266 75,308 — 10,820 
Thomas F. Splaine, Jr.9,372 2,119 24,916 5,000 10,771 
Ronald E. Schwarz8,131 6,225 27,198 5,000 11,758 
Timothy J. Matteson8,785 1,146 22,288 11,000 9,104 
James M. Nigro13,588 2,112 26,927 11,000 8,115 
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Grants of Plan Based Awards         
The following table sets forth information relating to grants of plan-based awards to the detailsNEOs during 2022. The NEOs did not receive option awards in 2022.
"ACI" is the annual cash incentive award and, in accordance with SEC rules, are included in the Summary Compensation Table under "Non-equity Incentive Plan Compensation" for 2022.
"PSU" is performance-based RSU awards subject to performance-based vesting.
"RSU" is RSU awards subject to time-based vesting.
Estimated Possible Payouts Under Non-Equity Incentive Plan AwardsEstimated Possible Payouts Under Equity Incentive Plan AwardsAll other
Stock
Awards
or Units
(#)
(1) (2) (4)		Grant
Date Fair Value of Stock
Awards
($) (3)
NameAward TypeGrant DateThreshold
($)		Plan Target
($)		Maximum
($)		Threshold
(#)		Plan Target
(#)
(3)		Maximum
(#)
Thomas J. SharaACI316,750 633,500 950,250 
RSU2/23/202231,301 565,609 
PSU2/23/202212,521 25,041 37,562 452,491 
Thomas F. Splaine, Jr.ACI107,500 215,000 322,500 
RSU2/23/202210,410 188,109 
PSU2/23/20224,164 8,328 12,492 150,487 
Ronald E. SchwarzACI115,000 230,000 345,000 
RSU2/23/202211,137 201,246 
PSU2/23/20224,455 8,909 13,364 160,986 
Timothy J. MattesonACI97,500 195,000 292,500 
RSU2/23/20229,442 170,617 
PSU2/23/20223,777 7,553 11,330 136,483 
James M. NigroACI97,500 195,000 292,500 
RSU2/23/20229,442 170,617 
PSU2/23/20223,777 7,553 11,330 136,483 
(1)    The RSUs granted at Target on February 23, 2022, will vest 100% on the third anniversary of total deposits:
(dollars in thousands)December 31, 2021December 31, 2020
Noninterest-bearing demand$1,732,452 24.9 %$1,510,224 23.4 %
Interest-bearing checking2,219,658 31.9 %2,057,052 31.9 %
Money market1,577,385 22.6 %1,225,890 19.0 %
Savings677,101 9.7 %584,361 9.1 %
Certificates of deposit $250 thousand and under623,393 8.9 %895,056 13.8 %
Certificates of deposit over $250 thousand135,834 2.0 %183,200 2.8 %
Total deposits$6,965,823 100.0 %$6,455,783 100.0 %
the grant date, provided the performance goals were met for each of the three years following grant and the executive remains employed by the Company and/or Lakeland Bank.
(2)    The RSUs granted on February 23, 2022, will ratably vest in one-third increments on each of the first three anniversaries of the grant date.
(3)    The grant date fair value of stock awards granted in 2022 is calculated by multiplying the number of shares by the closing stock price on the date of grant, or in the case of performance-vested RSUs, by the Monte Carlo-adjusted stock price.
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Outstanding Equity Awards at December 31, 2022
The following table summarizes, by individual grants, the total number of RSUs for each NEO that have not vested. The market values of RSUs in the table are calculated by multiplying the closing market price of our common stock on the last trading day in 2022, which was $17.61, by the applicable number of shares of common stock underlying each of the Named Executive Officer’s RSUs. At December 31, 2022, the Named Executive Officers did not hold any other equity awards, including stock options or restricted stock awards.
NameGrant DateNumber of Shares That Have Not Vested (#)Market Value of Shares of Stock That Have Not Vested ($)Equity Incentive Plan Awards Number of Unearned Shares, Units or Other
Rights That Have Not Vested
(#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Thomas J. Shara2/26/2020—— 32,960580,426 
1/4/20216,667117,406 —— 
2/24/202143,782771,001 — — 
5/19/202111,711206,231 17,565 309,320 
2/23/202231,301551,211 25,041440,972 
Thomas F. Splaine, Jr.2/26/2020— — 11,449 201,617 
2/24/20217,658 134,857 — — 
5/19/20212,108 37,122 6,323 111,348 
2/23/20226,940 122,213 8,328 146,656 
Ronald E. Schwarz2/26/2020— — 12,627 222,361 
2/24/20218,366 147,325 — — 
5/19/20214,606 81,112 6,909 121,667 
2/23/20227,424 130,737 8,909 156,887 
Timothy J. Matteson2/26/2020— — 10,270 180,855 
2/24/20216,804 119,818 — — 
5/19/20213,746 65,967 5,619 98,951 
2/23/20226,295 110,855 7,553 133,008 
James M. Nigro2/26/2020— — 10,270 180,855 
2/24/2021— — — — 
5/19/2021— — — — 
2/23/20223,148 55,436 7,553 133,008 
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Table of Content


AtFor the RSUs issued in 2020, for each year during the performance-based RSUs’ three-year performance period for all NEOs, one-third of the RSUs will be earned if the Company has net income available to common stockholders in an amount at least equal to the prior year’s dividends paid to common shareholders. The performance-based RSUs, to the extent earned, generally require the NEO to remain employed by the Company through the date that the Compensation Committee certifies the achievement of the performance goal for the final year of the three-year performance period. However, shares with respect to performance-based RSUs that have been earned as of a NEO’s separation from service will continue to be paid following the performance period if the NEO separates from service due to death, disability after having at least five years of service with the Company or the Bank, or retirement after attaining age 65 with at least five years of service.
For RSUs granted on May 19, 2021, 50% will vest 100% on the third anniversary of the grant date, provided the performance goals were met for each of the three years following grant and the executive remains employed by the Company and/or Lakeland Bank. All performance-based RSUs that have not been forfeited will vest upon a change of control of the Company.
For the RSUs granted on February 23, 2022, 50% will vest 100% on the third anniversary of the grant date, provided the performance goals were met for each of the three years following grant and the executive remains employed by the Company and/or Lakeland Bank. All performance-based RSUs that have not been forfeited will vest upon a change in control of the Company.
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Options Exercised and Stock Awards Vested
The following table sets forth, for each of the Named Executive Officers, information regarding stock awards vested during 2022.
Name
(a)		Option AwardsStock Awards
Number of Shares Acquired on Exercise (#)
(b)		Value Realized on Exercise ($)
(c)		Number of Shares Acquired on Vesting (#)
(d)(2)		Value Realized on Vesting ($)
(e) (1)(2)
Thomas J. Shara——52,412 945,121 
Thomas F. Splaine, Jr.——31,188 556,297 
Ronald E. Schwarz——31,777 567,147 
Timothy J. Matteson——25,974 463,559 
James M. Nigro——44,689 794,611 
(1)    The value of the shares set forth in column (d) multiplied by the market price of our common stock on the dates on which the NEO’s stock awards vested.
(2) In December 31, 2021,2022, the scheduleCompensation Committee accelerated the vesting of maturities of certificates of deposit is as follows:
(in thousands) 
2022$653,645 
202374,095 
202413,750 
202517,459 
2026278 
Total$759,227 
At December 31, 2021certain awards for Messrs. Splaine, Schwarz, Matteson and 2020, certificates of deposit obtained through brokers totaled $114.3 million and $236.7 million, respectively.
Interest expense on deposits is as follows:
(in thousands)202120202019
Checking accounts$4,591 $9,095 $18,023 
Money market accounts6,226 8,301 13,134 
Savings334 325 335 
Certificates of deposit5,642 14,338 17,756 
Total$16,793 $32,059 $49,248 
Nigro for Section 280G planning purposes.
Note 10 - DebtPension Plan
Overnight and Short-Term Borrowings
At December 31, 2021, there were no overnight and short-term borrowings from FHLB and at December 31, 2020, overnight and short-term borrowings totaled $100.0 million. In addition, Lakeland had no overnight and short-term borrowings from correspondent banks at December 31, 2021 or December 31, 2020. At December 31, 2021, Lakeland had overnight and short-term federal funds lines available to borrow up to $215.0 million from correspondent banks. Lakeland may also borrow from the discount windowThe following table sets forth, for each of the Federal Reserve BankNamed Executive Officers, information regarding the benefits payable under each of New York based onour plans that provides for payments or other benefits at, following, or in connection with such Named Executive Officer’s retirement. In accordance with the marketSEC’s rules, the following table does not provide information regarding tax-qualified defined contribution plans or nonqualified defined contribution plans.
Name
(a)		Plan Name
(b)		Number of Years of Credited Service (#)
(c)		Present Value of Accumulated Benefit ($)
(d) (1)		Payments During Last Fiscal Year ($)
(e) (2)
Thomas J. SharaSupplemental Retirement PlanNot Applicable1,614,518 — 
Thomas F. Splaine, Jr.——— — 
Ronald E. Schwarz——— — 
Timothy J. Matteson——— — 
James M. Nigro——— — 
(1) The actuarial present value of collateral pledged.Mr. Shara's accumulated benefits under the Supplemental Executive Retirement Plan Agreement, dated as of April 2, 2008, between Mr. Shara, the Company and Lakeland had no borrowings with the Federal Reserve Bank of New York(the "SERP"), calculated as of December 31, 20212022.
(2)    The dollar amount of payments and benefits, if any, actually paid or 2020.
Other short-term borrowings at December 31, 2021 and 2020 consisted of short-term securities sold under agreements to repurchase totaling $106.5 million and $69.6 million, respectively. Securities underlying the agreements were under Lakeland’s control. At December 31, 2021, the Company had $46.2 million in mortgage-backed securities, $46.7 million in collateralized mortgage obligations, $23.2 million in agency securities and $5.0 million in U.S. treasury notes pledged for its short-term securities sold under agreements to repurchase.
FHLB Advances
Advances from the Federal Home Loan Bank ("FHLB") totaled $25.0 million at both December 31, 2021 December 31, 2020, with a weighted average interest rate of 0.77% and maturity in 2025. The advance was collateralized by first mortgage loans and have prepayment penalties. There were no FHLB advance prepayments in 2021, however in 2020, the Company repaid an aggregate of $114.9 million in advances from the FHLB and recorded $4.1 million in long-term debt prepayment fees.
Subordinated Debentures
On September 15, 2021, the Company completed an offering of $150.0 million of fixed to floating rate subordinated notes due on September 15, 2031. The notes bear interest at a rate of 2.875% per annum until September 15, 2026, and will then reset quarterlyotherwise provided to the then current Benchmark rate, whichNamed Executive Officer during 2022.
See “Employment Agreements and Other Arrangements with Named Executive Officers” for a description of the SERP.
36



Deferred Compensation
The following table sets forth, for each of the Named Executive Officers, information regarding each defined contribution plan that we maintain and each other plan that we maintain that provides for the deferral of compensation on a basis that is expectednot tax-qualified.
Name
(a)
Executive
Contributions
in 2022
($)
(b) (1)
Registrant Contributions in 2022
($)
(c) (2)
Aggregate Earnings in 2022
($)
(d) (3) (4)
Aggregate Withdrawals/ Distributions
($)
(e)
Aggregate Balance at December 31, 2022
($)
(f) (5)
Thomas J. Shara506,488 198,000 507,287 — 5,535,039 
Thomas F. Splaine, Jr.95,865 — 2,802 — 98,667 
Ronald E. Schwarz68,260 — 47,088 — 587,380 
Timothy J. Matteson26,102 — 3,525 — 46,455 
James M. Nigro129,559 — 17,436 — 273,697 
(1)    The executive contributions for Messrs. Shara, Splaine, Schwarz, Matteson and Nigro relate to be the three-month term Secured Overnight Financing Rate ("SOFR") plus a spread of 220 basis points.Company’s Elective Deferral Plan.
(2)    The debt isregistrant's contributions for Mr. Shara relate to his Deferred Compensation Agreement.
(3)    The aggregate interest or other earnings accrued to the NEO’s account during 2022 (i) under the Company’s Elective Deferral Plan ($255,614 for Mr. Shara, $2,802 for Mr. Splaine, $47,088 for Mr. Schwarz, $3,525 for Mr. Matteson and $17,436 for Mr. Nigro) and (ii) for Mr. Shara, under his Deferred Compensation Agreement, $251,673.
(4)    Only the above-market or preferential earnings have been included in Tier 2 capital for the Company. Debt issuance costs totaled $2.3 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheets.
On January 4, 2019, the Company acquired subordinated notes in connection with the Highlands acquisition. Highlands issued $5.0 million of fixed rate notes in May 2014 bearing an interest rate of 8.00% per annum until maturity on May 16, 2024. In October 2015, Highlands issued $7.5 million of fixed rate notes bearing an interest rate of 6.94% until maturity on October 1, 2025. The Company redeemed both issuances in 2021.
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On September 30, 2016, the Company completed an offering of $75.0 million of fixed to floating rate subordinated notes due September 30, 2026. The notes paid interest at a rate of 5.125% per annum until September 30, 2021 when they were to reset quarterly to the then current three-month LIBOR plus 397 basis points until maturity in September 30, 2026 or their earlier redemption. The debt was included in Tier 2 capital for the Company. Debt issuance costs totaled $1.5 million and were being amortized to maturity. On September 30, 2021, the Company redeemed this issuance which resulted in an acceleration of unamortized debt issuance costs of $831,000.
In May 2007, the Company issued $20.6 million of junior subordinated debentures due August 31, 2037 to Lakeland Bancorp Capital Trust IV, a Delaware business trust. The distribution rate on these securities was 6.61% for 5 years and floats at LIBOR plus 152 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debenturescolumn “Change in Pension Value and related documents, taken together, constitute a full, irrevocableNonqualified Deferred Compensation Earnings” and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after August 1, 2012, or earlier if the deduction of related interest“Total” for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2037. On August 3, 2015, the Company acquiredMessrs. Shara, Schwarz, Matteson and extinguished $10.0 million of Lakeland Bancorp Capital Trust IV debentures and recorded a $1.8 million gain on the extinguishment of debt.
In June 2003, the Company issued $20.6 million of junior subordinated debentures due June 30, 2033 to Lakeland Bancorp Capital Trust II, a Delaware business trust. The distribution rate on these securities was 5.71% for 5 years and floats at LIBOR plus 310 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after June 30, 2008, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2033.
In June 2016, the Company entered into 2 five-year cash flow swaps totaling $30.0 million in order to hedge the variable cash outflows associated with the junior subordinated debentures issued to Lakeland Bancorp Capital Trust II and Lakeland Bancorp Capital Trust IV. Both of these swaps matured in 2021. For more information please see Note 20 – Derivatives.
Note 11 - Stockholders’ Equity
On October 22, 2019, the Board of Directors of Lakeland approved a share repurchase program whereby the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. The Company had 50,489,161 shares outstanding as of September 30, 2019. Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. Open market purchases may be conducted in accordance with the limitations of Rule 10b-18 of the Securities and Exchange Commission (the "SEC"). Repurchases may be made pursuant to trading plans adoptedNigro, in accordance with SEC Rule 10b5-1, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.rules.
(5)    The repurchase program does not obligate the Company to repurchase any particular number of shares and may be terminated at any time without notice, in the Company’s discretion. As of December 31, 2021, the Company had repurchased 131,035 shares.
Note 12 - Income Taxes
The components of income taxes are as follows:
 Years Ended December 31,
(in thousands)202120202019
Current tax provision$26,872 $24,022 $20,418 
Deferred tax (benefit) expense5,422 (6,763)2,854 
Total provision for income taxes$32,294 $17,259 $23,272 
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    The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate of 21% as follows:
 Years Ended December 31,
(in thousands)202120202019
Federal income tax, at statutory rates$26,740 $15,703 $19,728 
Increase (deduction) in taxes resulting from:
Tax-exempt income(1,114)(961)(952)
State income tax, net of federal income tax effect6,176 2,178 4,322 
Excess tax expense (benefits) from employee share-based payments89 132 (189)
Other, net403 207 363 
Provision for income taxes$32,294 $17,259 $23,272 
The net deferred tax asset consisted of the following:
 December 31,
(in thousands)20212020
Deferred tax assets:
Allowance for credit losses$17,837 $21,300 
Stock based compensation plans1,446 985 
Purchase accounting fair market value adjustments1,487 2,174 
Non-accrued interest504 664 
Deferred compensation2,796 2,570 
Loss on equity securities136 50 
Federal net operating loss carryforward303 875 
Unrealized loss on pension plans— 13 
Unrealized loss on derivatives— 42 
Other, net514 508 
Gross deferred tax assets25,023 29,181 
Deferred tax liabilities:
Core deposit intangible from acquired companies705 852 
Undistributed income from subsidiary not consolidated for tax return purposes (REIT)903 852 
Deferred loan costs2,150 1,822 
Depreciation and amortization1,660 793 
Prepaid expenses824 578 
Unrealized gain on investment securities1,228 4,746 
Other235 260 
Gross deferred tax liabilities7,705 9,903 
Net deferred tax assets$17,318 $19,278 
Upon the adoption of ASU 2016-13 in 2020, the Company recorded a net deferred tax asset of $1.4 million.
The Company evaluates the realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized. Based upon the majority of the Company’s deferred tax assets having no expiration date, the Company’s earnings history, and the projections of future earnings, the Company’s management believes that it is more likely than not that all of the Company’s deferred tax assets as of December 31, 2021 will be realized.
The Company evaluates tax positions that may be uncertain using a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The Company had no unrecognized tax benefits or related interest or penaltiesaggregate balance at December 31, 20212022 for Mr. Shara is comprised of $3,181,537 under the Elective Deferral Plan and $2,353,502 under his Deferred Compensation Agreement. These amounts were not included in the Summary Compensation Table in any prior year’s proxy statement or 2020.in the Summary Compensation Table set forth above.
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The Company is subject to U.S. federal income tax law as well as income tax of various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretationSee “Employment Agreements and Other Arrangements with Named Executive Officers” for a description of the related tax lawsElective Deferral Plan and regulations and require significant judgment to apply. With few significant exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for the years before 2018 or to state and local examinations by tax authorities for the years before 2018.
Note 13 - Benefit Plans
401(k) plan
The Company has a 401(k) plan covering substantially all employees providing they meet eligibility requirements. The Company matches 50% of the first 6% contributed by the participants to the 401(k) plan. The Company’s contributions in 2021, 2020 and 2019 totaled $1.6 million, $1.5 million and $1.3 million, respectively.
Supplemental Executive Retirement Plans
In 2003, the Company entered into a non-qualified Supplemental Executive Retirement Plan (“SERP”) agreement with its former Chief Executive Officer ("CEO") that provides annual retirement benefits of $150,000 a year for 15 years when the former CEO reached the age of 65. The former CEO retired and is receiving annual retirement benefits pursuant to the plan. In 2008, the Company entered into a SERP agreement with its current CEO that provides annual retirement benefits of $150,000 for 15 years when the CEO reaches the age of 65. Also in 2008, the Company entered into a SERP with a former Regional President that provides annual retirement benefits of $90,000 a year for ten years upon his reaching the age of 65. In 2016, the Company entered into a SERP with a former Regional President that provides $84,500 a year for 15 years upon his reaching the age of 66. Both former Regional Presidents are receiving the annual retirement benefits pursuant to the plans.
Somerset Hills Bank, acquired by the Company in 2013, entered into a SERP with its former CEO and its Chief Financial Officer ("CFO") which entitles them to a benefit of $48,000 and $24,000, respectively, per year for 15 years after the earlier of retirement or death. The former CEO and the beneficiary of the CFO are currently being paid out under the plan.
The Company intends to fund its obligations under the deferred compensation arrangements with the increase in cash surrender value of bank owned life insurance policies. In 2021, 2020 and 2019, the Company recorded compensation expense of $163,000, $411,000 and $430,000, respectively, for these plans. The accrued liability for these plans was $3.8 million and $4.1 million for the years ended December 31, 2021 and 2020, respectively.
Mr. Shara’s Deferred Compensation AgreementAgreement.
In 2015, the Company entered into a Deferred Compensation Agreement with its CEO where it would contribute $16,500 monthly into a deferral account which would earn interest at an annual rate of the Company’s prior year return on equity, provided that the Company’s return on equity remained in a range of 0% to 15%. The Company has agreed to make such contributions each month that the CEO is actively employed from February 2015 through December 31, 2022. The expense incurred in 2021, 2020 and 2019 was $331,000, $339,000 and $311,000, respectively, and the accrued liability at December 31, 2021 and 2020 was $1.9 million and $1.6 million, respectively. Following the CEO’s normal retirement date, he shall be paid out in 180 consecutive monthly installments.
Elective Deferral Plan
In 2015,Under the Company established anLakeland Bancorp, Inc. Elective Deferral Plan for eligible(the “Elective Deferral Plan”), executives in whichof Lakeland at a level of executive vice president and above including the executiveNames Executive Officers, and such other executives as the Board may authorize, may voluntarily elect to contributedefer payment of all or a portion of their base salariessalary and bonusesbonuses. Amounts deferred under the Elective Deferral Plan will be credited with interest each year until a participant’s separation from service at a rate equal to a deferral account that will earn an interest rate of 75% of the Company’s prior year return on equity provided(“ROE”) for the preceding year, up to a maximum ROE interest rate credit of 15% per year. The minimum interest rate is 0%. Following a participant’s separation from service, deferred amounts will be credited with interest each year at the Moody’s Aa corporate bond index rate in effect as of the first day of the year. Except for allowable in-service hardship withdrawals, distributions will generally be made following a participant’s separation from service unless the participant elects a different time of payment. Each participant may choose the manner in which distributions will be made, such as a lump sum or installments. All deferral accounts under the Elective Deferral Plan are payable from the general assets of the Company and/or Lakeland Bank. However, the Company may establish a grantor trust or other funding arrangement in order to accumulate the assets needed to pay the accumulated benefits under the Elective Deferral Plan.
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Employment Agreements and Other Arrangements with Named Executive Officers
Thomas J. Shara
On May 22, 2008, the Company, Lakeland Bank and Mr. Shara executed an Employment Agreement (the “Shara Employment Agreement”), which provides that Mr. Shara will be employed as President and Chief Executive Officer of the Company and Lakeland Bank for an initial term that expired on April 1, 2011 (the “Initial Term”). The Shara Employment Agreement, as amended, further provides that the returnInitial Term will automatically be extended for an additional one year period on equityeach anniversary date of the Effective Date, unless on or before each such anniversary date either party provides written notice to the other of its (or his) intent not to extend the then current term, provided, however, that on and after April 2, 2024, if Mr. Shara remains inemployed, his employment will be on an at-will basis. The Initial Term and any renewal period through the range15th anniversary of 0%the Effective Date collectively are referred to 15%as the “Term”. The Company recorded an expense of $183,000, $162,000 and $136,000 in 2021, 2020 and 2019, respectively, and had a liability recorded of $3.2 million and $2.6 million at December 31, 2021 and 2020, respectively.
Directors Retirement Plan
The Company maintains an Amended and Restated Directors' Deferred Compensation Plan, which applies to directors appointed to the Company'sShara Employment Agreement further provides that Mr. Shara will be nominated for election (i) as a member of Lakeland Bank’s Board of Directors prior to January 1, 2009. The non-qualified, defined benefit plan provides participants, who after completing five yearsat each Annual Meeting of service, may retirethe sole shareholder of Lakeland Bank occurring during the Term and receive benefit payments ranging from $5,000 through $17,500 per annum, depending upon years of credited service, for a period of ten years. The plan is unfunded and holds 0 assets.
At December 31, 2021 and 2020, the directors' deferred compensation plan had a recorded liability of $647,000 and $655,000, respectively. The was no balance recognized in accumulated other comprehensive income for pension items at December 31, 2021, while a net actuarial loss of $30,000 was recognized in accumulated other comprehensive income at December 31, 2020. This amount was not recognized(ii) as a componentmember of net postretirement benefit cost in 2020.
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the Company’s Board of Directors at each Annual Meeting of shareholders of the Company at which Mr. Shara’s term as a director of the Company expires during the Term.
The net periodic plan cost included the following components:
 Years Ended December 31,
(in thousands)202120202019
Service cost$22 $18 $14 
Interest cost16 17 22 
Amortization of gain— — (2)
$38 $35 $34 
A discount rateShara Employment Agreement provides that Mr. Shara will receive a base salary of 2.49%, 2.21%not less than $400,000 per year and 2.89% was assumedthat he will participate in the plan valuation for 2021, 2020executive bonus program as approved annually by the Company’s Board. The Shara Employment Agreement also provides that Mr. Shara will be entitled to participate in all employee benefit plans or programs, including without limitation the 401(k) Plan and 2019, respectively. AsProfit Sharing Plan, and to receive all benefits and perquisites, including an automobile, which are approved by the benefit amount is not dependent upon compensation levels, a rateBoards of increase in compensation assumption was not utilized in the plan valuation. The Company expects its contribution to the directors' retirement plan to be $38,000 in 2022.
The benefits expected to be paid in each of the next five years and in aggregate for the five years thereafter are as follows:
(in thousands)
2022$38 
202338 
202438 
202537 
202627 
2027-2031200 
Note 14 - Stock-Based Compensation
The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options, supplemental stock options, stock appreciation rights, restricted shares, restricted stock units ("RSUs"), other stock-based awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the Company and its subsidiaries. The Plan authorized the issuance of upLakeland Bank and are generally made available to 2.0 million shares of Company common stock.
Restricted Stock
The following is a summaryexecutive officers of the Company's restricted stock activityCompany, to the extent permissible under the general terms and provisions of such plans or programs.
The Shara Employment Agreement provides that if Mr. Shara’s employment is terminated during the year ended December 31, 2021:
Number of
Shares		Weighted
Average
Price
Outstanding, beginning of year23,910 $14.77 
Granted16,028 13.72 
Vested(23,903)14.78 
Outstanding, end of year16,035 $13.72 
In 2021,Term by the Company granted 16,028 shareswithout Cause (as contractually defined) or Mr. Shara resigns for Good Reason (as contractually defined), Mr. Shara will receive a severance payment equal to 36 months of restrictedhis annual base salary at the rate in effect as of the termination date. In addition, all of Mr. Shara’s stock options (to the extent not already vested) will become fully vested, and he will be permitted to non-employee directors at a grant date fair value of $13.72 per share underexercise any such option for the period specified in the Company’s 2018 Omnibus Equity Incentive Plan. equity compensation plan as in effect at such time. He will also be entitled to the continuation of certain medical benefits. However, if within 90 days following a Change in Control (as contractually defined), Mr. Shara’s employment is terminated without Cause or he resigns for Good Reason, then he will receive a severance payment equal to three times the sum of (a) an amount equal to his annual base salary at the rate in effect as of the termination date, plus (b) an amount equal to the highest annual bonus paid to Mr. Shara during the last three years prior to the his termination date.
The restricted stock vests one year fromShara Employment Agreement provides that in the dateevent it was granted. Compensation expense on this restricted stock is expected to be $220,000 over a one year period. In 2020,determined that any payment or benefit made or provided by the Company granted 23,852 shares of restricted stock to non-employee directors at a grant date fair value of $14.78 per share under the Company’s 2018 Omnibus Equity Incentive Plan. These shares vested over a one year period and totaled $353,000 in compensation expense. In 2019, the Company granted 13,052 shares of restricted stock to non-employee directors at a grant date fair value of $15.96 per share under the Company’s 2018 Omnibus Equity Incentive Plan. These shares vested over a one year period and totaled $208,000 in compensation expense.
The total fair value of the restricted stock vested during the year ended December 31, 2021 was approximately $353,000. Compensation expense recognized for restricted stock was $330,000, $242,000 and $212,000 in 2021, 2020 and 2019, respectively. There was no unrecognized compensation expense related to restricted stock grants as of December 31, 2021.
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Restricted Stock Units
The following is a summary of the Company's RSU activity during the year ended December 31, 2021:
Number of
RSUs		Weighted
Average
Price
Outstanding, beginning of year372,552 $16.63 
Granted376,966 17.21 
Vested(146,133)18.19 
Forfeited(12,043)15.21 
Outstanding, end of year591,342 $16.64 
In 2021, the Company granted 376,966 RSUs at a weighted average grant date fair value of $17.21 per share under the Company’s 2018 Omnibus Equity Incentive Plan. The RSUs vest within a range of two to three years. A portion of these RSUs will vest subject to certain performance conditions in the restricted stock unit agreements. There are also certain provisions in the compensation program which state that if a holder of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at that time. Compensation expense on the RSUs granted in 2021 is expected to average approximately $2.2 million per year over a three year period.
In 2020, the Company granted 176,869 RSUs at a weighted average grant date fair value of $15.34 per share under the Company’s 2018 Omnibus Equity Incentive Plan. These RSUs vest within a range of two to three years, with compensation expense expected to average approximately $904,000 per year over a three year period. In 2019, the Company granted 149,559 RSUs at a weighted average grant date fair value of $16.54 per share under the Company’s 2018 Omnibus Equity Incentive Plan. Compensation expense on these RSUs was expected to average $825,000 per year over a three year period.
Compensation expense for restricted stock units totaled $3.7 million, $2.4 million and $2.3 million in 2021, 2020 and 2019, respectively. There was approximately $5.1 million in unrecognized compensation expense related to RSUs as of December 31, 2021, which is expected to be recognized over a period of 1.06 years.
Stock Options
The following is a summary of the Company's stock option activity during the year ended December 31, 2021:
Number of
Shares		Weighted
Average
Exercise
Price		Weighted
Average
Remaining
Contractual
Term
(in Years)		Aggregate
Intrinsic
Value
Outstanding, beginning of year2,764 $6.94 1.07$15,934 
Exercised(2,764)6.94 
Outstanding, end of year— $— 0.00$— 
Options exercisable at year-end— $— 0.00$— 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, which is the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options. There were no stock option grants during 2021 or 2020. The 2,764 stock options exercised during 2021 had an intrinsic value of $27,000 and resulted in $19,000 in cash receipts. No stock options were exercised during 2020. As of December 31, 2021, there was no unrecognized compensation expense related to unvested stock options and there was no compensation expense recognized for stock options for 2021, 2020 and 2019.
Excess tax deficiencies on stock based compensation was $89,000 for 2021 and $132,000 for 2020, while excess tax benefits of stock based compensation totaled $189,000 for the year 2019.
Note 15 - Revenue Recognition
The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized accordingLakeland Bank pursuant to the terms of the financial instrument agreement overShara Employment Agreement or under any other arrangement (other than the lifeDeferred Compensation Agreement described below) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the loan or investment security unless it is determinedInternal Revenue Code, then Mr. Shara will be entitled to receive an additional payment from the Company (a “Gross-Up Payment”) such that the counterparty is unablenet amount received by Mr. Shara after payment of such Excise Tax and any federal, state and local income tax, penalties, interest and Excise Tax upon the Gross-Up Payment will be equal to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone onpayments otherwise payable to him under the balanceterms of the loan prepaid.Shara Employment Agreement. Mr. Shara also agrees in the Shara Employment Agreement not to compete with Lakeland Bank’s business for a 12- month period following termination of employment in a geographic area equal to 20 miles from any of Lakeland Bank’s branches at the time of Mr. Shara’s termination of employment.
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The Company’s additional source of income, also referred to as noninterest income, is generated from deposit related fees, interchange fees, loan fees, merchant fees, loan sales and other miscellaneous income and is largely based on contracts with customers. In these cases, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company considers a customer to be any party to which the Company will provide goods or services that are an output of the Company’s ordinary activities in exchange for consideration. There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when the Company’s financial statements are consolidated.
Generally, the Company enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees, interchange fees and investment services income. In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled. As a result, the Company does not have contract assets, contract liabilities or related receivable accounts for contracts with customers. In cases where collectability is a concern, the Company does not record revenue.
Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with the loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.
The Company primarily operates in 1 geographic region, northern and central New Jersey, metropolitan New York and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as 1 operating segment or unit.
We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to mortgage servicing rights, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment, and income from bank owned life insurance.
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The following table sets forth the components of noninterest income for the years ended December 31, 2021, 2020 and 2019:
(in thousands)202120202019
Deposit-Related Fees and Charges
  Debit card interchange income$6,213 $5,431 $5,719 
  Overdraft charges2,476 2,582 4,052 
  ATM service charges660 522 826 
  Demand deposit fees and charges446 540 501 
  Savings service charges61 73 107 
Total deposit-related fees and charges9,856 9,148 11,205 
Commissions and Fees
  Loan fees1,858 1,227 1,510 
  Wire transfer charges1,533 1,412 1,223 
  Investment services income1,837 1,630 1,651 
  Merchant fees984 833 813 
  Commissions from sales of checks301 292 407 
  Safe deposit income320 345 364 
  Other income189 181 250 
Total commissions and fees7,022 5,920 6,218 
Gains on Sale of Loans2,264 3,322 1,660 
Other Income
  Gains on customer swap transactions634 4,719 3,231 
  Title insurance income109 177 183 
  Other income404 438 1,463 
Total other income1,147 5,334 4,877 
Revenue not from contracts with customers2,072 3,386 2,836 
Total Noninterest Income$22,361 $27,110 $26,796 
Timing of Revenue Recognition
  Products and services transferred at a point in time$20,266 $23,649 $23,885 
  Products and services transferred over time23 75 75 
  Revenue not from contracts with customers2,072 3,386 2,836 
Total Noninterest Income$22,361 $27,110 $26,796 
Note 16 - Other Operating Expenses
The following table presents the major components of other operating expenses for the periods indicated:
(in thousands)202120202019
Consulting and advisory board fees$2,856 $3,937 $2,635 
ATM and debit card expense2,528 2,331 2,377 
Telecommunications expense2,099 1,875 1,943 
Marketing expense1,642 1,253 1,945 
Core deposit intangible amortization868 1,025 1,182 
Other real estate owned and other repossessed assets expense— 53 256 
Long-term debt prepayment penalties— 4,133 — 
Long-term debt extinguishment costs831 — — 
Other operating expenses12,994 12,763 12,839 
Total other operating expenses$23,818 $27,370 $23,177 
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Note 17 - Commitments and Contingencies
Litigation
There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.
Financial Instruments with Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company is a party to transactions with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and consists of commitments to extend credit. These transactions involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the accompanying consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Lakeland evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Lakeland upon extension of credit, is based on management’s credit evaluation of the borrower. At December 31, 2021 and 2020, Lakeland had $1.14 billion and $1.11 billion, respectively, in commitments to originate loans, including unused lines of credit.
Lakeland issues financial standby letters of credit and performance letters of credit that are conditional commitments issued by Lakeland to guarantee the payment by or performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Lakeland holds deposit accounts, residential or commercial real estate, accounts receivable, inventory and equipment as collateral to support those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments varies based on management’s credit evaluation. Lakeland’s exposure under these letters of credit would be reduced by actual performance, subsequent termination by the beneficiaries and by any proceeds that Lakeland obtained in liquidating the collateral for the loans, which varies depending on the customer. The maximum potential undiscounted amount of future payments of these letters of credit as of December 31, 2021 and 2020 was $19.5 million and $14.8 million, respectively, and they expire through 2024. The fair value of Lakeland's liability for financial standby letters of credit was insignificant at December 31, 2021.
At December 31, 2021, there were $39,000 of commitments to lend additional funds to borrowers whose terms have been modified in troubled debt restructurings. There were no such commitments to lend additional funds at December 31, 2020.
Note 18 - Comprehensive Income (Loss)
The Company reports comprehensive income or loss in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
The following table shows the changes in the balances of each of the components of other comprehensive income (loss) for the periods presented.
 Year Ended December 31, 2021
(in thousands)Before
Tax Amount		Tax Benefit
(Expense)		Net of
Tax Amount
Unrealized holding losses on securities available for sale arising during the period$(15,117)$4,466 $(10,651)
Reclassification adjustment for securities gains included in net income(9)3 (6)
Net unrealized losses on securities available for sale(15,126)4,469 (10,657)
Net gain on securities reclassified from available for sale to held to maturity3,814 (1,030)2,784 
Amortization of gain on debt securities reclassified to held to maturity from available for sale(383)118 (265)
Unrealized gains on derivatives143 (168)(25)
Change in pension liability, net43 (13)30 
Other comprehensive loss$(11,509)$3,376 $(8,133)
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 Year Ended December 31, 2020
(in thousands)Before
Tax Amount		Tax Benefit
(Expense)		Net of
Tax Amount
Unrealized holding gains on securities available for sale arising during the period$14,049 $(3,711)$10,338 
Reclassification adjustment for securities gains included in net income(1,213)341 (872)
Unrealized holding gains on securities available for sale arising during the period12,836 (3,370)9,466 
Unrealized losses on derivatives(413)121 (292)
Change in pension liability, net(36)11 (25)
Other comprehensive income$12,387 $(3,238)$9,149 
 Year Ended December 31, 2019
(in thousands)Before
Tax Amount		Tax Benefit
(Expense)		Net of
Tax Amount
 
Unrealized holding gains on securities available for sale arising during the period14,763 (4,045)10,718 
Unrealized losses on derivatives(828)242 (586)
Change in pension liability, net(64)18 (46)
Other comprehensive income$13,871 $(3,785)$10,086 
(in thousands)Unrealized
Gains (Losses)  on
Available-
for-Sale
Securities		Amortization of Gain on Debt Securities Reclassified to Held to MaturityUnrealized
Gains 
(Losses) on  Derivatives		Pension
Items		Total
Balance at January 1, 2019$(8,782)$— $903 $41 $(7,838)
Net current period other comprehensive income (loss)10,718 — (586)(46)10,086 
Balance at December 31, 2019$1,936 $— $317 $(5)$2,248 
Other comprehensive income (loss) before reclassifications10,338 — (292)(25)10,021 
Amounts reclassified from accumulated other comprehensive income(872)— — — (872)
Net current period other comprehensive income (loss)9,466 — (292)(25)9,149 
Balance at December 31, 2020$11,402 $— $25 $(30)$11,397 
Net unrealized gain on securities reclassified from available for sale to held to maturity(2,784)2,784 — — — 
Other comprehensive (loss) income before reclassifications(7,867)(265)(25)30 (8,127)
Amounts reclassified from accumulated other comprehensive income(6)— — — (6)
Net current period other comprehensive (loss) income(7,873)(265)(25)30 (8,133)
Balance at December 31, 2021$745 $2,519 $— $— $3,264 

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Note 19 - Fair Value Measurement and Fair Value ofIn connection with the pending merger with Provident Financial Instruments
Fair Value Measurement
Accounting standards related to fair value measurements define fair value, provideServices, Inc. ("Provident"), Mr. Shara entered into a framework for measuring fair value and establish related disclosure requirements. Fair value is broadly defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements).
The three levels of fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. treasury notes and other U.S. government agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are less active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities, and prepayment speeds.
Level 3 - Unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity but on particular valuation techniques.
The Company’s assets that are measured at fair value on a recurring basis are its investment securities available for sale, equity securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. treasury notes that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supportednew agreement with market data information. Standard inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Company’s third party pricing service. This review includes a comparison to non-binding third-party quotes.
The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter-partyProvident, which will become effective as of, the measurement date (Level 2).
Recurring Fair Value Measurements
The following table sets forth the Company’s financial assets that were accounted for at fair valueand contingent on, a recurring basis as of the periods presented by level within the fair value hierarchy. During the years ended December 31, 2021 and 2020, the Company did not make any transfers between recurring Level 1 fair value measurements and recurring Level 2 fair value measurements. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
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December 31, 2021Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total Fair
Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies$104,861 $98,526 $— $203,387 
Mortgage-backed securities, residential— 237,975 — 237,975 
Collateralized mortgage obligations, residential— 191,291 — 191,291 
Mortgage-backed securities, multifamily— 1,741 — 1,741 
Collateralized mortgage obligations, multifamily— 32,519 — 32,519 
Asset-backed securities— 52,584 — 52,584 
Corporate debt securities— 50,459 — 50,459 
Total securities available for sale104,861 665,095 — 769,956 
Equity securities, at fair value— 17,368 — 17,368 
Derivative assets— 43,799 — 43,799 
Total Assets$104,861 $726,262 $— $831,123 
Liabilities:
Derivative liabilities$— $43,799 $— $43,799 
Total Liabilities$— $43,799 $— $43,799 
December 31, 2020Quoted Prices in
Active  Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total Fair
Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies$9,392 $55,610 $— $65,002 
Mortgage-backed securities— 228,156 — 228,156 
Collateralized mortgage obligations— 209,038 — 209,038 
Mortgage-backed securities, multifamily— 1,944 — 1,944 
Collateralized mortgage obligations, multifamily— 41,535 — 41,535 
Asset-backed securities— 40,690 — 40,690 
Obligations of states and political subdivisions— 233,710 — 233,710 
Corporate debt securities— 35,671 — 35,671 
Total securities available for sale9,392 846,354 — 855,746 
Equity securities, at fair value— 14,694 — 14,694 
Derivative assets— 80,734 — 80,734 
Total Assets$9,392 $941,782 $— $951,174 
Liabilities:
Derivative liabilities$— $80,877 $— $80,877 
Total Liabilities$— $80,877 $— $80,877 
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Non-Recurring Fair Value Measurements
The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or fair market value. Fair value is generally determined by the value of purchase commitments.
Loans that do not have similar risk characteristics to the segments reported must be individually evaluated to determine an appropriate allowance. Management has identified criteria and procedures for identifying whether a loan should be individually evaluated for calculation of expected credit losses. If a loan is identified as meeting any of the criteria, it is deemed to have risk characteristics that are unique and will be separated from a pool. Those loans that are considered to have unique risk characteristics are then subjected to an individual allowance evaluation using either the fair value of the collateral, less estimated costs to sell, if collateral-dependent or the discounted cash flow method.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of impaired loans, OREO and other repossessed assets.
The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
December 31, 2021(Level 1)(Level 2)(Level 3)Total Fair Value
(in thousands)
Assets:
Individually evaluated loans$— $— $7,113 $7,113 
December 31, 2020(Level 1)(Level 2)(Level 3)Total Fair Value
(in thousands)
Assets:
Individually evaluated loans$— $— $2,417 $2,417 
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2021 and December 31, 2020 are outlined below.
This summary, as well as the table below, excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include noninterest-bearing demand deposits, savings and interest-bearing transaction accounts and federal funds sold and securities sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is the amount payable on demand at the reporting date. Carrying value is used because there is no stated maturity on these accounts and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the following table are those financial instruments recorded at fair value on a recurring basis, as previously described.
The fair value of investment securities held to maturity was measured using information from the same third-party servicer used for investment securities available for sale using the same methodologies discussed above.
FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.
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The net loan portfolio is valued using an exit price approach, which incorporates a build-up discount rate calculation that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.
For fixed maturity certificates of deposit, fair value was estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair values of commitments to extend credit and standby letters of credit are deemed immaterial.
The following table summarized the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments as of December 31, 2021 and December 31, 2020:
December 31, 2021Carrying ValueFair ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities held to maturity
U.S. Treasury and U.S. government agencies$18,672 $18,965 $— $18,965 $— 
Mortgage-backed securities, residential370,247 364,976 — 364,976 — 
Collateralized mortgage obligations, residential13,921 14,089 — 14,089 — 
Mortgage-backed securities, multifamily2,710 2,734 — 2,734 — 
Collateralized mortgage obligations, multifamily— — — — — 
Obligations of states and political subdivisions416,566 411,576 — 410,744 832 
Corporate bonds2,840 2,871 — 2,871 — 
Total investment securities held to maturity, net824,956 815,211 — 814,379 832 
Federal Home Loan and other membership bank stock9,049 9,049 — 9,049 — 
Loans, net5,918,101 5,900,876 — — 5,900,876 
Financial Liabilities:
Certificates of deposit759,227 753,483 — 753,483 — 
Other borrowings25,000 24,604 — 24,604 — 
Subordinated debentures179,043 175,243 — — 175,243 
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December 31, 2020Carrying ValueFair ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities held to maturity
U.S. Treasury and U.S. government agencies$25,565 $26,344 $— $26,344 $— 
Mortgage-backed securities, residential39,276 40,733 — 40,733 — 
Collateralized mortgage obligations, residential14,590 15,122 — 15,122 — 
Mortgage-backed securities, multifamily705 759 — 759 — 
Obligations of states and political subdivisions10,630 10,910 — 10,910 — 
Total investment securities held to maturity, net90,766 93,868 — 93,868 — 
Federal Home Loan and other membership bank stock11,979 11,979 — 11,979 — 
Loans, net5,950,108 5,939,413 — — 5,939,413 
Financial Liabilities:
Certificates of deposit1,078,256 1,077,620 — 1,077,620 — 
Other borrowings25,000 25,206 — 25,206 — 
Subordinated debentures118,257 118,208 — — 118,208 
Note 20 - Derivatives
Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third party, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. As of December 31, 2021 and 2020, Lakeland had $55.1 million and $83.2 million, respectively, in securities pledged for collateral on its interest rate swaps.
In June 2016, the Company entered into 2 cash flow hedges in order to hedge the variable cash outflows associated with its floating rate subordinated debentures. For more information, see Note 10 to the Company's consolidated financial statements. The notional value of these hedges was $30.0 million. The Company’s objective in using the cash flow hedge was to add stability to interest expense and to manage its exposure to interest rate movements. The Company used interest rate swaps designated as cash flow hedges which involved the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In these particular hedges, the Company was paying a third party an average of 1.10% in exchange for a payment at 3 month LIBOR. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2021, the Company did not record any hedge ineffectiveness. The Company recognized $142,000 and $50,000 of accumulated other comprehensive expense that was reclassified into interest expense during 2021 and 2020, respectively. On June 30, 2021, $20.0 million in notional value of the swaps matured and on August 1, 2021, the remaining $10.0 million matured. The Company did not enter into any hedges in 2021.
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The following tables present summary information regarding these derivatives for the periods presented (dollars in thousands):
December 31, 2021Notional  AmountAverage
Maturity (Years)		Weighted  Average
Rate Fixed		Weighted Average
Variable Rate		Fair Value
Classified in Other Assets:
  Third party interest rate swaps$326,941 7.73.14 %1 Mo. LIBOR + 2.32$9,847 
  Customer interest rate swaps607,688 8.23.97 %1 Mo. LIBOR + 1.8733,952 
Classified in Other Liabilities:
  Customer interest rate swaps$326,941 7.73.14 %1 Mo. LIBOR + 2.32$(9,847)
  Third party interest rate swaps607,688 8.23.97 %1 Mo. LIBOR + 1.87(33,952)
December 31, 2020Notional  AmountAverage
Maturity (Years)		Weighted  Average
Rate Fixed		Weighted Average
Variable Rate		Fair Value
Classified in Other Assets:
  3rd Party interest rate swaps$73,075 9.53.20 %1 Mo. LIBOR + 2.55$503 
  Customer interest rate swaps907,069 8.73.79 %1 Mo. LIBOR + 1.9980,231 
Classified in Other Liabilities:
  Customer interest rate swaps$73,075 9.53.20 %1 Mo. LIBOR + 2.55$(503)
  3rd party interest rate swaps907,069 8.73.79 %1 Mo. LIBOR + 1.99(80,231)
Interest rate swap (cash flow hedge)30,000 0.51.10 %3 Mo. LIBOR(143)
Note 21 - Regulatory Matters
The Bank Holding Company Act of 1956 restricts the amount of dividends the Company can pay. Accordingly, dividends should generally only be paid out of current earnings, as defined. The New Jersey Banking Act of 1948 restricts the amount of dividends paid on the capital stock of New Jersey chartered banks. Accordingly, no dividends shall be paid by such banks on their capital stock unless, following the payment of such dividends, the capital stock of Lakeland will be unimpaired, and: (1) Lakeland will have a surplus, as defined, of not less than 50% of its capital stock, or, if not, (2) the payment of such dividend will not reduce the surplus, as defined, of Lakeland. Under these limitations, approximately $782.9 million was available for payment of dividends from Lakeland to the Company as of December 31, 2021.
The Company and Lakeland are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possible additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Lakeland’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s and Lakeland’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Lakeland’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the Company and Lakeland to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2021, that the Company and Lakeland met all capital adequacy requirements to which they are subject.
As of December 31, 2021, the most recent notification from the FDIC categorized Lakeland as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Lakeland must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 capital and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the institution’s category.
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As of December 31, 2021 and 2020, the Company and Lakeland have the following capital ratios based on the then current regulations:
(dollars in thousands)ActualFor Capital
Adequacy Purposes with Capital Conservation Buffer		To Be Well Capitalized
Under Prompt Corrective
Action Provisions
December 31, 2021AmountRatioAmountRatioAmountRatio
Total capital (to risk-weighted assets)
Company$903,415 14.48 %
> 
$654,978 
> 10.50%
 N/AN/A
Lakeland852,339 13.67 % 654,692 10.50 %
> 
$623,516 
> 10.00%
Tier 1 capital (to risk-weighted assets)
Company$695,634 11.15 %
>
$530,220 
> 8.50%
 N/AN/A
Lakeland792,363 12.71 % 529,989 8.50 %
>
$498,813 
> 8.00%
Common equity Tier 1 capital (to risk-weighted assets)
Company$665,634 10.67 %
>
$436,652 
> 7.00%
 N/AN/A
Lakeland792,363 12.71 % 436,461 7.00 %
>
$405,285 
> 6.50%
Tier 1 capital (to average assets)
Company$695,634 8.51 %
>
$326,813 
> 4.00%
 N/AN/A
Lakeland792,363 9.70 % 326,734 4.00 %
>
$408,418 
> 5.00%
(dollars in thousands)ActualFor Capital
Adequacy Purposes with Capital Conservation Buffer		To Be Well Capitalized Under
Prompt Corrective Action
Provisions
December 31, 2020AmountRatioAmountRatioAmountRatio
Total capital (to risk-weighted assets)
Company$783,107 12.84 %
> 
$640,632 
> 10.50%
 N/AN/A
Lakeland745,276 12.22 % 640,416 10.50 %
> 
$609,920 
> 10.00%
Tier 1 capital (to risk-weighted assets)
Company$623,644 10.22 %
>
$518,607 
> 8.50%
 N/AN/A
Lakeland672,832 11.03 % 518,432 8.50 %
>
$487,936 
> 8.00%
Common equity Tier 1 capital (to risk-weighted assets)
Company$593,644 9.73 %
>
$427,088 
> 7.00%
 N/AN/A
Lakeland672,832 11.03 % 426,944 7.00 %
>
$396,448 
> 6.50%
Tier 1 capital (to average assets)
Company$623,644 8.37 %
>
$298,096 
> 4.00%
 N/AN/A
Lakeland672,832 9.04 % 297,748 4.00 %
>
$372,185 
> 5.00%

Note 22 - Goodwill and Other Intangible Assets
The Company reported goodwill of $156.3 million at December 31, 2021 and 2020. The Company reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one reporting unit. During the year ended December 31, 2021, there were no triggering events that would more likely than not reduce the fair value of our one reporting unit below its carrying amount. There was no impairment of goodwill recognized during the years ended December 31, 2021 and 2020.
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Core deposit intangible was $2.4 million on December 31, 2021 compared to $3.3 million on December 31, 2020. In 2021, 2020 and 2019, amortization of core deposit intangible totaled $868,000, $1.0 million and $1.2 million, respectively. The estimated future amortization expense for each of the succeeding five years ended December 31 is as follows:
(in thousands)
2022$711 
2023554 
2024425 
2025317 
2026210 

Note 23 - Subsequent Event (Unaudited)
1st Constitution Bancorp
On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp ("1st Constitution"), a bank holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition enabled the Company to broaden its presence in those counties. Effective as of the close of business on January 6, 2022, 1st Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the effective time of the merger 1.3577 shares of Lakeland Bancorp, Inc. common stock. and will terminate, supersede, and replace the Shara Employment Agreement.
The Company, issued 14,020,495 sharesLakeland Bank and Mr. Shara are also parties to a Supplemental Executive Retirement Plan Agreement (as previously referred to, the “SERP”), which provides that Mr. Shara will receive a normal retirement benefit of its common stock$150,000 per year for 15 years upon termination of his employment after the normal retirement age of 65. The benefit will be paid in monthly payments of $12,500 each. The SERP further provides that if, prior to a Change in Control, Mr. Shara resigns his employment with the merger. Outstanding 1st Constitution options were paid outCompany or Lakeland Bank for Good Reason, his employment with the Company or Lakeland Bank terminates due to disability, or his employment with the Company or Lakeland Bank is terminated by the Company or Lakeland Bank other than for Cause, he will receive the same benefit of $150,000 per year for 15 years, payable in cashmonthly payments of $12,500 each, commencing with the month following Mr. Shara’s 65th birthday. If Mr. Shara is employed by the Company or Lakeland Bank at the difference between $25.55 and an average strike pricetime of $15.95 for a total cashChange in Control, he will receive the same benefit, beginning with the month following his 65th birthday. If Mr. Shara should die while employed, his beneficiary will receive the same monthly payment of $559,000. Given the close proximity between the transaction closing date and the Company’s Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been completed. Management expects to complete the initial accounting for 1st Constitution, including the purchase price allocation, later in the first quarter of 2022. As a result, the estimated fair values of the assets acquired and liabilities assumed, the valuation techniques and inputs used to measure and develop the fair values and any goodwill recorded will be disclosed in the Company’s Quarterly Report on Form 10-Qdescribed above for the period ended March 31, 2022. Full system integration was completedspecified, except that such payments will generally commence within 60 days after death. If Mr. Shara should die after the benefit payments have commenced but before receiving all such payments, the Company will pay the remaining benefits to his beneficiary at the same time and in February 2022 and 3 1st Constitution Bank and 1 Lakeland Bank branches were closed.
Note 24 - Condensed Financial Information - Parent Company Only
Condensed Balance Sheets
 December 31,
(in thousands)20212020
Assets
Cash and due from banks$40,228 $28,366 
Investment in subsidiaries954,506 843,711 
Other assets12,639 11,274 
Total Assets$1,007,373 $883,351 
Liabilities and Stockholders’ Equity
Other liabilities$1,316 $1,310 
Subordinated debentures179,043 118,257 
Total stockholders’ equity827,014 763,784 
Total Liabilities and Stockholders’ Equity$1,007,373 $883,351 
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Condensed Statements of Income
 Years Ended December 31,
(in thousands)202120202019
Income
Dividends from subsidiaries$50,648 $29,961 $36,905 
Other income (loss)34 (486)408 
Total Income50,682 29,475 37,313 
Expense
Interest on subordinated debentures5,419 5,968 5,983 
Noninterest expenses1,498 549 464 
Total Expense6,917 6,517 6,447 
Income before benefit for income taxes43,765 22,958 30,866 
Income taxes benefit(1,445)(1,645)(1,646)
Income before equity in undistributed income of subsidiaries45,210 24,603 32,512 
Equity in undistributed income of subsidiaries49,831 32,915 38,160 
Net Income Available to Common Shareholders$95,041 $57,518 $70,672 
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Condensed Statements of Cash Flows
 Years Ended December 31,
(in thousands)202120202019
Cash Flows from Operating Activities
Net income$95,041 $57,518 $70,672 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of equity securities— (149)— 
Amortization of subordinated debt costs547 37 36 
Benefit for credit losses— (12)— 
Long-term debt extinguishment costs831 — — 
Change in fair value of equity securities— 786 (197)
Excess tax (deficiency) benefits(89)(132)189 
Increase in other assets(1,443)(1,462)(1,873)
Increase in other liabilities149 25 121 
Equity in undistributed income of subsidiaries(49,831)(32,915)(38,160)
Net Cash Provided by Operating Activities45,205 23,696 30,788 
Cash Flows from Investing Activities
Purchases of equity securities— (49)(82)
Proceeds from maturity of held to maturity securities— 1,000 — 
Proceeds from sale of equity securities— 1,148 1,287 
Net cash received from business acquisition— — 24 
Contribution to subsidiary(65,000)— — 
Net Cash (Used in) Provided by Investing Activities(65,000)2,099 1,229 
Cash Flows from Financing Activities
Cash dividends paid on common stock(27,119)(25,457)(24,919)
Proceeds from issuance of common stock, net— — — 
Proceeds from issuance of subordinated debt, net147,738 — — 
Redemption of subordinated debentures, net(88,330)— — 
Purchase of treasury stock— (1,452)— 
Retirement of restricted stock(651)(501)(715)
Exercise of stock options19 — 313 
Net Cash Provided by (Used in) Financing Activities31,657 (27,410)(25,321)
Net increase (decrease) in cash and cash equivalents11,862 (1,615)6,696 
Cash and cash equivalents, beginning of year28,366 29,981 23,285 
Cash and Cash Equivalents, End of Year$40,228 $28,366 $29,981 

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ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable
ITEM 9A – Controls and Procedures.
Disclosure Controls
As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)same amounts they would have been paid to Mr. Shara had he survived. The SERP provides that Mr. Shara is not entitled to any benefit under the Securities Exchange ActSERP if (i) the Company terminates his employment for Cause, or (ii) he resigns his employment with the Company other than for Good Reason prior to the earlier of 1934) pursuant to Securities Exchange Act Rule 15d-15(b).
    Based on their evaluation as of December 31, 2021, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as definedattaining age 65 or a Change in Rules 13a-15(e) and 15d-15(e)Control. Amounts payable under the Securities Exchange Act of 1934) are effective in ensuring that the information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and are operating in an effective manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of Lakeland Bancorp, Inc. and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
 The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with policies or procedures.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
As of December 31, 2021, based on management’s assessment, the Company’s internal control over financial reporting was effective.
Our independent registered public accounting firm, KPMG LLP, audited our internal control over financial reporting as of December 31, 2021. Their report, dated February 28, 2022, expressed an unqualified opinion on our internal control over financial reporting.
Changes in Internal Controls Over Financial Reporting
    There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Lakeland Bancorp, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Lakeland Bancorp, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periodsSERP are subject to the risksame Gross-Up Payment provisions as are applicable under the Shara Employment Agreement.
The Company, Lakeland Bank and Mr. Shara are parties to a Deferred Compensation Agreement (the “Deferred Compensation Agreement”), pursuant to which the Company and Lakeland Bank (collectively, “Lakeland”) will credit to a deferral account established on Mr. Shara’s behalf $16,500 for each calendar month from February 1, 2015 to December 2022 that controls may become inadequate becauseMr. Shara is actively employed by Lakeland. From March 1, 2015 until Mr. Shara’s separation from service, the deferral account will be credited with interest at an annual rate equal to the lesser of changes15% or the Company’s return on equity for the preceding calendar year, compounded annually. The deferral account is generally payable to Mr. Shara in conditions,180 monthly installments commencing upon separation from service after his attainment of age 65. If Mr. Shara’s employment is involuntarily terminated without “cause” or he resigns for “good reason” (as those terms are defined in the Shara Employment Agreement) prior to his attainment of age 65, or if he separates from service after a “change in control” (as defined in the Shara Employment Agreement) but prior to age 65, then he will be entitled to an annual benefit, payable in 180 monthly installments, commencing at age 65 that is equal to the degreegreater of compliance$200,000 or the annual amount that would be payable over fifteen years based on his projected deferral account balance at age 65. The projected deferral account balance at age 65 is the deferral account at the time of separation from service, plus the monthly credits that would have been made to his deferral account until age 65 had he continued to be employed by Lakeland and interest credits to age 65 at the average return on equity from February 1, 2015 to the date of separation, compounded monthly. If Mr. Shara voluntarily terminates employment before age 65 other than for good reason, his deferral account will not be credited with any further monthly credits or interest.
If Mr. Shara separates from service due to death, his beneficiary will be paid an annual benefit under the policiesDeferred Compensation Agreement equal to the greater of $200,000 or procedures may deteriorate.the annual amount that would be payable over fifteen years based on his projected deferral account balance at age 65 determined in the manner described above for an involuntary termination without cause. This annual benefit is payable in 180 monthly installments beginning the month following Mr. Shara’s death. If Mr. Shara dies after separation from service but before age 65, his beneficiary will be entitled to payment of the amounts that would have been paid if Mr. Shara had lived until Normal Retirement Age (age 65) and died immediately after payments had begun, but payments will begin
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/s/ KPMG LLP
Short Hills, New Jersey
February 28, 2022


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the month following his death. If Mr. Shara dies after benefits have commenced, the remaining payments will continue to his beneficiary.
ITEM 9B – Other Information.If Mr. Shara’s employment is terminated for cause, all amounts payable under the Deferred Compensation Agreement are forfeited. In addition, any unpaid amounts under the Deferred Compensation Agreement are forfeitable in the event that, following his separation from service, Mr. Shara breaches certain post-employment restrictive covenants set forth in the Deferred Compensation Agreement.
None.In the event that the Deferred Compensation Agreement is terminated before Mr. Shara’s death and either (i) prior to age 65, or (ii) after age 65 but before his separation from service, he will be paid an amount equal to the greater of the projected deferral account balance (determined as above), or $2,192,951. If the Deferred Compensation Agreement is terminated after Mr. Shara’s death or after both his separation from service and attainment of age 65, then he will receive a lump sum payment equal to the present value of the payments which would otherwise be due. Amounts payable under Mr. Shara’s Deferred Compensation Agreement are not subject to a tax gross-up.
Amounts payable under the Shara Employment Agreement, the SERP and the Deferred Compensation Agreement may be delayed in order to comply with Section 409A of the Internal Revenue Code.
ITEM 9C – Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
ITEM 10 – Directors, Executive OfficersMessrs. Splaine, Schwarz, Matteson and Corporate Governance.Nigro
The Company responds to this Item by incorporating by reference the material responsive to this Itemand Lakeland Bank also entered into agreements with each of Messrs. Splaine, Schwarz, Matteson and Nigro providing for certain terms and conditions of their employment in the event of a change in control (each a “Change in Control Agreement”). Under such Change in Control Agreements, the term of each executive’s employment becomes fixed for a period (the “contract period”) ending on the earlier of (i) the executive’s death, (ii) the second anniversary of the date of such change in control, or (iii) the date the executive attains age 65, except for Mr. Schwarz, for whom the contract period was extended to age 68.
During the contract period, each such executive is to be employed in the same position as held by him immediately prior to such event, and each is entitled to a base salary equal to his annual salary in effect immediately prior to the change in control and a bonus equal to his highest annual bonus paid during the three most recent fiscal years prior to the change in control. In addition, during the contract period, Messrs. Splaine, Schwarz, Matteson and Nigro are each entitled to certain other benefits and perquisites as in effect as of the change in control.
If during the contract period, such executive’s employment is terminated without “cause”, or he resigns for “good reason” (each as defined in the Change in Control Agreement), he will be entitled to continued life and health insurance benefits for the balance of the contract period and a lump sum cash payment equal to two times the sum of his highest salary and bonus paid to him during any of the three most recent calendar years prior to the change in control. For purposes of each Change in Control Agreement, the term “change in control” has the same meaning as under the 2009 Equity Program and the 2018 Equity Plan. Each Change in Control Agreement contains confidentiality and non-solicitation of employees covenants in favor of Lakeland.
Potential Payments Upon Termination or Change in Control
The following table provides information as to the amounts that would have been payable to the Named Executive Officers if they had terminated employment in the circumstances described in the table effective December 31, 2022.

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Termination by Company Without Cause or
Resignation by Executive for Good Reason (before a Change In Control)		Termination by Company Without Cause or Resignation by Executive for Good Reason (after a Change In Control)
Thomas J. Shara
Cash severance$2,715,001 (1)$5,064,877 (2)
SERP (3)2,250,000 2,250,000 
Deferred Compensation (4)3,000,000 3,000,000 
Acceleration of Restricted Stock Units2,976,548 (6)
Welfare Benefits (7)— — 
Tax Gross-up— 3,618,184 (8)
Total$7,965,001 $16,909,609 
Thomas F. Splaine, Jr.
Cash severance$— $1,447,498 (9)
Acceleration of Restricted Stock Units— 753,814 (6)
Welfare Benefits— 34,056 (10)
Automobile (11)— — 
Total$— $2,235,368 (12)
Ronald E. Schwarz
Cash severance$— $1,561,862 (9)
Acceleration of Restricted Stock Units180,150 (5)860,090 (6)
Welfare Benefits— — (10)
Automobile (11)— — 
Total$180,150 $2,421,952 (12)
Timothy J. Matteson
Cash severance$— $1,302,048 (9)
Acceleration of Restricted Stock Units— 709,454 (6)
Welfare Benefits— 55,679 (10)
Automobile (11)— — 
Total$— $2,067,181 (12)
James M. Nigro
Cash severance$— $1,302,048 (9)
Acceleration of Restricted Stock Units— 369,299 (6)
Welfare Benefits— 55,679 (10)
Automobile (11)— — 
Total$— $1,727,026 (12)

(1)The figure shows the cumulative amount of cash severance that Mr. Shara would be entitled to under the circumstances presented. The cash severance is payable over a period of 12 months.
(2)The figure shows the amount of cash severance that Mr. Shara would be entitled to under the circumstances presented. The cash severance amount is payable in a single lump sum.
(3)This figure shows the total aggregate value of Mr. Shara’s SERP benefits, which are payable to Mr. Shara in 180 equal monthly installments of $12,500 each, commencing at the later of age 65 or
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termination of employment. The same benefit is payable if Mr. Shara terminates employment due to disability. In the event that Mr. Shara terminates employment due to death, his beneficiary is entitled to payment of the same SERP benefit, but commencing immediately following death. Please see "Pension Plan" above for additional details.
(4)This figure shows the total aggregate value of Mr. Shara’s Deferred Compensation Agreement, which provides a benefit, payable in 180 monthly installments, commencing at Mr. Shara’s separation from service (or age 65 if later), in an annual amount equal to the greater of $200,000 or the annual amount that could be paid based on his projected deferral account balance at age 65. Please see "Elective Deferral Plan" above for additional details.
(5)Represents the value of shares of our common stock with respect to outstanding performance-based restricted stock units awarded and earned as of December 31, 2022 (based on the closing market price of the Company’s definitive proxy statementcommon stock on the last trading day in 2022 ($17.61 per share)) which Mr. Schwarz would, based on his age and years of service as of December 31, 2022, continues to have the right to receive following separation from service (other than for itscause). Such shares would be issued following the expiration of the applicable three-year performance period of the respective performance-based restricted stock unit awards to which such shares relate. See the “Outstanding Equity Awards at December 31, 2022” table above for additional details.
(6)These figures represent, based on the closing market price of the Company’s common stock on the last trading day in 2022 Annual Meeting($17.61 per share), the aggregate value of Shareholders.outstanding restricted stock units awarded to each officer, to the extent the vesting of which would accelerate in the event of the termination of such officer’s employment under the circumstances presented. Note, however, that all such awards vest in full in the event of a “Change in Control Event” as defined, respectively, under the 2018 Equity Plan.
(7)Mr. Shara has the right to purchase continued coverage under the Company’s group health plan, if permitted by the health plan insurer, for up to three years following termination of employment under the circumstances presented, inclusive of any “COBRA” coverage period.
(8)This figure represents an estimate of the “tax gross-up” amount Mr. Shara would be entitled to under his employment agreement to the extent that the payments or benefits to which he becomes entitled would be subject to a 20% excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended. Such estimate is based on a number of assumptions, including that the full value of restricted stock units that vest would be considered a change in control payment for purposes of the excise tax. Facts and circumstances at the time of any change in control transaction and thereafter as well as changes in Mr. Shara’s compensation history preceding such a transaction could materially impact whether and to what extent an excise tax would be imposed and therefore the amount of any potential tax gross-up. For purposes of performing these calculations, we have made the following additional assumptions: an individual effective tax rate of 50.1% (composed of a federal tax rate of 37.0%, a New Jersey state tax rate of 10.75% and Medicare tax of 2.35%), and 120% of the Applicable Federal Semi-annual Rate (AFR) as of December 2022 AFR is applicable in determining the value of accelerating the vesting of the SERP benefit for purposes of computing the excise tax. Amounts payable under Mr. Shara’s Deferred Compensation Agreement are not subject to such tax gross-up.
(9)The cash severance payable under the circumstances presented is equal to two times the individual’s highest aggregate annual salary and bonus compensation for any of the three calendar years preceding a “Change in Control” (as defined in their respective Change in Control Agreements), and is payable in a single lump sum. The figures presented above are based on the respective salary and bonus paid to each individual during 2022.
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(10)Messrs. Splaine, Matteson and Nigro are each entitled to continued medical and hospital insurance, disability insurance and life insurance for the remainder of the applicable “Contract Period” under their respective Change in Control Agreements, which begins on the day immediately preceding a Change in Control and ends on the earlier of (i) the second anniversary of the Change in Control, (ii) the individual’s attainment of age 65, or (iii) the individual’s death. Except for Mr. Schwarz, the figures presented assume that such coverages will continue for two years.
(11)Messrs. Splaine, Schwarz, Matteson and Nigro each have the right under their respective Change in Control Agreements, in the event of an involuntary termination without cause or a resignation for good reason following a Change in Control, to purchase from the Company the automobile, at book value price, that was provided to him while employed by the Company.
(12)Payments due each of Messrs. Splaine, Schwarz, Matteson and Nigro under their respective Change in Control Agreements are subject to reduction to the extent necessary to ensure that no portion of the payments they are to receive will be non-deductible by the Company under Code Section 280G or will be subject to an excise tax under Code Section 4999.

ITEM 11 -Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of the SEC’s Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Thomas J. Shara, our President and Chief Executive Compensation.Officer (our “CEO”). The pay ratio included in this information is a reasonable estimate, calculated in a manner consistent with Item 402(u) of Regulation S-K.
The Company responds to this Item by incorporating by referenceFor the material responsive to this Itemyear ended December 31, 2022, our last completed fiscal year:
•the median of the annual total compensation of all of our Company’s employees, other than our CEO, was $60,026; and
•the annual total compensation of our CEO, as reported in the Company’s definitive proxy statementSummary Compensation Table presented elsewhere in this document, was $3,097,917.
Based on this information, for its 2022, Annual Meetingthe ratio of Shareholders.the annual total compensation of Mr. Shara, our CEO, to the median of the annual total compensation of all employees other than our CEO, was 52 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our “median employee” and our CEO, we took the following steps:
1. We determined that as of December 31, 2022, our employee population consisted of approximately 913 employees, all of whom are located in the U.S. Our employee population consisted of our full-time, part-time and temporary employees.
2. To identify the “median employee” from our employee population, we compared the W-2 Box 5 earnings of all of our 913 employees.
3. We identified our median employee using the W-2 Box 5 earnings as our compensation measure, which was consistently applied to all our employees. In making our determination, we annualized the compensation of approximately 170 full-time and part-time employees who were hired by us during 2022 but did not work for us for the entire year.
4. Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $60,026.
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5.     With respect to the annual total compensation of our CEO, we used the amount reported in the 2022 “Total” column of the Summary Compensation Table included in this document.
ITEM 12 -Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s definitive proxy statement for its 2022 Annual Meeting
Stock Ownership of Shareholders.
EQUITY COMPENSATION PLAN INFORMATIONDirectors and Management
The following table gives information aboutshows the beneficial ownership of the Company’s common stock that may be issued uponat March 15, 2023 by (i) each of the Company’s directors and nominees, (ii) each of the Company’s Named Executive Officers and (iii) the Company’s current directors and executive officers as a group.


Name of Beneficial Owner		Number of Shares
Beneficially
Owned (1)
Percent of
Class (2)
Directors and Nominees
Bruce D. Bohuny (3)64,879 0.10 %
Mary Ann Deacon (4)428,085 0.66 %
Brian Flynn (5)46,216 0.07 %
Mark J. Fredericks (6)336,022 0.52 %
Brian A. Gragnolati (7)28,203 0.04 %
James E. Hanson II (8)147,032 0.23 %
Janeth C. Hendershot (9)309,049 0.48 %
Lawrence R. Inserra, Jr. (10)77,030 0.12 %
Robert F. Mangano (11)767,619 1.18 %
Robert E. McCracken (12)145,486 0.22 %
Robert B. Nicholson, III (13)196,519 0.30 %
Thomas J. Shara (14)430,856 0.66 %
Named Executive Officers (see above for Mr. Shara)
Thomas F. Splaine, Jr. (15)43,958 0.07 %
Ronald E. Schwarz (16)87,912 0.14 %
Timothy J. Matteson (17)53,468 0.08 %
James M. Nigro (18)55,185 0.08 %
All directors and current executive officers as a group (19 persons) (19)3,305,990 5.08 %
(1)    Beneficially owned shares include shares over which the named person exercises either sole or shared voting power or sole or shared investment power. It also includes shares owned (i) by a spouse, minor children or by relatives sharing the same home, (ii) by entities owned or controlled by the named person, and (iii) by the named person if he or she has the right to acquire such shares within 60 days by the exercise of options underany right or option. Unless otherwise noted, all shares are owned of record and beneficially by the named person. Restricted shares may be voted and are included. Shares subject to restricted stock units (“RSUs”) are not outstanding, have no voting rights and are not included in the table except to the extent that the RSUs are vested and the vesting date occurs on or before May 14, 2023.
(2)    For all directors and executive officers as a group, a total of 65,017,145 shares of the Company’s 2018 Omnibus Equity Incentive Plancommon stock was used in calculating the percentage of the class owned, representing 65,017,145 shares outstanding as of March 15, 2023, plus no RSUs that vest on or before May 14, 2023.
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(3)    Includes 11,912 shares held by the Bohuny Family LLC of which Mr. Bohuny is a passive member; 622 shares held by Mr. Bohuny’s spouse; 2,035 shares held by Mr. Bohuny as custodian for his children; and 1,671 shares subject to restricted stock awards that have not yet vested.
(4)    Includes 20,435 shares held in the name of Ms. Deacon’s spouse; 263,032 shares held in the name of the Philip Deacon Limited Partnership; 96,177 shares held by the Deacon Homes, Inc. Profit Sharing Plan of which Ms. Deacon is a trustee; 6,400 held in an account over which Ms. Deacon has a power of attorney, 2,702 held in by Deacon Family Foundation, Inc. of which Ms. Deacon is a trustee and 2,785 shares subject to restricted stock awards that have not yet vested.
(5)    Includes 1,671 shares subject to restricted stock awards granted to Mr. Flynn that have not yet vested.
(6)    Includes 53,785 shares owned by Mr. Fredericks’ spouse; 11,114 shares owned jointly by Mr. Fredericks and his spouse; 44,195 shares held by Mark J. Fredericks as Trustee for the Fredericks Fuel & Heating Service Profit Sharing Plan; 23,515 shares held by Fredericks Fuel & Heating Service of which Mark Fredericks is President; and 1,671 shares subject to restricted stock awards that have not yet vested. Includes 200,000 shares pledged as security for loan obligations.    
(7)    Includes 22,355 shares owned jointly by Mr. Gragnolati and his spouse and 1,671 shares subject to restricted stock awards granted to Mr. Gragnolati that have not yet vested.
(8)    Includes 62,663 shares held by Ledgewood Employees Retirement Plan, 42,110 shares held by The Hampshire Foundation and 11,060 shares held by the Wickshire Financial Corporation in which Mr. Hanson has beneficial interest, and 1,671 shares subject to restricted stock awards that have not yet vested.
(9)    Includes 45,616 shares owned by the estate of Ms. Hendershot’s father, for which Ms. Hendershot is executor, and 1,671 shares subject to restricted stock awards that have not yet vested.
(10)    Includes 1,671 shares subject to restricted stock awards granted to Mr. Inserra that have not yet vested.
(11)    Includes 696 shares subject to restricted stock awards granted to Mr. Mangano that have not yet vested.
(12)    Includes 34 shares owned jointly by Mr. McCracken and his spouse; 5,262 shares held as custodian for his children; 74,925 shares held by REM, LLC of which Mr. McCracken is sole managing member; and 1,671 shares subject to restricted stock awards that have not yet vested.
(13)    Includes 1,671 shares subject to restricted stock awards granted to Mr. Nicholson that have not yet vested.
(14)    Includes 416,025 shares owned jointly by Mr. Shara and his spouse; 1,904 shares held as custodian for his child; and 752 shares held by a family partnership of which Mr. Shara and his spouse are general partners or trustees. Excludes 147,668 shares subject to RSUs that have not yet vested. See “Outstanding Equity Awards at December 31, 2021. This plan was2022” for additional information regarding the RSUs.
(15)    Excludes 47,075 shares subject to RSUs that have not yet vested for Mr. Splaine. See “Outstanding Equity Awards at December 31, 2022” for additional information regarding the RSUs.
(16)    Excludes 53,030 shares subject to RSUs that have not yet vested for Mr. Schwarz. See “Outstanding Equity Awards at December 31, 2022” for additional information regarding the RSUs.
(17)    Excludes 44,271 shares subject to RSUs that have not yet vested for Mr. Matteson. See “Outstanding Equity Awards at December 31, 2022” for additional information regarding the RSUs.
(18)    Excludes 24,955 shares subject to RSUs that have not yet vested for Mr. Nigro. See “Outstanding Equity Awards at December 31, 2022” for additional information regarding the RSUs.
(19)    Excludes an aggregate of 379,332 shares subject to RSUs that have not yet vested.
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Principal Shareholders
The following table contains information about the beneficial ownership at December 31, 2022 by persons or groups that beneficially own 5% or more of the Company’s only equity compensation plans in existence as ofcommon stock.
Name and Address of Beneficial OwnerNumber of Shares Beneficially OwnedPercent of Class
BlackRock, Inc.
55 East 52nd Street
New York, NY 10022
6,319,963 (1)9.7 %
Dimensional Fund Advisors LP
Building One
6300 Bee Cave Road
Austin, Texas 78746
3,675,234 (2)5.7 %
The Vanguard Group
100 Vanguard Blvd
Malvern, PA 19355
3,707,287 (3)5.7 %
(1)    Pursuant to a filing made by BlackRock, Inc. with the Securities and Exchange Commission on January 24, 2023, BlackRock, Inc. had sole power to vote or direct the vote with respect to 6,031,799 shares and sole dispositive power with respect to 6,319,963 shares at December 31, 2021.2022.
Plan Category(a)
Number Of
Securities To Be
Issued Upon
Exercise  Of
Outstanding
Options, Warrants
and Rights		(b)
Weighted-Average
Exercise Price Of
Outstanding Options,
Warrants and Rights		(c)
Number Of Securities
Remaining Available
For Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column  (a))
Equity Compensation Plans Approved by Shareholders607,377 $— 1,247,587 
Equity Compensation Plans Not Approved by Shareholders— — — 
TOTAL607,377 $— 1,247,587 
(2)    Pursuant to a filing made by Dimensional Fund Advisors LP (“Dimensional Fund Advisors”) with the Securities and Exchange Commission on February 14, 2023, Dimensional Fund Advisors has sole power to vote or direct the vote with respect to 3,604,127 shares and sole dispositive power with respect to 3,675,234 shares at December 31, 2022. The filing further states that the securities reported in the filing are owned by various investment companies, trusts and accounts (collectively, the “Funds”), and that Dimensional Fund Advisors disclaims beneficial ownership of such securities.
(3)    Pursuant to a filing made by The Vanguard Group on February 9, 2023. The Vanguard Group has shared power to vote or direct the vote with respect to 46,770 shares and sole dispositive power with respect to 3,606,886 shares and shared dispositive power with respect to 100,401 shares at December 31, 2022.
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ITEM 13 -



Item 13. Certain Relationships and Related Transactions
Director Independence
Pursuant to our Nominating and Director Independence.Corporate Governance Guidelines (the "Corporate Governance Guidelines"), the Board of Directors conducts an annual review of director independence. As a result of the review performed in March 2023, the Board has determined, based upon the recommendation of the Nominating and Corporate Committee, that 11 of the 12 members of the Board of Directors, and each member of the Audit, Compensation and Nominating and Corporate Governance Committees, were independent, as affirmatively determined by the Board of Directors consistent with the Nasdaq corporate governance listing rules.
The Company respondsIn connection with this review, the Board of Directors considers all relevant facts and circumstances relating to this Item by incorporating by referencerelationships that each director, his or her immediate family members and their respective related interests has with Lakeland Bancorp and its subsidiaries.
Following the material responsive to this Itemreview, the Board of Directors determined that Bruce D. Bohuny, Mary Ann Deacon, Brian Flynn, Mark J. Fredericks, Brian A. Gragnolati, James E. Hanson II, Janeth C. Hendershot, Lawrence R. Inserra, Jr., Robert F. Mangano, Robert E. McCracken and Robert B. Nicholson, III are independent as defined in the Company’s definitive proxy statement for its 2022 Annual MeetingNasdaq corporate governance listing rules. The Board of Shareholders.Directors has determined that Thomas J. Shara, as an executive and employee of the Company, is not independent.
ITEM 14 -Transactions with Certain Related Persons
Federal laws and regulations generally require that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features. Regulations also permit executive officers and directors to receive the same terms through programs that are widely available to other employees, as long as the executive officer or director is not given preferential treatment compared to the other participating employees. Pursuant to such a program, loans have been extended in the ordinary course of business to executive officers on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public, with the exception of waiving certain fees. These loans do not involve more than the normal risk of collectability or present other unfavorable features.
Section 402 of the Sarbanes-Oxley Act of 2022 generally prohibits an issuer from: (1) extending or maintaining credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form of a personal loan for an officer or director. However, the prohibitions of Section 402 do not apply to loans made by a depository institution, such as Lakeland Bank, that is insured by the FDIC and is subject to the insider lending restrictions of the Federal Reserve Act. The Audit Committee and the Board review related party transactions, the disclosure of which is required under SEC rules.
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Item 14. Principal Accounting Fees and Services.Services
Our
Relationship with Independent Accountants
The Company's independent registered public accounting firm isfor the year ended December 31, 2022 was KPMG LLP,Short Hills, NJ, Auditor Firm ID:185. KPMG has been engaged as the Company's independent accountants for 2023.
Audit Fees and Related Matters
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the Company’s independent registered public accounting firm, KPMG LLP Short Hills, NJ, Auditor Firm ID(“KPMG”), is 185.approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered.
The Company required by this Item 14 is incorporated by reference from the "Audit Matters" sectionfollowing table sets forth a summary of the fees billed or expected to be billed to the Company by KPMG for professional services rendered for the years ended December 31, 2022 Proxy Statement.and December 31, 2021.
Fees for
Fee Category20222021
Audit Fees$1,125,000 $780,000 
Audit-Related Fees60,000 275,000 
Tax Fees144,555 131,420 
All Other Fees69,287 — 
Audit Fees. Audit fees consist of the aggregate fees billed or expected to be billed to the Company for the audit of the financial statements included in the Company’s Annual Reports on Form 10-K for the years ended December 31, 2022 and December 31, 2021 and review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q during 2022 and 2021.
Audit-Related Fees. Audit-related fees consist of the aggregate fees billed for assurance and related services which are reasonably related to the performance of the audit or review of the Company’s financial statements but are not reported under the immediately preceding paragraph. Audit-related fees for 2021 includes work done in conjunction with Lakeland's subdebt offering.
Tax Fees. Tax fees consist of the aggregate fees billed or expected to be billed for tax services, principally representing advice regarding the preparation of income tax returns.
All Other Fees. All other fees consist of the aggregate fees billed for all services not covered in the immediately three preceding paragraphs. These fees included an analysis of the allowance for credit losses on investment securities.
Other Matters. The Company’s Audit Committee has determined that the provision of all services provided by the Company’s principal independent accountants during the years ended December 31, 2022 and December 31, 2021 is compatible with maintaining the independence of the Company’s principal independent accountants.
The Audit Committee maintains a formal policy concerning the pre-approval of audit and non-audit services to be provided by its independent registered public accountants to the Company. The policy requires that all services to be performed by KPMG, including audit services, audit-related services and permitted non-audit services, be pre-approved by the Audit Committee. The Audit Committee has also delegated to the Chair of the Audit Committee the authority to pre-approve audit and audit-related services between meetings of the Audit Committee, provided the Chair reports any such approvals to the full Audit Committee at its next meeting. Specific services being provided by the independent accountants are regularly reviewed in accordance with the
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pre-approval policy. At each subsequent Audit Committee meeting, the Audit Committee receives updates on the services actually provided by the independent registered public accountants and management may also present additional services for pre-approval. All of the services provided by KPMG for the years ending December 31, 2022 and 2021 described above were pre-approved by the Audit Committee.
Applicable law and regulations provide an exemption that permits certain services to be provided by the Company’s outside auditors even if they are not pre-approved. The Company has not relied on this exemption at any time since the Sarbanes-Oxley Act was enacted.
PART IV
ITEM 15 - Exhibits and Financial Statement Schedules.

(a) 1.    The following portions of the Company’s consolidated financial statements are set forth in Item 8 of this Annual Report:

    (i)    Consolidated Balance Sheets as of December 31, 2021 and 2020.
(ii)    Consolidated Statements of Income for each of the three years in the period ended December 31, 2021.
(iii)    Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2021.
(iv)    Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2021.
(v)    Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2021.
    (vi)    Notes to Consolidated Financial Statements.
    (vii)    Report of Independent Registered Public Accounting Firm.
(a) 2.    Financial Statement Schedules

All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated financial statements or notes thereto.

(a) 3.    Exhibits
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1+
10.2+
10.3+
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10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
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10.21+
10.22+
10.23
10.24+
21.1
23.1
24.1
31.1
31.2
32.1
101.INSInline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)
+ Denotes management contract or compensatory plan, contract or arrangement.
ITEM 16 – Form 10-K Summary.
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  LAKELAND BANCORP, INC.
Dated:FebruaryApril 28, 20222023  By: /s/ Thomas J. Shara
   Thomas J. Shara
   President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureCapacityDate
/s/ Bruce D. Bohuny*DirectorFebruary 28, 2022
Bruce D. Bohuny
/s/ Mary Ann Deacon*ChairmanFebruary 28, 2022
Mary Ann Deacon
/s/ Brian M. Flynn*DirectorFebruary 28, 2022
Brian M. Flynn
/s/ Mark J. Fredericks*DirectorFebruary 28, 2022
Mark J. Fredericks
/s/ Brian Gragnolati*DirectorFebruary 28, 2022
Brian Gragnolati
/s/ James E. Hanson II*DirectorFebruary 28, 2022
James E. Hanson II
/s/ Janeth C. Hendershot*DirectorFebruary 28, 2022
Janeth C. Hendershot
/s/ Lawrence R. Inserra, Jr.*DirectorFebruary 28, 2022
Lawrence R. Inserra, Jr.
/s/ Robert F. Mangano*DirectorFebruary 28, 2022
Robert F. Mangano
/s/ Robert E. McCracken*DirectorFebruary 28, 2022
Robert E. McCracken
/s/ Robert B. Nicholson, III*DirectorFebruary 28, 2022
Robert B. Nicholson, III

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SignatureCapacityDate
/s/ Thomas J. SharaDirector, President and Chief Executive Officer (Principal Executive Officer)February 28, 2022
Thomas J. Shara
/s/ Thomas SplaineExecutive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)February 28, 2022
Thomas Splaine
*By:/s/ Thomas J. SharaFebruary 28, 2022
Thomas J. Shara
Attorney-in-Fact

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