UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended		~~June~~September 30, 2021
	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 Jersey			22-2953275
(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 class	Trading Symbol	Name of exchange on which registered
Common Stock, no par value	LBAI	The NASDAQ Stock Market

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 (Section 232.405 of this chapter) during the preceding 12 months (or 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of ~~July 30,~~October 29, 2021, there were ~~50,601,349~~50,606,365 outstanding shares of Common Stock, no par value.

Table of Contents

LAKELAND BANCORP, INC.

Form 10-Q Index


		PAGE
	Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of ~~June~~September 30, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	8
	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3537

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5052

Item 4.	Controls and Procedures	5153

	Part II. Other Information

Item 1.	Legal Proceedings	5254

Item 1A.	Risk Factors	5254

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5254

Item 3.	Defaults Upon Senior Securities	5254

Item 4.	Mine Safety Disclosures	5254

Item 5.	Other Information	5254

Item 6.	Exhibits	5255

Signatures		5356

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
(dollars in thousands)	(dollars in thousands)	(unaudited)				(dollars in thousands)	(unaudited)

Assets	Assets					Assets
Cash	Cash	$	358,052	$	262,327	Cash	$	641,861	$	262,327
Interest-bearing deposits due from banks	Interest-bearing deposits due from banks	17,348		7,763		Interest-bearing deposits due from banks	20,774		7,763
Total cash and cash equivalents	Total cash and cash equivalents	375,400		270,090		Total cash and cash equivalents	662,635		270,090
Investment securities available for sale, at fair value (allowance for credit losses of $21 at June 30, 2021 and $2 at December 31, 2020)		988,673		855,746
Investment securities held to maturity (fair value of $96,174 at June 30, 2021 and $93,868 at December 31, 2020 and $137 allowance for credit losses at June 30, 2021 and NaN at December 31, 2020)		94,278		90,766
Investment securities available for sale, at fair value (allowance for credit losses of $50 at September 30, 2021 and $2 at December 31, 2020)						Investment securities available for sale, at fair value (allowance for credit losses of $50 at September 30, 2021 and $2 at December 31, 2020)	529,381		855,746
Investment securities held to maturity (fair value of $686,728 at September 30, 2021 and $93,868 at December 31, 2020 and allowance for credit losses of $183 at September 30, 2021 and none at December 31, 2020)						Investment securities held to maturity (fair value of $686,728 at September 30, 2021 and $93,868 at December 31, 2020 and allowance for credit losses of $183 at September 30, 2021 and none at December 31, 2020)	693,562		90,766
Equity securities, at fair value	Equity securities, at fair value	15,440		14,694		Equity securities, at fair value	16,422		14,694
Federal Home Loan Bank and other membership bank stock, at cost	Federal Home Loan Bank and other membership bank stock, at cost	9,210		11,979		Federal Home Loan Bank and other membership bank stock, at cost	9,340		11,979
Loans held for sale	Loans held for sale	816		1,335		Loans held for sale	851		1,335
Loans, net of deferred fees	Loans, net of deferred fees	5,988,832		6,021,232		Loans, net of deferred fees	5,880,802		6,021,232
Less: Allowance for credit losses	Less: Allowance for credit losses	60,389		71,124		Less: Allowance for credit losses	57,953		71,124
Net loans	Net loans	5,928,443		5,950,108		Net loans	5,822,849		5,950,108
Premises and equipment, net	Premises and equipment, net	47,641		48,495		Premises and equipment, net	46,163		48,495
Operating lease right-of-use assets	Operating lease right-of-use assets	15,513		16,772		Operating lease right-of-use assets	14,809		16,772
Accrued interest receivable	Accrued interest receivable	18,309		19,339		Accrued interest receivable	18,182		19,339
Goodwill	Goodwill	156,277		156,277		Goodwill	156,277		156,277
Other identifiable intangible assets	Other identifiable intangible assets	2,841		3,288		Other identifiable intangible assets	2,631		3,288
Bank owned life insurance	Bank owned life insurance	116,398		115,115		Bank owned life insurance	117,073		115,115
Other assets	Other assets	84,999		110,293		Other assets	82,304		110,293
Total Assets	Total Assets	$	7,854,238	$	7,664,297	Total Assets	$	8,172,479	$	7,664,297
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Liabilities	Liabilities					Liabilities

Deposits	Deposits	6,715,035		6,455,783		Deposits	6,930,912		6,455,783
Federal funds purchased and securities sold under agreements to repurchase	Federal funds purchased and securities sold under agreements to repurchase	100,190		169,560		Federal funds purchased and securities sold under agreements to repurchase	111,907		169,560
Other borrowings	Other borrowings	25,000		25,000		Other borrowings	25,000		25,000
Subordinated debentures	Subordinated debentures	113,045		118,257		Subordinated debentures	187,107		118,257
Operating lease liabilities	Operating lease liabilities	16,847		18,183		Operating lease liabilities	16,105		18,183
Other liabilities	Other liabilities	87,445		113,730		Other liabilities	87,320		113,730
Total Liabilities	Total Liabilities	7,057,562		6,900,513		Total Liabilities	7,358,351		6,900,513
Stockholders' Equity	Stockholders' Equity					Stockholders' Equity
Common stock, 0 par value; authorized 100,000,000 shares; issued 50,732,384 shares and outstanding 50,601,349 shares at June 30, 2021 and issued 50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020		563,980		562,421
Common stock, no par value; authorized 100,000,000 shares; issued 50,733,113 shares and outstanding 50,602,078 shares at September 30, 2021 and issued 50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020						Common stock, no par value; authorized 100,000,000 shares; issued 50,733,113 shares and outstanding 50,602,078 shares at September 30, 2021 and issued 50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020	564,974		562,421
Retained earnings	Retained earnings	228,803		191,418		Retained earnings	244,092		191,418
Treasury shares, at cost, 131,035 shares at June 30, 2021 and December 31, 2020		(1,452)		(1,452)
Treasury shares, at cost, 131,035 shares at September 30, 2021 and December 31, 2020						Treasury shares, at cost, 131,035 shares at September 30, 2021 and December 31, 2020	(1,452)		(1,452)
Accumulated other comprehensive income	Accumulated other comprehensive income	5,345		11,397		Accumulated other comprehensive income	6,514		11,397
Total Stockholders' Equity	Total Stockholders' Equity	796,676		763,784		Total Stockholders' Equity	814,128		763,784
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	7,854,238	$	7,664,297	Total Liabilities and Stockholders' Equity	$	8,172,479	$	7,664,297

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2021		2020		2021		2020
Interest Income	Interest Income									Interest Income
Loans and fees	Loans and fees	$	60,529	$	55,825	$	119,307	$	113,682	Loans and fees	$	59,957	$	56,801	$	179,264	$	170,483
Federal funds sold and interest-bearing deposits with banks	Federal funds sold and interest-bearing deposits with banks	52		36		89		195		Federal funds sold and interest-bearing deposits with banks	161		92		250		287
Taxable investment securities and other	Taxable investment securities and other	4,029		4,763		8,010		9,992		Taxable investment securities and other	4,232		4,139		12,242		14,131
Tax-exempt investment securities	Tax-exempt investment securities	631		349		1,243		681		Tax-exempt investment securities	588		401		1,831		1,082
Total Interest Income	Total Interest Income	65,241		60,973		128,649		124,550		Total Interest Income	64,938		61,433		193,587		185,983
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	4,238		8,094		9,362		18,957		Deposits	3,987		7,012		13,349		25,969
Federal funds purchased and securities sold under agreements to repurchase	Federal funds purchased and securities sold under agreements to repurchase	16		75		39		504		Federal funds purchased and securities sold under agreements to repurchase	19		27		58		531
Other borrowings	Other borrowings	1,247		2,285		2,780		4,671		Other borrowings	1,594		2,260		4,374		6,931
Total Interest Expense	Total Interest Expense	5,501		10,454		12,181		24,132		Total Interest Expense	5,600		9,299		17,781		33,431
Net Interest Income	Net Interest Income	59,740		50,519		116,468		100,418		Net Interest Income	59,338		52,134		175,806		152,552
(Benefit) provision for credit losses (1)	(Benefit) provision for credit losses (1)	(5,959)		9,000		(8,601)		18,223		(Benefit) provision for credit losses (1)	(2,703)		8,000		(11,304)		26,223
Net Interest Income after (Benefit) Provision for Credit Losses	Net Interest Income after (Benefit) Provision for Credit Losses	65,699		41,519		125,069		82,195		Net Interest Income after (Benefit) Provision for Credit Losses	62,041		44,134		187,110		126,329
Noninterest Income	Noninterest Income									Noninterest Income
Service charges on deposit accounts	Service charges on deposit accounts	2,445		1,875		4,741		4,375		Service charges on deposit accounts	2,536		2,288		7,277		6,663
Commissions and fees	Commissions and fees	1,755		1,196		3,353		2,836		Commissions and fees	1,609		1,667		4,962		4,503
Income on bank owned life insurance	Income on bank owned life insurance	643		665		1,277		1,330		Income on bank owned life insurance	645		670		1,922		2,000
Gain (loss) on equity securities		11		198		(133)		(455)
Loss on equity securities										Loss on equity securities	(58)		(170)		(191)		(625)
Gains on sales of loans	Gains on sales of loans	607		710		1,315		1,125		Gains on sales of loans	550		1,437		1,865		2,562
Gains on investment securities transactions, net	Gains on investment securities transactions, net	9		0		9		342		Gains on investment securities transactions, net	—		—		9		342
Swap income	Swap income	72		767		634		3,610		Swap income	—		624		634		4,234
Other income (loss)		(273)		70		(168)		329
Other income										Other income	187		257		19		586
Total Noninterest Income	Total Noninterest Income	5,269		5,481		11,028		13,492		Total Noninterest Income	5,469		6,773		16,497		20,265
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and employee benefits	Compensation and employee benefits	20,407		18,490		40,925		38,217		Compensation and employee benefits	21,478		19,065		62,403		57,282
Premises and equipment	Premises and equipment	6,078		5,271		12,396		10,667		Premises and equipment	6,206		5,582		18,602		16,249
FDIC insurance	FDIC insurance	621		450		1,332		748		FDIC insurance	461		625		1,793		1,373
Data processing	Data processing	1,299		1,436		2,554		2,689		Data processing	1,495		1,211		4,049		3,900

Merger related expenses										Merger related expenses	1,072		—		1,072		—
Other operating expenses	Other operating expenses	5,692		5,815		10,793		11,645		Other operating expenses	6,495		5,614		17,288		17,259
Total Noninterest Expense	Total Noninterest Expense	34,097		31,462		68,000		63,966		Total Noninterest Expense	37,207		32,097		105,207		96,063
Income before provision for income taxes	Income before provision for income taxes	36,871		15,538		68,097		31,721		Income before provision for income taxes	30,303		18,810		98,400		50,531
Provision for income taxes	Provision for income taxes	9,464		3,687		17,515		7,478		Provision for income taxes	8,014		4,383		25,529		11,861
Net Income	Net Income	$	27,407	$	11,851	$	50,582	$	24,243	Net Income	$	22,289	$	14,427	$	72,871	$	38,670
Per Share of Common Stock	Per Share of Common Stock									Per Share of Common Stock
Basic earnings	Basic earnings	$	0.53	$	0.23	$	0.99	$	0.48	Basic earnings	$	0.43	$	0.28	$	1.42	$	0.76
Diluted earnings	Diluted earnings	$	0.53	$	0.23	$	0.98	$	0.47	Diluted earnings	$	0.43	$	0.28	$	1.42	$	0.76
Dividends	Dividends	$	0.135	$	0.125	$	0.260	$	0.250	Dividends	$	0.135	$	0.125	$	0.395	$	0.375

(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 consolidated financial statements.

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020		2021		2020

Net Income	Net Income	$	27,407	$	11,851	$	50,582	$	24,243	Net Income	$	22,289	$	14,427	$	72,871	$	38,670
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale		7,113		2,512		(6,022)		9,796
Unrealized (losses) gains on securities available for sale										Unrealized (losses) gains on securities available for sale	(1,504)		(576)		(7,526)		9,220
Reclassification for securities gains included in net income	Reclassification for securities gains included in net income	0		0		0		(254)		Reclassification for securities gains included in net income	—		—		—		(254)
Unrealized losses on derivatives		(77)		(36)		(30)		(373)
Net gain on securities reclassified from available for sale to held to maturity										Net gain on securities reclassified from available for sale to held to maturity	2,784		—		2,784		—
Amortization of gain on debt securities reclassified to held to maturity										Amortization of gain on debt securities reclassified to held to maturity	(116)		—		(116)		—
Unrealized gains (losses) on derivatives										Unrealized gains (losses) on derivatives	5		37		(25)		(336)

Other comprehensive income (loss)	Other comprehensive income (loss)	7,036		2,476		(6,052)		9,169		Other comprehensive income (loss)	1,169		(539)		(4,883)		8,630
Total Comprehensive Income	Total Comprehensive Income	$	34,443	$	14,327	$	44,530	$	33,412	Total Comprehensive Income	$	23,458	$	13,888	$	67,988	$	47,300

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended ~~June~~September 30, 2021 and 2020


(in thousands, except per share data)	(in thousands, except per share data)	Common Stock		Retained Earnings (1)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total		(in thousands, except per share data)	Common Stock		Retained Earnings (1)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

April 1, 2020		$	560,653	$	168,780	$	(1,452)	$	8,941	$	736,922
July 1, 2020												July 1, 2020	$	561,257	$	174,267	$	(1,452)	$	11,417	$	745,489

Net income												Net income	—		14,427		—		—		14,427
Other comprehensive loss, net of tax												Other comprehensive loss, net of tax	—		—		—		(539)		(539)

Stock based compensation												Stock based compensation	585		—		—		—		585

Retirement of restricted stock												Retirement of restricted stock	(25)		—		—		—		(25)

Cash dividends on common stock of $0.125 per share												Cash dividends on common stock of $0.125 per share	—		(6,365)		—		—		(6,365)
September 30, 2020												September 30, 2020	$	561,817	$	182,329	$	(1,452)	$	10,878	$	753,572

July 1, 2021												July 1, 2021	$	563,980	$	228,803	$	(1,452)	$	5,345	$	796,676

Net income	Net income	—		11,851		—		—		11,851		Net income	—		22,289		—		—		22,289
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		2,476		2,476		Other comprehensive income, net of tax	—		—		—		1,169		1,169

Stock based compensation	Stock based compensation	614		—		—		—		614		Stock based compensation	958		—		—		—		958

Retirement of restricted stock	Retirement of restricted stock	(10)		—		—		—		(10)		Retirement of restricted stock	36		—		—		—		36

Cash dividends on common stock of $0.125 per share		—		(6,364)		—		—		(6,364)
June 30, 2020		$	561,257	$	174,267	$	(1,452)	$	11,417	$	745,489

April 1, 2021		$	562,984	$	208,224	$	(1,452)	$	(1,691)	$	768,065

Net income		—		27,407		—		—		27,407
Other comprehensive income, net of tax		—		—		—		7,036		7,036

Stock based compensation		990		—		—		—		990

Exercise of stock options		6		—		—		—		6
Cash dividends on common stock of $0.135 per share	Cash dividends on common stock of $0.135 per share	—		(6,828)		—		—		(6,828)		Cash dividends on common stock of $0.135 per share	—		(7,000)		—		—		(7,000)
June 30, 2021		$	563,980	$	228,803	$	(1,452)	$	5,345	$	796,676
September 30, 2021												September 30, 2021	$	564,974	$	244,092	$	(1,452)	$	6,514	$	814,128

(1) The Company adopted ASU 2016-13 at December 31, 2020, effective January 1, 2020, adjusting Retained Earnings by a negative $3,395. Prior year periods have not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020


(in thousands, except per share data)	(in thousands, except per share data)	Common Stock		Retained Earnings (1)		Treasury Stock		Accumulated Other Comprehensive Income		Total		(in thousands, except per share data)	Common Stock		Retained Earnings (1)		Treasury Stock		Accumulated Other Comprehensive Income		Total

January 1, 2020	January 1, 2020	$	560,263	$	162,752	$	0	$	2,248	$	725,263	January 1, 2020	$	560,263	$	162,752	$	—	$	2,248	$	725,263

Net income	Net income	—		24,243		—		—		24,243		Net income	—		38,670		—		—		38,670
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		9,169		9,169		Other comprehensive income, net of tax	—		—		—		8,630		8,630
Purchase of treasury stock, 131,035 shares	Purchase of treasury stock, 131,035 shares	—		—		(1,452)		—		(1,452)		Purchase of treasury stock, 131,035 shares	—		—		(1,452)		—		(1,452)
Stock based compensation	Stock based compensation	1,461		—		—		—		1,461		Stock based compensation	2,046		—		—		—		2,046

Retirement of restricted stock	Retirement of restricted stock	(467)		—		—		—		(467)		Retirement of restricted stock	(492)		—		—		—		(492)

Cash dividends on common stock of $0.250 per share		—		(12,728)		—		—		(12,728)
June 30, 2020		561,257		174,267		(1,452)		11,417		745,489
Cash dividends on common stock of $0.375 per share												Cash dividends on common stock of $0.375 per share	—		(19,093)		—		—		(19,093)
September 30, 2020												September 30, 2020	561,817		182,329		(1,452)		10,878		753,572

January 1, 2021	January 1, 2021	$	562,421	$	191,418	$	(1,452)	$	11,397	$	763,784	January 1, 2021	$	562,421	$	191,418	$	(1,452)	$	11,397	$	763,784

Net income	Net income	—		50,582		—		—		50,582		Net income	—		72,871		—		—		72,871
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—		(6,052)		(6,052)		Other comprehensive loss, net of tax	—		—		—		(4,883)		(4,883)

Stock based compensation	Stock based compensation	2,196		—		—		—		2,196		Stock based compensation	3,154		—		—		—		3,154
Retirement of restricted stock	Retirement of restricted stock	(656)		—		—		—		(656)		Retirement of restricted stock	(620)		—		—		—		(620)
Exercise of stock options	Exercise of stock options	19		—		—		—		19		Exercise of stock options	19		—		—		—		19
Cash dividends on common stock of $0.260 per share		—		(13,197)		—		—		(13,197)
June 30, 2021		$	563,980	$	228,803	$	(1,452)	$	5,345	$	796,676
Cash dividends on common stock of $0.395 per share												Cash dividends on common stock of $0.395 per share	—		(20,197)		—		—		(20,197)
September 30, 2021												September 30, 2021	$	564,974	$	244,092	$	(1,452)	$	6,514	$	814,128

(1) The Company adopted ASU 2016-13 at December 31, 2020, effective January 1, 2020, adjusting Retained Earnings by a negative $3,395. Retained earnings for the ~~six~~nine months ended ~~June~~September 30, 2020 have not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	50,582	$	24,243	Net income	$	72,871	$	38,670
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	Net amortization of premiums, discounts and deferred loan fees and costs	(3,101)		11,887		Net amortization of premiums, discounts and deferred loan fees and costs	(4,157)		209
Depreciation and amortization	Depreciation and amortization	1,811		1,661		Depreciation and amortization	3,973		2,588
Amortization of intangible assets	Amortization of intangible assets	447		526		Amortization of intangible assets	658		776
Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	1,368		1,328		Amortization of operating lease right-of-use assets	2,072		1,995
(Benefit) provision for credit losses	(Benefit) provision for credit losses	(8,601)		18,223		(Benefit) provision for credit losses	(11,304)		26,223
Loans originated for sale	Loans originated for sale	(32,063)		(36,273)		Loans originated for sale	(44,372)		(78,204)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	33,897		36,348		Proceeds from sales of loans held for sale	46,721		78,312
Gains on investment securities transactions, net	Gains on investment securities transactions, net	(9)		(342)		Gains on investment securities transactions, net	(9)		(342)
Change in fair value of equity securities	Change in fair value of equity securities	133		455		Change in fair value of equity securities	191		625
Income on bank owned life insurance						Income on bank owned life insurance	(1,922)		(2,000)

Gains on sales of loans held for sale	Gains on sales of loans held for sale	(1,315)		(1,125)		Gains on sales of loans held for sale	(1,865)		(2,562)
Gains on other real estate and other repossessed assets	Gains on other real estate and other repossessed assets	(8)		(60)		Gains on other real estate and other repossessed assets	(17)		(76)
Losses on sales of premises and equipment		(4)		52
(Gains) losses on sales of premises and equipment						(Gains) losses on sales of premises and equipment	(41)		54
Impairment of property held for sale	Impairment of property held for sale	400		0		Impairment of property held for sale	400		—
Long-term debt prepayment penalty		0		356
Long-term debt prepayment fees						Long-term debt prepayment fees	—		356
Long-term debt extinguishment costs						Long-term debt extinguishment costs	831		—
Stock-based compensation	Stock-based compensation	2,196		1,461		Stock-based compensation	3,154		2,046

Excess tax deficiencies	Excess tax deficiencies	(93)		(113)		Excess tax deficiencies	(93)		(128)
Decrease (increase) in other assets	Decrease (increase) in other assets	27,361		(80,951)		Decrease (increase) in other assets	30,945		(77,414)
(Decrease) increase in other liabilities	(Decrease) increase in other liabilities	(26,867)		80,263		(Decrease) increase in other liabilities	(27,653)		70,544
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	46,134		57,939		Net Cash Provided by Operating Activities	70,383		61,672
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:

Proceeds from repayments and maturities of available for sale securities	Proceeds from repayments and maturities of available for sale securities	114,301		367,843		Proceeds from repayments and maturities of available for sale securities	149,651		633,574
Proceeds from repayments and maturities of held to maturity securities	Proceeds from repayments and maturities of held to maturity securities	22,227		13,847		Proceeds from repayments and maturities of held to maturity securities	38,432		26,816

Proceeds from sales of equity securities						Proceeds from sales of equity securities	—		3,000
Proceeds from sales of available for sale securities	Proceeds from sales of available for sale securities	0		94,696		Proceeds from sales of available for sale securities	—		94,696
Purchase of available for sale securities	Purchase of available for sale securities	(259,654)		(507,234)		Purchase of available for sale securities	(329,351)		(746,035)
Purchase of held to maturity securities	Purchase of held to maturity securities	(26,203)		0		Purchase of held to maturity securities	(148,684)		(1,160)
Purchase of equity securities	Purchase of equity securities	(879)		(1,164)		Purchase of equity securities	(1,919)		(1,228)

Proceeds from redemptions of Federal Home Loan Bank stock	Proceeds from redemptions of Federal Home Loan Bank stock	13,524		83,660		Proceeds from redemptions of Federal Home Loan Bank stock	13,524		97,127
Purchases of Federal Home Loan Bank stock	Purchases of Federal Home Loan Bank stock	(10,755)		(80,143)		Purchases of Federal Home Loan Bank stock	(10,885)		(88,857)
Net decrease (increase) in loans	Net decrease (increase) in loans	23,010		(627,545)		Net decrease (increase) in loans	128,284		(702,010)
Proceeds from sales of loans held for investment		15,031		0
Proceeds from sales of loans previously held for investment						Proceeds from sales of loans previously held for investment	21,765		—
Proceeds from sales of other real estate and repossessed assets	Proceeds from sales of other real estate and repossessed assets	8		662		Proceeds from sales of other real estate and repossessed assets	17		1,032
Proceeds from dispositions and sales of premises and equipment	Proceeds from dispositions and sales of premises and equipment	123		(21)		Proceeds from dispositions and sales of premises and equipment	676		49
Purchases of premises and equipment	Purchases of premises and equipment	(2,630)		(3,528)		Purchases of premises and equipment	(3,422)		(5,155)
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(111,897)		(658,927)		Net Cash Used in Investing Activities	(141,912)		(688,151)
Cash Flows from Financing Activities:
Net increase in deposits		259,277		831,869
Decrease in federal funds purchased and securities sold under agreements to repurchase		(69,370)		(145,542)
Proceeds from other borrowings		0		25,000
Repayments of other borrowings		0		(35,456)
Purchase of treasury stock		0		(1,452)

Repayments of subordinated debt		(5,000)		0
Exercise of stock options		19		0
Retirement of restricted stock		(656)		(467)
Dividends paid		(13,197)		(12,728)
Net Cash Provided by Financing Activities		171,073		661,224
Net increase in cash and cash equivalents		105,310		60,236
Cash and cash equivalents, beginning of period		270,090		282,371
Cash and cash equivalents, end of period		$	375,400	$	342,607

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~~Lakeland Bancorp, Inc. and Subsidiaries~~


Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (Continued)

	For the Nine Months Ended September 30,
(in thousands)	2021		2020
Cash Flows from Financing Activities:
Net increase in deposits	475,161		972,917
Decrease in federal funds purchased and securities sold under agreements to repurchase	(57,653)		(230,784)
Proceeds from other borrowings	—		25,000
Repayments of other borrowings	—		(56,060)
Purchase of treasury stock	—		(1,452)
Net proceeds from issuance of subordinated debt	148,195		—
Redemption of subordinated debt	(80,831)		—
Exercise of stock options	19		—
Retirement of restricted stock	(620)		(492)
Dividends paid	(20,197)		(19,093)
Net Cash Provided by Financing Activities	464,074		690,036
Net increase in cash and cash equivalents	392,545		63,557
Cash and cash equivalents, beginning of period	270,090		282,371
Cash and cash equivalents, end of period	$	662,635	$	345,928

~~Consolidated Statements of Cash Flows (Unaudited) (Continued)~~


		For the Six Months Ended June 30,
(in thousands)		2021		2020

Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	16,274	$	12,786	Cash paid during the period for income taxes	$	22,964	$	17,386
Cash paid during the period for interest	Cash paid during the period for interest	13,141		24,601		Cash paid during the period for interest	19,559		35,472
Transfer of available for sale debt securities to held to maturity securities at fair value						Transfer of available for sale debt securities to held to maturity securities at fair value	494,164		—
Transfer of loans to loans held for sale	Transfer of loans to loans held for sale	15,111		0		Transfer of loans to loans held for sale	21,689		—
Transfer of loans to other real estate owned	Transfer of loans to other real estate owned	0		393		Transfer of loans to other real estate owned	—		393

Right-of-use assets obtained in exchange for new lease liabilities	Right-of-use assets obtained in exchange for new lease liabilities	109		548		Right-of-use assets obtained in exchange for new lease liabilities	109		741

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 – Significant Accounting Policies

Basis of Presentation

This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank (“Lakeland”) and Lakeland’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 do not necessarily indicate the results that the Company will achieve for all of 2021.

Certain information and footnote disclosures required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

Note 2 – Earnings Per Share

The following schedule shows the Company’s earnings per share calculations for the periods presented:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2021		2020		2021		2020
Net income available to common shareholders	Net income available to common shareholders	$	27,407	$	11,851	$	50,582	$	24,243	Net income available to common shareholders	$	22,289	$	14,427	$	72,871	$	38,670
Less: earnings allocated to participating securities	Less: earnings allocated to participating securities	317		108		531		211		Less: earnings allocated to participating securities	303		131		839		342
Net income allocated to common shareholders	Net income allocated to common shareholders	$	27,090	$	11,743	$	50,051	$	24,032	Net income allocated to common shareholders	$	21,986	$	14,296	$	72,032	$	38,328
Weighted average number of common shares outstanding - basic	Weighted average number of common shares outstanding - basic	50,636		50,522		50,606		50,554		Weighted average number of common shares outstanding - basic	50,637		50,526		50,616		50,544
Share-based plans	Share-based plans	222		71		215		107		Share-based plans	238		94		220		101
Weighted average number of common shares outstanding - diluted	Weighted average number of common shares outstanding - diluted	50,858		50,593		50,821		50,661		Weighted average number of common shares outstanding - diluted	50,875		50,620		50,836		50,645
Basic earnings per share	Basic earnings per share	$	0.53	$	0.23	$	0.99	$	0.48	Basic earnings per share	$	0.43	$	0.28	$	1.42	$	0.76
Diluted earnings per share	Diluted earnings per share	$	0.53	$	0.23	$	0.98	$	0.47	Diluted earnings per share	$	0.43	$	0.28	$	1.42	$	0.76

There were 0no antidilutive options to purchase common stock excluded from the computation for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

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Note 3 – Investment Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's available for sale securities are as follows:


		June 30, 2021											September 30, 2021
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	105,385	$	1,655	$	(596)	$	0	$	106,444	U.S. Treasury and U.S. government agencies	$	102,149	$	1,377	$	(555)	$	—	$	102,971
Mortgage-backed securities, residential	Mortgage-backed securities, residential	315,852		2,380		(3,364)		0		314,868		Mortgage-backed securities, residential	94,049		1,675		(476)		—		95,248
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	184,683		3,555		(312)		0		187,926		Collateralized mortgage obligations, residential	199,020		2,731		(851)		—		200,900
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	1,938		0		(38)		0		1,900		Mortgage-backed securities, multifamily	1,935		—		(68)		—		1,867
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	28,910		999		(30)		0		29,879		Collateralized mortgage obligations, multifamily	34,409		798		(204)		—		35,003
Asset-backed securities	Asset-backed securities	47,189		102		(55)		0		47,236		Asset-backed securities	53,809		231		(33)		—		54,007
Obligations of states and political subdivisions		263,114		3,813		(1,673)		(3)		265,251
Debt securities		34,055		1,141		(9)		(18)		35,169

Corporate bonds												Corporate bonds	38,500		946		(11)		(50)		39,385
Total	Total	$	981,126	$	13,645	$	(6,077)	$	(21)	$	988,673	Total	$	523,871	$	7,758	$	(2,198)	$	(50)	$	529,381


		December 31, 2020											December 31, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	63,868	$	1,447	$	(313)	$	0	$	65,002	U.S. Treasury and U.S. government agencies	$	63,868	$	1,447	$	(313)	$	—	$	65,002
Mortgage-backed securities, residential	Mortgage-backed securities, residential	224,978		3,718		(540)		0		228,156		Mortgage-backed securities, residential	224,978		3,718		(540)		—		228,156
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	204,093		4,967		(22)		0		209,038		Collateralized mortgage obligations, residential	204,093		4,967		(22)		—		209,038
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	1,944		0		0		0		1,944		Mortgage-backed securities, multifamily	1,944		—		—		—		1,944
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	39,628		1,909		(2)		0		41,535		Collateralized mortgage obligations, multifamily	39,628		1,909		(2)		—		41,535
Asset-backed securities	Asset-backed securities	40,915		0		(225)		0		40,690		Asset-backed securities	40,915		—		(225)		—		40,690
Obligations of states and political subdivisions	Obligations of states and political subdivisions	228,790		5,149		(228)		(1)		233,710		Obligations of states and political subdivisions	228,790		5,149		(228)		(1)		233,710
Debt securities		35,056		616		0		(1)		35,671
Corporate bonds												Corporate bonds	35,056		616		—		(1)		35,671
Total	Total	$	839,272	$	17,806	$	(1,330)	$	(2)	$	855,746	Total	$	839,272	$	17,806	$	(1,330)	$	(2)	$	855,746

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's held to maturity investment securities are as follows:


		June 30, 2021											September 30, 2021
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	U.S. government agencies	$	19,236	$	535	$	0	$	0	$	19,771	U.S. government agencies	$	18,820	$	459	$	—	$	—	$	19,279
Mortgage-backed securities, residential	Mortgage-backed securities, residential	42,401		921		(254)		0		43,068		Mortgage-backed securities, residential	343,866		1,005		(2,870)		—		342,001
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	9,677		358		0		0		10,035		Collateralized mortgage obligations, residential	8,488		287		—		—		8,775
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,737		82		0		0		2,819		Mortgage-backed securities, multifamily	2,724		47		—		—		2,771

Obligations of states and political subdivisions	Obligations of states and political subdivisions	17,364		270		(48)		0		17,586		Obligations of states and political subdivisions	316,847		198		(5,993)		(15)		311,037
Debt securities		3,000		32		0		(137)		2,895
Corporate bonds												Corporate bonds	3,000		33		—		(168)		2,865
Total	Total	$	94,415	$	2,198	$	(302)	$	(137)	$	96,174	Total	$	693,745	$	2,029	$	(8,863)	$	(183)	$	686,728

Table of Contents


		December 31, 2020											December 31, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	U.S. government agencies	$	25,565	$	779	$	0	$	0	$	26,344	U.S. government agencies	$	25,565	$	779	$	—	$	—	$	26,344
Mortgage-backed securities, residential	Mortgage-backed securities, residential	39,276		1,469		(12)		0		40,733		Mortgage-backed securities, residential	39,276		1,469		(12)		—		40,733
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	14,590		532		0		0		15,122		Collateralized mortgage obligations, residential	14,590		532		—		—		15,122
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	705		54		0		0		759		Mortgage-backed securities, multifamily	705		54		—		—		759

Obligations of states and political subdivisions	Obligations of states and political subdivisions	10,630		280		0		0		10,910		Obligations of states and political subdivisions	10,630		280		—		—		10,910

		$	90,766	$	3,114	$	(12)	$	0	$	93,868		$	90,766	$	3,114	$	(12)	$	—	$	93,868

The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of ~~June~~September 30, 2021. Mortgage-backed and asset-backed securities are not shown by maturity because expected maturities may differ from contractual maturities due to underlying loan prepayments of the issuer. 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 Sale				Held to Maturity					Available for Sale				Held to Maturity
(in thousands)	(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	25,763	$	26,042	$	7,809	$	7,913	Due in one year or less	$	17,514	$	17,638	$	16,734	$	16,817
Due after one year through five years	Due after one year through five years	44,924		46,127		15,940		16,489		Due after one year through five years	17,898		18,370		40,804		41,219
Due after five years through ten years	Due after five years through ten years	78,833		80,737		7,493		7,444		Due after five years through ten years	76,126		77,101		22,756		22,549
Due after ten years	Due after ten years	253,034		253,958		8,358		8,406		Due after ten years	29,111		29,247		258,373		252,596
		402,554		406,864		39,600		40,252			140,649		142,356		338,667		333,181
Mortgage-backed and asset-backed securities	Mortgage-backed and asset-backed securities	578,572		581,809		54,815		55,922		Mortgage-backed and asset-backed securities	383,222		387,025		355,078		353,547
Total securities	Total securities	$	981,126	$	988,673	$	94,415	$	96,174	Total securities	$	523,871	$	529,381	$	693,745	$	686,728

For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and the three months ended ~~June~~September 30, 2020, there were 0no sales of available for sale securities. There were proceeds from sales of available for sale securities of $94.7 million for the ~~six~~nine months ended ~~June~~September 30, 2020 with gross gains on sales of securities of $569,000 and gross losses on sales of securities of $227,000. 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. In the second quarter of 2021, the Company recorded a gain on a called security of $9,000.

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 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 $158,000 during the third quarter of 2021.

Securities with a carrying value of approximately ~~$653.3~~$675.5 million and $578.0 million at ~~June~~September 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

Table of Contents

The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:


September 30, 2021	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	15,366	$	132	$	15,548	$	423	8		$	30,914	$	555
Mortgage-backed securities, residential	39,399		433		5,728		43		18		45,127		476
Collateralized mortgage obligations, residential	66,336		851		—		—		15		66,336		851
Mortgage-backed securities, multifamily	1,867		68		—		—		1		1,867		68
Collateralized mortgage obligations, multifamily	7,004		171		1,402		33		4		8,406		204
Asset-backed securities	14,885		33		—		—		3		14,885		33

Corporate bonds	2,957		—		982		11		1		3,939		11
Total	$	147,814	$	1,688	$	23,660	$	510	$	50	$	171,474	$	2,198
Held to Maturity

Mortgage-backed securities, residential	$	293,496	$	2,869	$	108	1		79		$	293,604	$	2,870



Obligations of states and political subdivisions	294,935		5,993		—		—		235		294,935		5,993

Total	$	588,431	$	8,862	$	108	$	1	314		$	588,539	$	8,863


December 31, 2020	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized 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, residential	84,137		471		5,656		69		30	89,793		540
Collateralized mortgage obligations, residential	23,858		22		—		—		7	23,858		22
Mortgage-backed securities, multifamily	1,943		—		—		—		1	1,943		—
Collateralized mortgage obligations, multifamily	2,527		2		—		—		1	2,527		2
Asset-backed securities	40,690		225		—		—		6	40,690		225
Obligations of states and political subdivisions	15,901		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.

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~~organizations are considered in conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of BBB or above.

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The tables below ~~indicates~~indicate the credit profile of the Company's held to maturity investment securities at amortized cost:


June 30, 2021		AAA		AA		BBB		Not Rated		Total
September 30, 2021												September 30, 2021	AAA		AA		A		BBB		Not Rated		Total
(in thousands)	(in thousands)											(in thousands)
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	19,236	$	0	$	0	$	0	$	19,236	U.S. Treasury and U.S. government agencies	$	18,820	$	—	$	—	$	—	$	—	$	18,820
Mortgage-backed securities, residential	Mortgage-backed securities, residential	42,401		0		0		0		42,401		Mortgage-backed securities, residential	343,866		—		—		—		—		343,866
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	9,677		0		0		0		9,677		Collateralized mortgage obligations, residential	8,488		—		—		—		—		8,488
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,737		0		0		0		2,737		Mortgage-backed securities, multifamily	2,724		—		—		—		—		2,724

Obligations of states and political subdivisions	Obligations of states and political subdivisions	2,843		14,102		0		419		17,364		Obligations of states and political subdivisions	105,609		209,739		1,080		—		419		316,847
Debt securities		0		0		3,000		0		3,000
Corporate bonds												Corporate bonds	—		—		—		3,000		—		3,000
Total	Total	$	76,894	$	14,102	$	3,000	$	419	$	94,415	Total	$	479,507	$	209,739	$	1,080	$	3,000	$	419	$	693,745

~~Table of Contents~~

December 31, 2020 AAA AA Total
(in thousands)
U.S. Treasury and U.S. government agencies $ 25,565 $ 0 $ 25,565
Mortgage-backed securities, residential 39,276 0 39,276
Collateralized mortgage obligations, residential 14,590 0 14,590
Mortgage-backed securities, multifamily 705 0 705
Obligations of states and political subdivisions 2,959 7,671 10,630
Total $ 83,095 $ 7,671 $ 90,766

~~The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:~~

June 30, 2021 Less Than 12 Months 12 Months or Longer Total
(dollars in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Number of
Securities Fair Value Unrealized
Losses
Available for Sale
U.S. Treasury and U.S. government agencies $ 10,460 $ 435 $ 12,083 $ 161 6 $ 22,543 $ 596
Mortgage-backed securities, residential 221,699 3,354 4,068 10 62 225,767 3,364
Collateralized mortgage obligations, residential 21,314 312 0 0 7 21,314 312
Mortgage-backed securities, multifamily 1,900 38 0 0 1 1,900 38
Collateralized mortgage obligations, multifamily 1,543 30 0 0 1 1,543 30
Asset-backed securities 7,577 27 17,674 28 3 25,251 55
Obligations of states and political subdivisions 77,380 1,673 0 0 54 77,380 1,673
Debt securities 2,973 9 0 0 2 2,973 9
Total $ 344,846 $ 5,878 $ 33,825 $ 199 $ 136 $ 378,671 $ 6,077
Held to Maturity
Mortgage-backed securities, residential $ 15,320 $ 253 $ 111 1 11 $ 15,431 $ 254
Obligations of states and political subdivisions 4,741 48 0 0 5 4,741 48
Total $ 20,061 $ 301 $ 111 $ 1 16 $ 20,172 $ 302


December 31, 2020	December 31, 2020	Less Than 12 Months				12 Months or Longer				Total					December 31, 2020	AAA		AA		Total
(dollars in thousands)		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for Sale
(in thousands)															(in thousands)
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	4,966	$	29	$	17,652	$	284	6	$	22,618	$	313	U.S. Treasury and U.S. government agencies	$	25,565	$	—	$	25,565
Mortgage-backed securities, residential	Mortgage-backed securities, residential	84,137		471		5,656		69		30	89,793		540		Mortgage-backed securities, residential	39,276		—		39,276
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	23,858		22		0		0		7	23,858		22		Collateralized mortgage obligations, residential	14,590		—		14,590
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	1,943		0		0		0		1	1,943		0		Mortgage-backed securities, multifamily	705		—		705
Collateralized mortgage obligations, multifamily		2,527		2		0		0		1	2,527		2
Asset-backed securities		40,690		225		0		0		6	40,690		225

Obligations of states and political subdivisions	Obligations of states and political subdivisions	15,901		228		0		0		10	15,901		228		Obligations of states and political subdivisions	2,959		7,671		10,630

Total	Total	$	174,022	$	977	$	23,308	$	353	61	$	197,330	$	1,330	Total	$	83,095	$	7,671	$	90,766
Held to Maturity

Mortgage-backed securities, residential		$	2,561	$	12	$	0	$	0	4	$	2,561	$	12

Total		$	2,561	$	12	$	0	$	0	4	$	2,561	$	12

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 ~~$15.4~~$16.4 million and $14.7 million at ~~June~~September 30, 2021 and December 31, 2020, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, ~~and 2020,~~ the Company recorded 0no sales of equity ~~securities.~~securities and recorded sales of Community Reinvestment funds totaling $3.0 million for the three and nine months ended September 30, 2020. The Company recorded fair value ~~gains~~losses on equity securities of ~~$11,000~~$58,000 and ~~$198,000~~$170,000 for the ~~second~~third quarter of 2021 and 2020, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company recorded fair value losses of ~~$133,000~~$191,000 and ~~$455,000,~~$625,000, respectively. Fair value gain or loss on equity securities are recorded in noninterest income.

~~Table of Contents~~

As of ~~June~~September 30, 2021, the Company's investments in Community Reinvestment funds include $3.5 million that are primarily invested in community development loans that are guaranteed by the Small Business Administration (“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 ~~June~~September 30, 2021, the net amortized cost equaled the fair value of the investment. There are 0no unfunded commitments related to these investments.

The Community Reinvestment funds also include ~~$11.9~~$12.9 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of ~~June~~September 30, 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 0no unfunded commitments related to these investments.

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Note 4 – Loans

When the Company adopted Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13") for measuring credit losses, the loan portfolio segmentation was expanded to 9 portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. All disclosures as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2021, and as of December 31, 2020, are presented in accordance with ASU 2016-13. The Company did not reclassify prior comparative financial periods and has presented those disclosures under previously applicable U.S. GAAP.

The following sets forth the composition of the Company’s loan portfolio:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	September 30, 2021		December 31, 2020
Non owner occupied commercial		$	2,330,376	$	2,398,946
Non-owner occupied commercial						Non-owner occupied commercial	$	2,300,637	$	2,398,946
Owner occupied commercial	Owner occupied commercial	870,535		827,092		Owner occupied commercial	884,144		827,092
Multifamily	Multifamily	902,394		813,225		Multifamily	907,903		813,225
Non owner occupied residential		189,765		200,229
Non-owner occupied residential						Non-owner occupied residential	177,592		200,229
Commercial, industrial and other	Commercial, industrial and other	565,704		718,189		Commercial, industrial and other	473,324		718,189
Construction	Construction	335,167		266,883		Construction	332,868		266,883
Equipment finance	Equipment finance	121,096		116,690		Equipment finance	119,709		116,690
Residential mortgage	Residential mortgage	391,589		377,380		Residential mortgage	407,021		377,380
Home equity and consumer	Home equity and consumer	282,206		302,598		Home equity and consumer	277,604		302,598
Total	Total	$	5,988,832	$	6,021,232	Total	$	5,880,802	$	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 ~~$14.3~~$13.5 million at ~~June~~September 30, 2021 and ~~$16.1~~$16.0 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 ~~$11.0~~$7.7 million at ~~June~~September 30, 2021 and $10.0 million at December 31, 2020.

At ~~June~~September 30, 2021 and December 31, 2020, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled ~~$207.0~~$109.3 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 ~~$272,000~~$188,000 and $650,000, at ~~June~~September 30, 2021 and December 31, 2020, respectively. At ~~June~~September 30, 2021 and December 31, 2020, the Company had ~~$2.26~~$2.29 billion and $2.28 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB").

The Company transferred approximately ~~$15.1~~$21.7 million of commercial and residential mortgage loans from the loan portfolio to loans held for sale during the ~~six~~nine months ended ~~June~~September 30, 2021 and subsequently sold these loans. Excluding the loan transfers, there were no other sales toof loans from the held for investment portfolio during the ~~six~~nine months ended ~~June~~September 30, 2021.

~~Table of Contents~~

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. Any residential or consumer loan currently on deferment in accordance with the Coronavirus Aid, Relief and Economic Security ("CARES") Act or the interagency statement issued by bank regulatory agencies has been classified by management as watch or worse.

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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.

The following table presents the risk category of loans by class of loan and vintage as of ~~June~~September 30, 2021:


		Term Loans by Origination Year																		Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total		(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total
Non owner occupied commercial
Non-owner occupied commercial																			Non-owner occupied commercial
Pass	Pass	$	145,375	$	552,563	$	304,739	$	198,074	$	239,433	$	652,362	$	17,694	0	$	2,110,240	Pass	$	231,072	$	527,479	$	307,663	$	191,755	$	214,269	$	612,630	$	19,746	14	$	2,104,628
Watch	Watch	0		0		25,822		11,898		4,746		49,686		820		0	92,972		Watch	—		—		25,434		11,811		4,673		37,995		—		—	79,913
Special mention	Special mention	0		3,368		3,090		8,310		12,318		30,293		60		0	57,439		Special mention	—		3,353		2,731		8,274		14,757		29,028		30		—	58,173
Substandard	Substandard	0		899		0		2,657		10,668		55,501		0		0	69,725		Substandard	98		894		336		2,657		8,112		45,826		—		—	57,923
Total	Total	145,375		556,830		333,651		220,939		267,165		787,842		18,574		0	2,330,376		Total	231,170		531,726		336,164		214,497		241,811		725,479		19,776		14	2,300,637
Owner occupied commercial	Owner occupied commercial																		Owner occupied commercial
Pass	Pass	106,751		115,766		103,388		64,984		74,217		297,020		7,100		336	769,562		Pass	166,660		130,638		103,320		61,259		50,889		275,250		6,725		52	794,793
Watch	Watch	0		1,561		2,887		892		283		17,496		20		0	23,139		Watch	—		—		2,171		1,220		282		18,708		20		—	22,401
Special mention	Special mention	0		0		2,166		13,706		105		28,296		0		0	44,273		Special mention	—		—		2,152		13,615		100		24,679		—		—	40,546
Substandard	Substandard	0		0		18		2,968		1,814		28,717		44		0	33,561		Substandard	5		—		18		2,647		1,311		22,423		—		—	26,404
Total	Total	106,751		117,327		108,459		82,550		76,419		371,529		7,164		336	870,535		Total	166,665		130,638		107,661		78,741		52,582		341,060		6,745		52	884,144
Multifamily	Multifamily																		Multifamily
Pass	Pass	109,244		252,490		78,034		89,956		81,657		240,963		10,261		0	862,605		Pass	141,957		250,242		73,107		87,035		76,472		228,609		10,289		302	868,013
Watch	Watch	0		0		0		0		4,571		5,701		0		0	10,272		Watch	—		970		—		—		872		7,174		—		—	9,016
Special mention	Special mention	0		12,176		0		0		2,400		1,099		0		0	15,675		Special mention	—		12,115		—		—		2,391		4,310		—		—	18,816
Substandard	Substandard	0		0		5,484		1,325		0		6,833		200		0	13,842		Substandard	—		—		5,484		1,325		—		5,049		200		—	12,058
Total	Total	109,244		264,666		83,518		91,281		88,628		254,596		10,461		0	902,394		Total	141,957		263,327		78,591		88,360		79,735		245,142		10,489		302	907,903
Non owner occupied residential
Non-owner occupied residential																			Non-owner occupied residential
Pass	Pass	18,362		21,396		18,334		18,497		19,397		62,191		7,863		430	166,470		Pass	20,108		18,924		17,058		17,834		18,647		54,147		7,593		579	154,890
Watch	Watch	0		0		0		0		1,045		5,245		0		0	6,290		Watch	—		—		—		—		916		5,412		—		—	6,328
Special mention	Special mention	0		0		1,025		845		486		930		515		0	3,801		Special mention	—		—		1,023		841		474		286		515		—	3,139
Substandard	Substandard	0		3,315		512		5,031		1,861		2,485		0		0	13,204		Substandard	—		3,315		512		5,028		1,738		2,642		—		—	13,235
Total	Total	18,362		24,711		19,871		24,373		22,789		70,851		8,378		430	189,765		Total	20,108		22,239		18,593		23,703		21,775		62,487		8,108		579	177,592

Commercial, industrial and other																			Commercial, industrial and other
Pass																			Pass	121,489		28,903		69,997		12,635		4,645		38,923		166,640		717	443,949
Watch																			Watch	726		483		495		36		1,432		198		3,545		—	6,915
Special mention																			Special mention	—		—		—		258		1,976		771		3,554		—	6,559
Substandard																			Substandard	—		7,184		47		1,678		502		1,307		5,183		—	15,901
Total																			Total	122,215		36,570		70,539		14,607		8,555		41,199		178,922		717	473,324

Construction																			Construction
Pass																			Pass	69,225		101,557		59,474		33,870		30,095		3,753		—		—	297,974
Watch																			Watch	—		—		—		12,664		12,078		—		—		—	24,742
Special mention																			Special mention	—		—		—		—		10,152		—		—		—	10,152

Total																			Total	69,225		101,557		59,474		46,534		52,325		3,753		—		—	332,868

Equipment finance																			Equipment finance
Pass																			Pass	37,254		33,204		31,374		12,228		4,304		1,107		—		—	119,471

Substandard																			Substandard	156		—		—		57		25		—		—		—	238
Total																			Total	37,410		33,204		31,374		12,285		4,329		1,107		—		—	119,709

1516

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		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total		(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total
Commercial, industrial and other
Pass		157,098		89,379		73,878		13,950		5,116		40,518		155,183		330		535,452
Watch		395		283		544		107		1,515		223		3,229		80		6,376
Special mention		0		0		1		306		2,004		809		4,057		0		7,177
Substandard		0		7,300		48		2,206		645		1,565		4,935		0		16,699
Total		157,493		96,962		74,471		16,569		9,280		43,115		167,404		410		565,704

Construction
Pass		43,967		101,838		88,989		33,067		26,442		3,694		329		0		298,326
Watch		0		0		0		13,707		12,867		0		0		0		26,574
Special mention		0		0		0		0		9,752		0		0		0		9,752
Substandard		0		0		0		0		0		515		0		0		515
Total		43,967		101,838		88,989		46,774		49,061		4,209		329		0		335,167
Equipment finance
Residential mortgage																				Residential mortgage
Pass	Pass	27,986		35,644		34,792		15,132		5,554		1,724		0		0		120,832		Pass	118,452		116,567		28,856		26,376		9,946		106,566		—		—		406,763

Substandard	Substandard	0		0		98		90		76		0		0		0		264		Substandard	—		—		—		123		—		135		—		—		258
Total	Total	27,986		35,644		34,890		15,222		5,630		1,724		0		0		121,096		Total	118,452		116,567		28,856		26,499		9,946		106,701		—		—		407,021

Residential mortgage
Pass		75,321		120,307		32,126		29,708		13,105		120,884		0		0		391,451

Substandard		0		0		0		0		0		138		0		0		138
Total		75,321		120,307		32,126		29,708		13,105		121,022		0		0		391,589
Consumer	Consumer																			Consumer
Pass	Pass	11,986		12,951		7,512		5,763		3,921		30,293		209,027		0		281,453		Pass	24,133		12,093		6,199		5,276		3,445		27,531		197,703		220		276,600

Substandard	Substandard	33		0		0		0		1		566		153		0		753		Substandard	42		—		—		—		1		318		266		377		1,004
Total	Total	12,019		12,951		7,512		5,763		3,922		30,859		209,180		0		282,206		Total	24,175		12,093		6,199		5,276		3,446		27,849		197,969		597		277,604
Total loans	Total loans	$	696,518	$	1,331,236	$	783,487	$	533,179	$	535,999	$	1,685,747	$	421,490	$	1,176	$	5,988,832	Total loans	$	931,377	$	1,247,921	$	737,451	$	510,502	$	474,504	$	1,554,777	$	422,009	$	2,261	$	5,880,802

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																		Term Loans by Origination Year
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term	Total		(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term	Total
Non owner occupied commercial
Non-owner occupied commercial																			Non-owner occupied commercial
Pass	Pass	$	570,665	$	376,681	$	217,931	$	251,751	$	187,605	$	509,573	$	50,071	2,246	$	2,166,523	Pass	$	570,665	$	376,681	$	217,931	$	251,751	$	187,605	$	509,573	$	50,071	2,246	$	2,166,523
Watch	Watch	770		638		8,498		5,936		19,579		47,680		315		0	83,416		Watch	770		638		8,498		5,936		19,579		47,680		315		—	83,416
Special mention	Special mention	3,400		3,131		8,377		9,115		19,936		7,894		2,895		0	54,748		Special mention	3,400		3,131		8,377		9,115		19,936		7,894		2,895		—	54,748
Substandard	Substandard	0		0		2,809		15,903		14,844		60,703		0		0	94,259		Substandard	—		—		2,809		15,903		14,844		60,703		—		—	94,259
Total	Total	574,835		380,450		237,615		282,705		241,964		625,850		53,281		2,246	2,398,946		Total	574,835		380,450		237,615		282,705		241,964		625,850		53,281		2,246	2,398,946
Owner occupied commercial	Owner occupied commercial																		Owner occupied commercial
Pass	Pass	116,512		76,224		80,244		81,215		62,118		245,330		11,072		179	672,894		Pass	116,512		76,224		80,244		81,215		62,118		245,330		11,072		179	672,894
Watch	Watch	11,347		22,932		411		3,651		8,038		23,612		673		0	70,664		Watch	11,347		22,932		411		3,651		8,038		23,612		673		—	70,664
Special mention	Special mention	0		2,218		929		113		4,317		38,638		0		0	46,215		Special mention	—		2,218		929		113		4,317		38,638		—		—	46,215
Substandard	Substandard	434		16		3,038		641		5,770		27,376		44		0	37,319		Substandard	434		16		3,038		641		5,770		27,376		44		—	37,319
Total	Total	128,293		101,390		84,622		85,620		80,243		334,956		11,789		179	827,092		Total	128,293		101,390		84,622		85,620		80,243		334,956		11,789		179	827,092
Multifamily	Multifamily																		Multifamily
Pass	Pass	251,708		59,694		85,748		93,368		117,155		145,786		21,713		0	775,172		Pass	251,708		59,694		85,748		93,368		117,155		145,786		21,713		—	775,172
Watch	Watch	0		0		600		0		0		8,472		—		0	9,072		Watch	—		—		600		—		—		8,472		—		—	9,072
Special mention	Special mention	9,781		0		0		2,399		0		1,124		0		0	13,304		Special mention	9,781		—		—		2,399		—		1,124		—		—	13,304
Substandard	Substandard	0		5,481		0		0		9,512		684		0		0	15,677		Substandard	—		5,481		—		—		9,512		684		—		—	15,677
Total	Total	261,489		65,175		86,348		95,767		126,667		156,066		21,713		0	813,225		Total	261,489		65,175		86,348		95,767		126,667		156,066		21,713		—	813,225

Non-owner occupied residential																			Non-owner occupied residential
Pass																			Pass	23,506		24,378		27,752		24,344		21,488		53,200		8,180		171	183,019
Watch																			Watch	—		300		—		1,174		—		5,757		—		—	7,231
Special mention																			Special mention	—		496		1,199		392		293		656		655		—	3,691
Substandard																			Substandard	876		512		1,200		1,295		692		1,713		—		—	6,288
Total																			Total	24,382		25,686		30,151		27,205		22,473		61,326		8,835		171	200,229

Commercial, industrial and other																			Commercial, industrial and other
Pass																			Pass	299,091		84,917		16,245		7,216		18,358		41,900		208,519		531	676,777
Watch																			Watch	287		3,701		156		1,643		301		369		2,324		—	8,781
Special mention																			Special mention	—		—		884		764		2,275		—		4,727		—	8,650
Substandard																			Substandard	7,177		50		3,559		1,547		1,497		729		9,422		—	23,981
Total																			Total	306,555		88,668		20,844		11,170		22,431		42,998		224,992		531	718,189

Construction																			Construction
Pass																			Pass	56,734		77,117		69,627		29,303		7,681		328		2,190		—	242,980
Watch																			Watch	—		—		2,183		11,959		—		—		—		—	14,142
Special mention																			Special mention	—		—		—		8,321		—		—		—		—	8,321
Substandard																			Substandard	—		—		—		206		719		515		—		—	1,440
Total																			Total	56,734		77,117		71,810		49,789		8,400		843		2,190		—	266,883

1617

Table of Contents


		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total		(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
Non owner occupied residential
Pass		23,506		24,378		27,752		24,344		21,488		53,200		8,180		171		183,019
Watch		0		300		0		1,174		0		5,757		0		0		7,231
Special mention		0		496		1,199		392		293		656		655		0		3,691
Substandard		876		512		1,200		1,295		692		1,713		0		0		6,288
Total		24,382		25,686		30,151		27,205		22,473		61,326		8,835		171		200,229

Commercial, industrial and other
Pass		299,091		84,917		16,245		7,216		18,358		41,900		208,519		531		676,777
Watch		287		3,701		156		1,643		301		369		2,324		0		8,781
Special mention		0		0		884		764		2,275		0		4,727		0		8,650
Substandard		7,177		50		3,559		1,547		1,497		729		9,422		0		23,981
Total		306,555		88,668		20,844		11,170		22,431		42,998		224,992		531		718,189

Construction
Pass		56,734		77,117		69,627		29,303		7,681		328		2,190		0		242,980
Watch		0		0		2,183		11,959		0		0		0		0		14,142
Special mention		0		0		0		8,321		0		0		0		0		8,321
Substandard		0		0		0		206		719		515		0		0		1,440
Total		56,734		77,117		71,810		49,789		8,400		843		2,190		0		266,883

Equipment finance	Equipment finance																			Equipment finance
Pass	Pass	41,528		41,717		20,697		8,834		3,162		426		0		0		116,364		Pass	41,528		41,717		20,697		8,834		3,162		426		—		—		116,364

Substandard	Substandard	0		98		88		74		64		2		0		0		326		Substandard	—		98		88		74		64		2		—		—		326
Total	Total	41,528		41,815		20,785		8,908		3,226		428		0		0		116,690		Total	41,528		41,815		20,785		8,908		3,226		428		—		—		116,690
Residential mortgage	Residential mortgage																			Residential mortgage
Pass	Pass	127,336		43,910		34,252		17,548		12,108		139,616		0		0		374,770		Pass	127,336		43,910		34,252		17,548		12,108		139,616		—		—		374,770

Substandard	Substandard	0		52		233		1,015		0		1,310		0		0		2,610		Substandard	—		52		233		1,015		—		1,310		—		—		2,610
Total	Total	127,336		43,962		34,485		18,563		12,108		140,926		0		0		377,380		Total	127,336		43,962		34,485		18,563		12,108		140,926		—		—		377,380
Consumer	Consumer																			Consumer
Pass	Pass	15,999		9,844		7,490		5,333		4,632		31,861		224,549		166		299,874		Pass	15,999		9,844		7,490		5,333		4,632		31,861		224,549		166		299,874

Substandard	Substandard	33		57		31		2		0		2,208		263		130		2,724		Substandard	33		57		31		2		—		2,208		263		130		2,724
Total	Total	16,032		9,901		7,521		5,335		4,632		34,069		224,812		296		302,598		Total	16,032		9,901		7,521		5,335		4,632		34,069		224,812		296		302,598
Total loans	Total loans	$	1,537,184	$	834,164	$	594,181	$	585,062	$	522,144	$	1,397,462	$	547,612	$	3,423	$	6,021,232	Total loans	$	1,537,184	$	834,164	$	594,181	$	585,062	$	522,144	$	1,397,462	$	547,612	$	3,423	$	6,021,232

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.

~~Table of Contents~~

The following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.

June 30, 2021 Past Due
(in thousands) Current 30 - 59 Days 60 - 89 Days Greater than 89 days Total Total Loans
Non-owner occupied commercial $ 2,323,132 $ 521 $ 434 $ 6,289 $ 7,244 $ 2,330,376
Owner occupied commercial 861,430 2,942 138 6,025 9,105 870,535
Multifamily 902,394 0 0 0 0 902,394
Non-owner occupied residential 186,653 137 2,160 815 3,112 189,765
Commercial, industrial and other 564,271 264 26 1,143 1,433 565,704
Construction 334,652 0 0 515 515 335,167
Equipment finance 120,671 133 93 199 425 121,096
Residential mortgage 391,123 466 0 0 466 391,589
Consumer 281,091 831 275 9 1,115 282,206
Total $ 5,965,417 $ 5,294 $ 3,126 $ 14,995 $ 23,415 $ 5,988,832


December 31, 2020				Past Due
September 30, 2021														September 30, 2021			Past Due
(in thousands)	(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans		(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	Non-owner occupied commercial	$	2,384,233	$	1,256	$	306	$	13,151	$	14,713	$	2,398,946	Non-owner occupied commercial	$	2,295,310	$	336	$	432	$	4,559	$	5,327	$	2,300,637
Owner occupied commercial	Owner occupied commercial	811,408		2,759		350		12,575		15,684		827,092		Owner occupied commercial	878,881		616		263		4,384		5,263		884,144
Multifamily	Multifamily	812,597		208		0		420		628		813,225		Multifamily	904,961		2,942		—		—		2,942		907,903
Non-owner occupied residential	Non-owner occupied residential	197,802		482		294		1,651		2,427		200,229		Non-owner occupied residential	174,412		102		2,156		922		3,180		177,592
Commercial, industrial and other	Commercial, industrial and other	716,337		125		0		1,727		1,852		718,189		Commercial, industrial and other	471,628		595		—		1,101		1,696		473,324
Construction	Construction	265,649		0		0		1,234		1,234		266,883		Construction	332,868		—		—		—		—		332,868
Equipment finance	Equipment finance	115,124		1,338		98		130		1,566		116,690		Equipment finance	119,439		44		156		70		270		119,709
Residential mortgage	Residential mortgage	374,370		1,046		156		1,808		3,010		377,380		Residential mortgage	406,091		807		—		123		930		407,021
Consumer	Consumer	300,127		1,041		73		1,357		2,471		302,598		Consumer	276,610		563		54		377		994		277,604
Total	Total	$	5,977,647	$	8,255	$	1,277	$	34,053	$	43,585	$	6,021,232	Total	$	5,860,200	$	6,005	$	3,061	$	11,536	$	20,602	$	5,880,802

Table of Contents


December 31, 2020			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,384,233	$	1,256	$	306	$	13,151	$	14,713	$	2,398,946
Owner occupied commercial	811,408		2,759		350		12,575		15,684		827,092
Multifamily	812,597		208		—		420		628		813,225
Non-owner occupied residential	197,802		482		294		1,651		2,427		200,229
Commercial, industrial and other	716,337		125		—		1,727		1,852		718,189
Construction	265,649		—		—		1,234		1,234		266,883
Equipment finance	115,124		1,338		98		130		1,566		116,690
Residential mortgage	374,370		1,046		156		1,808		3,010		377,380
Consumer	300,127		1,041		73		1,357		2,471		302,598
Total	$	5,977,647	$	8,255	$	1,277	$	34,053	$	43,585	$	6,021,232

The following tables present information on non-accrual loans at ~~June~~September 30, 2021 and December 31, 2020:

June 30, 2021
(in thousands) Non-accrual Interest Income Recognized on Non-accrual Loans Amortized Cost Basis of Loans >= 90 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial $ 11,427 $ 0 $ 0 $ 6,403
Owner occupied commercial 7,152 0 0 5,811
Multifamily 195 0 0 0
Non-owner occupied residential 1,305 0 0 853
Commercial, industrial and other 1,449 0 0 723
Construction 515 0 0 515
Equipment finance 264 0 0 0
Consumer 308 0 0 0
Total $ 22,615 $ 0 $ 0 $ 14,305
December 31, 2020
(in thousands) Non-accrual Interest Income Recognized on Non-accrual Loans Amortized Cost Basis of Loans >= 90 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial $ 16,537 $ 0 $ 0 $ 14,719
Owner occupied commercial 14,271 0 0 12,371
Multifamily 626 0 0 0
Non-owner occupied residential 2,217 0 0 1,580
Commercial, industrial and other 2,633 0 0 1,418
Construction 1,440 0 0 1,234
Equipment finance 327 0 0 0
Residential mortgage 2,469 0 0 1,015
Consumer 2,243 0 1 0
Total $ 42,763 $ 0 $ 1 $ 32,337


September 30, 2021
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans >= 90 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	4,748	$	—	$	—	$	4,284
Owner occupied commercial	4,656		—		—		4,221

Non-owner occupied residential	922		—		—		523
Commercial, industrial and other	1,108		—		—		477

Equipment finance	238		—		—		—
Residential mortgage	123		—		—		—
Consumer	453		—		—		—
Total	$	12,248	$	—	$	—	$	9,505


December 31, 2020
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans >= 90 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	16,537	$	—	$	—	$	14,719
Owner occupied commercial	14,271		—		—		12,371
Multifamily	626		—		—		—
Non-owner occupied residential	2,217		—		—		1,580
Commercial, industrial and other	2,633		—		—		1,418
Construction	1,440		—		—		1,234
Equipment finance	327		—		—		—
Residential mortgage	2,469		—		—		1,015
Consumer	2,243		—		1		—
Total	$	42,763	$	—	$	1	$	32,337

At ~~June~~September 30, 2021, there were 0no loans that were past due more than 89 days and still accruing and at December 31, 2020, 1 loan with a recorded investment of $1,000 was past due more than 89 days and still accruing. The Company had ~~$797,000~~no loans included in total non-accrual loans that were in the process of foreclosure at September 30, 2021 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 ~~June 30, 2021 and~~ December 31, ~~2020, respectively.~~2020.

Table of Contents

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 ~~June~~September 30, 2021, 0no 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.

~~Table of Contents~~

At ~~June~~September 30, 2021 and December 31, 2020, TDRs totaled ~~$4.4~~$3.7 million and $5.0 million, respectively. Accruing TDRs totaled ~~$3.6~~$3.4 million and non-accrual TDRs totaled ~~$812,000~~$241,000 at ~~June~~September 30, 2021. Accruing TDRs and non-accrual TDRs totaled $3.9 million and $1.1 million, respectively, at December 31, 2020. There ~~were 0~~was 1 consumer loan totaling $116,000 that was restructured during the three and nine months ended September 30, 2021 and that met the definition of a TDR, while no loans ~~that~~ were restructured during the three and ~~six~~nine months ended June 30, 2021 and June 30, 2020 that met the definition of a TDR. As of June 30, 2020, commercial loans totaling $967.0 million were granted 90-day, COVID-related payment deferments, of which 87% were commercial real estate loans. In addition, payment deferments on residential and consumer loans totaled $53.0 million at JuneSeptember 30, 2020. There were 0no restructured loans that subsequently defaulted in the ~~six~~nine months ended ~~June~~September 30, 2021; however, 1 construction loan totaling $694,000 ~~and 2 consumer loans totaling $73,000~~ that ~~were TDRs~~was a TDR within the previous twelve months had subsequently defaulted in the ~~six~~nine months ended ~~June~~September 30, 2020.

Note 5 - 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. See Note 1 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of the adoption of ASU 2016-13 and the Company's allowance methodology. The Company recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020. Prior year disclosures have not been restated.

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 ~~June~~September 30, 2021, loans totaling ~~$5.96~~$5.86 billion were evaluated collectively and the allowance on these balances totaled ~~$59.4~~$57.3 million and loans evaluated on an individual basis totaled ~~$26.6~~$16.6 million with the specific allocations of the allowance for credit losses totaling ~~$1.0 million.~~$666,000.

Allowance for Credit Losses - Loans

The allowance for credit losses on loans is summarized in the following table:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020		2021		2020
Balance at beginning of the period	Balance at beginning of the period	$	67,252	$	48,884	$	71,124	$	40,003	Balance at beginning of the period	$	60,389	$	57,839	$	71,124	$	40,003

Charge-offs	Charge-offs	(1,861)		(141)		(3,132)		(624)		Charge-offs	(996)		(682)		(4,128)		(1,306)
Recoveries	Recoveries	312		96		519		237		Recoveries	1,266		85		1,785		322
Net (charge-offs) recoveries		(1,549)		(45)		(2,613)		(387)
Net recoveries (charge-offs)										Net recoveries (charge-offs)	270		(597)		(2,343)		(984)
(Benefit) provision for credit loss - loans	(Benefit) provision for credit loss - loans	(5,314)		9,000		(8,122)		18,223		(Benefit) provision for credit loss - loans	(2,706)		8,000		(10,828)		26,223
Balance at end of the period	Balance at end of the period	60,389		57,839		$	60,389	$	57,839	Balance at end of the period	$	57,953	$	65,242	$	57,953	$	65,242

The benefit for credit losses for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was largely due to ~~a change~~an improvement in ~~macroeconomic factors.~~economic conditions utilized in the calculation.

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Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheets, totaled ~~$14.3~~$13.5 million at ~~June~~September 30, 2021 and ~~$16.1~~$16.0 million at December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

~~Loans~~Non-performing loans totaling ~~$5.0~~$6.6 million were sold during the ~~second~~third quarter of 2021 resulting in ~~charge-offs~~a net recoveries of ~~$75,000.~~$502,000. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company sold ~~$15.1~~$21.7 million of non-performing loans and recorded net charge-offs of ~~$1.2 million.~~

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$706,000.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


(in thousands)	(in thousands)	Balance at 3/31/2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2021		(in thousands)	Balance at 6/30/2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021
Non-owner occupied commercial	Non-owner occupied commercial	$	23,880	$	(1,650)	$	1	$	(1,325)	$	20,906	Non-owner occupied commercial	$	20,906	$	(465)	$	459	$	(387)	$	20,513
Owner occupied commercial	Owner occupied commercial	4,003		0		9		88		4,100		Owner occupied commercial	4,100		(204)		284		131		4,311
Multifamily	Multifamily	7,508		0		0		(331)		7,177		Multifamily	7,177		(28)		—		418		7,567
Non-owner occupied residential	Non-owner occupied residential	2,883		(3)		11		(299)		2,592		Non-owner occupied residential	2,592		(11)		16		206		2,803
Commercial, industrial and other	Commercial, industrial and other	12,139		(110)		105		(1,645)		10,489		Commercial, industrial and other	10,489		(26)		290		(2,678)		8,075
Construction	Construction	1,129		0		42		(137)		1,034		Construction	1,034		(54)		4		(118)		866
Equipment finance	Equipment finance	6,264		(10)		6		(1,140)		5,120		Equipment finance	5,120		(138)		—		(142)		4,840
Residential mortgage	Residential mortgage	3,781		(36)		118		22		3,885		Residential mortgage	3,885		(28)		1		348		4,206
Consumer	Consumer	5,665		(52)		20		(547)		5,086		Consumer	5,086		(42)		212		(484)		4,772
Total	Total	$	67,252	$	(1,861)	$	312	$	(5,314)	$	60,389	Total	$	60,389	$	(996)	$	1,266	$	(2,706)	$	57,953


(in thousands)	(in thousands)	Balance at 3/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2020		(in thousands)	Balance at 6/30/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2020

Commercial, secured by real estate (1)	Commercial, secured by real estate (1)	34,793		$	0	$	21	$	8,466	43,280		Commercial, secured by real estate (1)	43,280		$	(329)	$	10	$	7,305	50,266
Commercial, industrial and other	Commercial, industrial and other	5,489		0		13		(804)		4,698		Commercial, industrial and other	4,698		(204)		31		460		4,985
Construction	Construction	3,344		0		16		(241)		3,119		Construction	3,119		—		21		(37)		3,103
Equipment finance	Equipment finance	1,257		(14)		24		1,704		2,971		Equipment finance	2,971		(96)		1		8		2,884
Residential mortgage	Residential mortgage	1,600		0		0		(164)		1,436		Residential mortgage	1,436		—		1		256		1,693
Consumer	Consumer	2,401		(127)		22		39		2,335		Consumer	2,335		(53)		21		8		2,311
Total	Total	$	48,884	$	(141)	$	96	$	9,000	$	57,839	Total	$	57,839	$	(682)	$	85	$	8,000	$	65,242


(in thousands)	(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2021		(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021
Non-owner occupied commercial	Non-owner occupied commercial	$	25,910	$	(2,243)	$	3	$	(2,764)	$	20,906	Non-owner occupied commercial	$	25,910	$	(2,708)	$	462	$	(3,151)	$	20,513
Owner occupied commercial	Owner occupied commercial	3,955		(78)		17		206		4,100		Owner occupied commercial	3,955		(282)		301		337		4,311
Multifamily	Multifamily	7,253		0		0		(76)		7,177		Multifamily	7,253		(28)		—		342		7,567
Non-owner occupied residential	Non-owner occupied residential	3,321		(212)		13		(530)		2,592		Non-owner occupied residential	3,321		(223)		29		(324)		2,803
Commercial, industrial and other	Commercial, industrial and other	13,665		(375)		149		(2,950)		10,489		Commercial, industrial and other	13,665		(401)		439		(5,628)		8,075
Construction	Construction	786		0		67		181		1,034		Construction	786		(54)		71		63		866
Equipment finance	Equipment finance	6,552		(104)		17		(1,345)		5,120		Equipment finance	6,552		(242)		17		(1,487)		4,840
Residential mortgage	Residential mortgage	3,623		(36)		176		122		3,885		Residential mortgage	3,623		(64)		177		470		4,206
Consumer	Consumer	6,059		(84)		77		(966)		5,086		Consumer	6,059		(126)		289		(1,450)		4,772
Total	Total	$	71,124	$	(3,132)	$	519	$	(8,122)	$	60,389	Total	$	71,124	$	(4,128)	$	1,785	$	(10,828)	$	57,953

(in thousands) Balance at 12/31/2019 Charge-offs Recoveries (Benefit) Provision for Credit Loss Balance at 6/30/2020
Commercial, secured by real estate (1) $ 28,950 $ (169) $ 47 $ 14,452 43,280
Commercial, industrial and other 3,289 0 43 1,366 4,698
Construction 2,672 0 48 399 3,119
Equipment finance 957 (98) 38 2,074 2,971
Residential mortgage 1,725 (116) 20 (193) 1,436
Consumer 2,410 (241) 41 125 2,335
Total $ 40,003 $ (624) $ 237 $ 18,223 $ 57,839

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(in thousands)	Balance at 12/31/2019		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2020




Commercial, secured by real estate (1)	$	28,950	$	(498)	$	57	$	21,757	50,266
Commercial, industrial and other	3,289		(204)		74		1,826		4,985
Construction	2,672		—		69		362		3,103
Equipment finance	957		(194)		39		2,082		2,884
Residential mortgage	1,725		(116)		21		63		1,693
Consumer	2,410		(294)		62		133		2,311
Total	$	40,003	$	(1,306)	$	322	$	26,223	$	65,242

(1) With the adoption of ASU 2016-13 in 2020, the Company expanded its portfolio segments.

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The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at ~~June~~September 30, 2021 and December 31, 2020:

June 30, 2021 Loans Allowance for Credit Losses
(in thousands) Individually evaluated Collectively evaluated Acquired with deteriorated credit quality Total Individually evaluated Collectively evaluated Total
Non-owner occupied commercial $ 9,093 $ 2,318,592 $ 2,691 $ 2,330,376 273 $ 20,633 $ 20,906
Owner occupied commercial 9,958 860,000 577 870,535 78 4,022 4,100
Multifamily 0 902,394 0 902,394 0 7,177 7,177
Non-owner occupied residential 769 188,841 155 189,765 0 2,592 2,592
Commercial, industrial and other 744 563,844 1,116 565,704 638 9,851 10,489
Construction 515 334,652 0 335,167 0 1,034 1,034
Equipment finance 0 121,096 0 121,096 0 5,120 5,120
Residential mortgage 736 390,853 0 391,589 0 3,885 3,885
Consumer 0 281,967 239 282,206 0 5,086 5,086
Total loans $ 21,815 $ 5,962,239 $ 4,778 $ 5,988,832 $ 989 $ 59,400 $ 60,389
December 31, 2020 Loans Allowance for Credit Losses
(in thousands) Individually evaluated for impairment Collectively evaluated for impairment Acquired with deteriorated credit quality Total Individually evaluated for impairment Collectively evaluated for impairment Total
Non owner occupied commercial $ 12,112 $ 2,382,717 $ 4,117 2,398,946 $ 355 $ 25,555 $ 25,910
Owner occupied commercial 16,547 809,935 610 827,092 96 3,859 3,955
Multifamily 0 813,225 0 813,225 0 7,253 7,253
Non owner occupied residential 1,459 198,334 436 200,229 43 3,278 3,321
Commercial, industrial and other 1,596 715,129 1,464 718,189 830 12,835 13,665
Construction 515 265,649 719 266,883 0 786 786
Equipment finance 0 116,690 0 116,690 0 6,552 6,552
Residential mortgage 1,490 375,482 408 377,380 0 3,623 3,623
Consumer 0 302,099 499 302,598 31 6,028 6,059
Total loans $ 33,719 $ 5,979,260 $ 8,253 $ 6,021,232 $ 1,355 $ 69,769 $ 71,124


September 30, 2021	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	2,848	$	2,295,742	$	2,047	$	2,300,637	—		$	20,513	$	20,513
Owner occupied commercial	8,534		875,477		133		884,144		73		4,238		4,311
Multifamily	—		907,903		—		907,903		—		7,567		7,567
Non-owner occupied residential	523		177,000		69		177,592		—		2,803		2,803
Commercial, industrial and other	720		471,876		728		473,324		593		7,482		8,075
Construction	—		332,868		—		332,868		—		866		866
Equipment finance	—		119,709		—		119,709		—		4,840		4,840
Residential mortgage	729		406,292		—		407,021		—		4,206		4,206
Consumer	—		277,378		226		277,604		—		4,772		4,772
Total loans	$	13,354	$	5,864,245	$	3,203	$	5,880,802	$	666	$	57,287	$	57,953


December 31, 2020	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	12,112	$	2,382,717	$	4,117	2,398,946		$	355	$	25,555	$	25,910
Owner occupied commercial	16,547		809,935		610		827,092		96		3,859		3,955
Multifamily	—		813,225		—		813,225		—		7,253		7,253
Non-owner occupied residential	1,459		198,334		436		200,229		43		3,278		3,321
Commercial, industrial and other	1,596		715,129		1,464		718,189		830		12,835		13,665
Construction	515		265,649		719		266,883		—		786		786
Equipment finance	—		116,690		—		116,690		—		6,552		6,552
Residential mortgage	1,490		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 ~~June~~September 30, 2021, the balance of the allowance for credit loss on available for sale and held to maturity securities was ~~$21,000~~$50,000 and ~~$137,000,~~$183,000, respectively. At December 31, 2020, the Company reported an allowance for credit losses on available for sale securities of $2,000 and 0no allowance for credit losses on held to maturity securities. For the three months ended ~~June~~September 30, 2021, the Company recorded a ~~benefit~~provision for credit losses on available for sale securities of ~~$123,000~~$32,000 and a provision for credit losses on held to maturity securities of ~~$137,000.~~$43,000. For the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded a provision for credit losses of ~~$19,000~~$51,000 and ~~$137,000~~$180,000 on securities available for sale and held to maturity, respectively. 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 sheets and totaled ~~$4.1~~$4.6 million at ~~June~~September 30, 2021 and $3.3 million and December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.

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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 the provision for credit losses.

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 ~~$489,000~~$498,000 effective January 1, 2020. Prior year disclosures have not been restated.

At ~~June~~September 30, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance sheet exposures was ~~$1.9~~$1.8 million and $2.6 million, respectively. The Company recorded ~~benefits~~a benefit for credit losses on off-balance-sheet exposures of ~~$659,000~~$72,000 and ~~$635,000~~$707,000 for the ~~second quarter of 2021~~three and ~~for the six~~nine months ended ~~June~~September 30, 2021, respectively. In the ~~second~~third quarter of 2020, the Company recorded 0no provision for unfunded lending commitments and, for the ~~six~~nine months ended ~~June~~September 30, 2020, recorded $210,000 of provision for unfunded lending commitments in other noninterest expense.

Note 6 – Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2027. At ~~June~~September 30, 2021, the Company had lease liabilities totaling ~~$16.8~~$16.1 million and right-of-use assets totaling ~~$15.5~~$14.8 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 assets 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.

For the ~~six~~nine months ended ~~June~~September 30, 2021, the weighted average remaining lease term for operating leases was ~~9.56~~9.54 years and the weighted average discount rate used in the measurement of operating lease liabilities was ~~3.44%~~3.46%. At 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:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020		2021		2020
Operating lease cost	Operating lease cost	$	829	$	828	$	1,658	$	1,656	Operating lease cost	$	769	$	828	$	2,427	$	2,484

Variable lease cost	Variable lease cost	23		33		45		65		Variable lease cost	22		22		67		87
Sublease income	Sublease income	$	(30)	$	(30)	(61)		(61)		Sublease income	$	(30)	$	(31)	(91)		(92)
Net lease cost	Net lease cost	$	822	$	831	$	1,642	$	1,660	Net lease cost	$	761	$	819	$	2,403	$	2,479

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The table below presents other information on the Company's operating leases:


		Six Months Ended June 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,446	$	1,386	Operating cash flows from operating leases	$	2,194	$	2,085
Right-of-use asset obtained in exchange for new operating lease liabilities	Right-of-use asset obtained in exchange for new operating lease liabilities	109		548		Right-of-use asset obtained in exchange for new operating lease liabilities	109		741

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the ~~six~~nine months ended ~~June~~September 30, 2021 or ~~June~~September 30, 2020. At ~~June~~September 30, 2021, the Company had 0no leases that had not yet commenced.

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A maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to the total operating lease liability at ~~June~~September 30, 2021 are as follows:


(in thousands)
Within one year	$	~~3,156~~2,956
After one year but within three years	~~5,139~~5,081
After three years but within five years	~~4,000~~3,792
After five years	~~7,839~~7,423
Total undiscounted cash flows	~~20,134~~19,252
Discount on cash flows	~~(3,287)~~(3,147)
Total lease liability	$	~~16,847~~16,105

Note 7 - Deposits

The following table sets forth the details of total deposits:


(dollars in thousands)	(dollars in thousands)	June 30, 2021				December 31, 2020				(dollars in thousands)	September 30, 2021				December 31, 2020

Noninterest-bearing demand	Noninterest-bearing demand	$	1,683,887	25.1	%	$	1,510,224	23.4	%	Noninterest-bearing demand	$	1,724,646	24.9	%	$	1,510,224	23.4	%
Interest-bearing checking	Interest-bearing checking	2,088,282		31.1	%	2,057,052		31.9	%	Interest-bearing checking	2,231,162		32.2	%	2,057,052		31.9	%
Money market	Money market	1,468,822		21.9	%	1,225,890		19.0	%	Money market	1,512,578		21.8	%	1,225,890		19.0	%
Savings	Savings	641,605		9.5	%	584,361		9.1	%	Savings	657,627		9.5	%	584,361		9.1	%
Certificates of deposit $250 thousand and under	Certificates of deposit $250 thousand and under	685,583		10.2	%	895,056		13.8	%	Certificates of deposit $250 thousand and under	667,297		9.6	%	895,056		13.8	%
Certificates of deposit over $250 thousand	Certificates of deposit over $250 thousand	146,856		2.2	%	183,200		2.8	%	Certificates of deposit over $250 thousand	137,602		2.0	%	183,200		2.8	%
Total deposits	Total deposits	$	6,715,035	100.0	%	$	6,455,783	100.0	%	Total deposits	$	6,930,912	100.0	%	$	6,455,783	100.0	%

At ~~June~~September 30, 2021, certificates of deposit totaling ~~$154.0~~$139.3 million were obtained through brokers, while $236.7 million of certificates of deposit at December 31, 2020 were obtained through brokers. Brokered deposits are included in certificates of deposit $250,000 and under in the Consolidated Balance Sheets.

Note 8 – Borrowings

Overnight and Short-Term Borrowings

At ~~June~~September 30, 2021, the Company had 0no overnight and short-term borrowings from the FHLB, while these borrowings totaled $100.0 million at December 31, 2020. In addition, there were 0no overnight and short-term borrowings from correspondent banks at either ~~June~~September 30, 2021 or December 31, 2020. At ~~June~~September 30, 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 window of the Federal Reserve Bank of New York based on the ~~market~~fair value of collateral pledged. Lakeland had 0 borrowings with the Federal Reserve Bank of New York as of ~~June~~September 30, 2021 or December 31, 2020.

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Other short-term borrowings at ~~June~~September 30, 2021 and December 31, 2020 consisted of short-term securities sold under agreements to repurchase of ~~$100.2~~$111.9 million and $69.6 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of ~~June~~September 30, 2021, the Company had ~~$107.4~~$121.4 million in agency and mortgage-backed securities pledged for its securities sold under agreements to repurchase.

At times, the fair 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 Lakeland to pledge additional collateral to meet that margin call.

FHLB Advances

AnThe Company had one advance from the FHLB, which totaled $25.0 million at both ~~June~~September 30, 2021 and 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 has prepayment penalties. In the first quarter of 2020, the Company repaid two advances totaling $10.0 million and recorded $356,000 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 quarterly to the then current Benchmark rate (expected to be the three-month term Secured Overnight Financing Rate ("SOFR")) plus a spread of 220 basis points. The debt is included in Tier 2 capital for the Company. Debt issuance costs totaled $1.8 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheets.

On September 30, 2021, the Company redeemed $75.0 million of its 5.125% fixed to floating rate subordinated notes due September 30, 2026, which resulted in an acceleration of unamortized debt issuance costs of $831,000. In addition, the Company redeemed $5.0 million of subordinated notes in the second quarter of 2021.

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Note 9 – Share-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 stock, 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.

Restricted Stock

The following is a summary of the Company’s restricted stock activity during the ~~six~~nine months ended ~~June~~September 30, 2021:


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding, January 1, 2021	Outstanding, January 1, 2021	23,910	$	14.77	Outstanding, January 1, 2021	23,910	$	14.77
Granted	Granted	16,028	13.72		Granted	16,028	13.72
Vested	Vested	(13,092)	16.87		Vested	(13,092)	16.87

Outstanding, June 30, 2021		26,846	$	13.13
Outstanding, September 30, 2021					Outstanding, September 30, 2021	26,846	$	13.13

In the first ~~six~~nine months of 2021, the Company granted 16,028 shares of restricted stock to non-employee directors at a grant date fair value of $13.72 per share under the Plan. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be $220,000 over a one year period. In the first ~~six~~nine months of 2020, the Company granted 13,041 shares of restricted stock to non-employee directors at a grant date fair value of $16.87 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $220,000 over such period.

The Company recognized share-based compensation expense on its restricted stock of $88,000 and ~~$55,000~~$56,000 for the ~~second~~third quarter of 2021 and 2020, respectively. Share-based compensation expense on restricted stock for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~$176,000~~$264,000 and ~~$109,000,~~$165,000, respectively. As of ~~June~~September 30, 2021, there was unrecognized compensation cost of ~~$154,000~~$66,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately ~~0.49~~0.24 years.

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Restricted Stock Units

The following is a summary of the Company’s RSU activity during the ~~six~~nine months ended ~~June~~September 30, 2021:


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding, January 1, 2021	Outstanding, January 1, 2021	372,552	$	16.63	Outstanding, January 1, 2021	372,552	$	16.63
Granted	Granted	368,516	16.92		Granted	375,716	17.20
Vested	Vested	(139,133)	18.19		Vested	(140,133)	18.20
Forfeited	Forfeited	(6,625)	15.28		Forfeited	(7,282)	15.39
Outstanding, June 30, 2021		595,310	$	16.46
Outstanding, September 30, 2021					Outstanding, September 30, 2021	600,853	$	16.64

In the first ~~six~~nine months of 2021, the Company granted ~~368,516~~375,716 RSUs under the Plan at a weighted average grant date fair value of ~~$16.92~~$17.20 per share. These units vest within a range of two to three years. A portion of these RSUs will vest subject to certain performance conditions in the applicable restricted stock unit agreement. There are also certain provisions in the compensation program which state that if a recipient 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 these RSUs ~~issued in the first six months of 2021~~ is expected to average approximately ~~$2.1~~$2.2 million per year over a three-year period. In the first ~~six~~nine months of 2020, the Company granted ~~172,169~~175,869 RSUs under the Plan at a weighted average grant date fair value of ~~$15.47~~$15.37 per share. Compensation expense on these RSUs is expected to average approximately ~~$888,000~~$901,000 per year over a three-year period.

For the ~~second~~third quarter of 2021 and 2020, the Company recognized share-based compensation expense on RSUs of ~~$901,000~~$871,000 and ~~$558,000,~~$530,000, respectively. Share-based compensation expense on RSUs of ~~$2.0~~$2.9 million and ~~$1.4~~$1.9 million was recognized for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Unrecognized compensation expense related to RSUs was approximately ~~$6.7~~$6.0 million as of ~~June~~September 30, 2021, and that cost is expected to be recognized over a period of ~~1.53~~1.30 years.

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Stock Options

A summary of the activity under the Company’s stock option plans as of ~~June~~September 30, 2021 is as follows:


		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value			Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2021	Outstanding, January 1, 2021	2,764	$	6.94	1.07	$	15,934	Outstanding, January 1, 2021	2,764	$	6.94	1.07	$	15,934

Exercised	Exercised	(2,764)	6.94					Exercised	(2,764)	6.94

Outstanding, June 30, 2021		0	$	0	0.00	$	0
Options exercisable at June 30, 2021		0	$	0	0.00	$	0
Outstanding, September 30, 2021								Outstanding, September 30, 2021	—	$	—	0.00	$	—
Options exercisable at September 30, 2021								Options exercisable at September 30, 2021	—	$	—	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 0no stock option grants in the first ~~six~~nine months of 2021 or 2020. The 2,764 stock options exercised during the first ~~six~~nine months of 2021 resulted in $19,000 in cash receipts. ~~NaN~~The aggregate intrinsic vale of options exercised in the first nine months of 2021 was $27,000. No stock options were exercised during the first ~~six~~nine months of 2020. There was 0no unrecognized compensation expense related to unvested stock options as of ~~June~~September 30, 2021.

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Note 10 – Revenue Recognition

The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.

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, investment services 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 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 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 income from bank owned life insurance, 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 mortgage servicing rights.

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The following table sets forth the components of noninterest income for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020		2021		2020

Service charges on deposit accounts:	Service charges on deposit accounts:									Service charges on deposit accounts:
Debit card interchange income	Debit card interchange income	$	1,608	$	1,215	$	3,018	$	2,438	Debit card interchange income	$	1,585	$	1,472	$	4,603	$	3,910
Overdraft charges	Overdraft charges	551		449		1,138		1,402		Overdraft charges	647		533		1,785		1,935
ATM service charges	ATM service charges	172		62		315		229		ATM service charges	182		138		497		367
Demand deposit fees and charges	Demand deposit fees and charges	100		131		241		265		Demand deposit fees and charges	107		129		348		394
Savings service charges	Savings service charges	14		18		29		41		Savings service charges	15		16		44		57
Total	Total	2,445		1,875		4,741		4,375		Total	2,536		2,288		7,277		6,663
Commissions and fees:	Commissions and fees:									Commissions and fees:
Loan fees	Loan fees	484		213		991		553		Loan fees	376		510		1,367		1,063
Wire transfer charges	Wire transfer charges	375		341		750		649		Wire transfer charges	376		372		1,126		1,021
Investment services income	Investment services income	474		316		837		839		Investment services income	373		392		1,210		1,231
Merchant fees	Merchant fees	258		166		459		414		Merchant fees	270		184		729		598
Commissions from sales of checks	Commissions from sales of checks	75		60		153		143		Commissions from sales of checks	73		73		226		216
Safe deposit income	Safe deposit income	79		85		158		171		Safe deposit income	82		85		240		256
Other income	Other income	42		36		89		87		Other income	54		51		143		138
Total	Total	1,787		1,217		3,437		2,856		Total	1,604		1,667		5,041		4,523
Gains on sales of loans	Gains on sales of loans	607		710		1,315		1,125		Gains on sales of loans	550		1,437		1,865		2,562
Swap income	Swap income	72		767		634		3,610		Swap income	—		624		634		4,234
Other Income:	Other Income:									Other Income:
Title insurance income	Title insurance income	31		84		44		80		Title insurance income	43		46		87		126
Other income	Other income	81		73		163		170		Other income	99		200		262		370
Total	Total	112		157		207		250		Total	142		246		349		496
Revenue not from contracts with customers	Revenue not from contracts with customers	246		755		694		1,276		Revenue not from contracts with customers	637		511		1,331		1,787
Total Noninterest Income	Total Noninterest Income	$	5,269	$	5,481	$	11,028	$	13,492	Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265
Timing of Revenue Recognition:	Timing of Revenue Recognition:									Timing of Revenue Recognition:
Products and services transferred at a point in time	Products and services transferred at a point in time	5,019		4,708		10,311		12,179		Products and services transferred at a point in time	4,832		6,243		15,143		18,422
Products and services transferred over time	Products and services transferred over time	4		18		23		37		Products and services transferred over time	—		19		23		56
Revenue not from contracts with customers	Revenue not from contracts with customers	246		755		694		1,276		Revenue not from contracts with customers	637		511		1,331		1,787
Total Noninterest Income	Total Noninterest Income	$	5,269	$	5,481	$	11,028	$	13,492	Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265

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Note 11 - Other Operating Expenses

The following table presents the major components of other operating expenses for the periods indicated:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020		2021		2020
Consulting and advisory board fees	Consulting and advisory board fees	831		1,186		1,354		1,822		Consulting and advisory board fees	927		938		2,281		2,760
ATM and debit card expense	ATM and debit card expense	611		536		1,215		1,123		ATM and debit card expense	658		615		1,873		1,738
Telecommunications expense	Telecommunications expense	517		454		1,039		898		Telecommunications expense	536		501		1,575		1,399
Marketing expense	Marketing expense	427		232		745		459		Marketing expense	395		381		1,140		840
Core deposit intangible amortization	Core deposit intangible amortization	221		261		447		526		Core deposit intangible amortization	211		250		658		776
Other real estate owned and other repossessed assets expense	Other real estate owned and other repossessed assets expense	0		43		0		55		Other real estate owned and other repossessed assets expense	—		(2)		—		53
Long-term debt prepayment fee		0		0		0		356
Long-term debt prepayment penalties										Long-term debt prepayment penalties	—		—		—		356
Long-term debt extinguishment costs										Long-term debt extinguishment costs	831		—		831		—
Other operating expenses	Other operating expenses	3,085		3,103		5,993		6,406		Other operating expenses	2,937		2,931		8,930		9,337
Total other operating expense		$	5,692	$	5,815	$	10,793	$	11,645
Total other operating expenses										Total other operating expenses	$	6,495	$	5,614	$	17,288	$	17,259

Note 12 – Comprehensive Income

The components of other comprehensive income are as follows:
For the Three Months Ended
June 30, 2021 June 30, 2020
(in thousands) Before
Tax Amount Tax Benefit
(Expense) Net of
Tax Amount Before
Tax Amount Tax Benefit
(Expense) Net of
Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding gains arising during period $ 9,729 $ (2,616) $ 7,113 $ 3,329 $ (817) $ 2,512
Reclassification adjustment for net gains arising during the period 0 0 0 0 0 0
Net unrealized gains 9,729 (2,616) 7,113 3,329 (817) 2,512
Unrealized gains (losses) on derivatives 68 (145) (77) (51) 15 (36)
Other comprehensive income net $ 9,797 $ (2,761) $ 7,036 $ 3,278 $ (802) $ 2,476
For the Six Months Ended
June 30, 2021 June 30, 2020
(in thousands) Before Tax Amount Tax Benefit (Expense) Net of Tax Amount Before Tax Amount Tax Benefit
(Expense) Net of Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding (losses) gains arising during period $ (8,908) $ 2,886 $ (6,022) $ 13,124 $ (3,328) $ 9,796
Reclassification adjustment for net gains arising during the period 0 0 0 (342) 88 (254)
Net unrealized (losses) gains (8,908) 2,886 (6,022) 12,782 (3,240) 9,542
Unrealized gains (losses) on derivatives 135 (165) (30) (528) 155 (373)
Other comprehensive (losses) income, net $ (8,773) $ 2,721 $ (6,052) $ 12,254 $ (3,085) $ 9,169


	For the Three Months Ended
	September 30, 2021						September 30, 2020
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding losses arising during period	$	(2,008)	$	504	$	(1,504)	$	(649)	$	73	$	(576)


Net gain on securities reclassified from available for sale to held to maturity	3,814		(1,030)		2,784		—		—		—
Amortization of gain on debt securities reclassified to held to maturity from available for sale	(158)		42		(116)		—		—		—
Unrealized gains on derivatives	8		(3)		5		51		(14)		37

Other comprehensive income (loss), net	$	1,656	$	(487)	$	1,169	$	(598)	$	59	$	(539)


	For the Nine Months Ended
	September 30, 2021						September 30, 2020
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding (losses) gains arising during period	$	(10,916)	$	3,390	$	(7,526)	$	12,475	$	(3,255)	$	9,220
Reclassification adjustment for net gains arising during the period	—		—		—		(342)		88		(254)
Net unrealized (losses) gains	(10,916)		3,390		(7,526)		12,133		(3,167)		8,966
Net gain on securities reclassified from available for sale to held to maturity	3,814		(1,030)		2,784		—		—		—
Amortization of gain on debt securities reclassified to held to maturity from available for sale	(158)		42		(116)		—		—		—
Unrealized gains (losses) on derivatives	143		(168)		(25)		(477)		141		(336)

Other comprehensive (loss) income, net	$	(7,117)	$	2,234	$	(4,883)	$	11,656	$	(3,026)	$	8,630

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The following tables show the changes in the balances of each of the components of other comprehensive income for the periods presented, net of tax:


		For the Three Months Ended June 30, 2021								For the Three Months Ended June 30, 2020
For the Three Months Ended September 30, 2021																		For the Three Months Ended September 30, 2021
(in thousands)	(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total		Unrealized Gains on Available for Sale Securities		Unrealized (Losses) on Derivatives		Pension Items		Total		(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Unrealized Gains (Losses) on Derivatives		Pension Items		Total

Beginning balance	Beginning balance	$	(1,733)	$	72	$	(30)	$	(1,691)	$	8,966	$	(20)	$	(5)	$	8,941	Beginning balance	$	5,380	$	—	$	(5)	$	(30)	$	5,345
Net unrealized gain on securities reclassified from available for sale to held to maturity																		Net unrealized gain on securities reclassified from available for sale to held to maturity	(2,784)		2,784		—		—		—

Net current period other comprehensive (loss) income		7,113		(77)		0		7,036		2,512		(36)		0		2,476
Net current period other comprehensive income (loss)																		Net current period other comprehensive income (loss)	1,280		(116)		5		—		1,169
Ending balance	Ending balance	$	5,380	$	(5)	$	(30)	$	5,345	$	11,478	$	(56)	$	(5)	$	11,417	Ending balance	$	3,876	$	2,668	$	—	$	(30)	$	6,514


		For the Six Months Ended June 30, 2021								For the Six Months Ended June 30, 2020

For the Three Months Ended September 30, 2020																		For the Three Months Ended September 30, 2020
(in thousands)	(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total		Unrealized Gains on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total		(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total

Beginning balance	Beginning balance	$	11,402	$	25	$	(30)	$	11,397	$	1,936	$	317	$	(5)	$	2,248	Beginning balance	$	11,478	$	(56)	$	(5)	$	11,417
Other comprehensive (loss) income before classifications		(6,022)		(30)		0		(6,052)		9,796		(373)		0		9,423
Amounts reclassified from accumulated other comprehensive income		0		0		0		0		(254)		0		0		(254)
Net current period other comprehensive (loss) income	Net current period other comprehensive (loss) income	(6,022)		(30)		0		(6,052)		9,542		(373)		0		9,169		Net current period other comprehensive (loss) income	(576)		37		—		(539)

Ending balance	Ending balance	$	5,380	$	(5)	$	(30)	$	5,345	$	11,478	$	(56)	$	(5)	$	11,417	Ending balance	$	10,902	$	(19)	$	(5)	$	10,878


For the Nine Months Ended September 30, 2021
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Unrealized Gains (Losses) on Derivatives		Pension Items		Total

Beginning balance	$	11,402	$	—	$	25	$	(30)	$	11,397
Net unrealized gain on securities reclassified from available for sale to held to maturity	(2,784)		2,784		—		—		—
Net current period other comprehensive loss	(4,742)		(116)		(25)		—		(4,883)


Ending balance	$	3,876	$	2,668	$	—	$	(30)	$	6,514


For the Nine Months Ended September 30, 2020
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total

Beginning balance	$	1,936	$	317	$	(5)	$	2,248
Other comprehensive income (loss) before classifications	9,220		(336)		—		8,884
Amounts reclassified from accumulated other comprehensive income	(254)		—		—		(254)
Net current period other comprehensive income (loss)	8,966		(336)		—		8,630
Ending balance	$	10,902	$	(19)	$	(5)	$	10,878

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Note 13 – 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 financial institution, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the 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. Lakeland had ~~$53.8~~$60.5 million and $83.2 million ~~respectively,~~ in investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at ~~June~~September 30, 2021 and December 31, ~~2020.~~2020, respectively.

In June 2016, the Company entered into 2 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 cash flow hedges are 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 is 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 ~~six~~nine months ended ~~June~~September 30, 2021, the Company did not record any hedge ineffectiveness. The Company reclassified $8,000 and $58,000 of accumulated other comprehensive loss into interest expense for the third quarter of 2021 and 2020, respectively. The Company recognized ~~$134,000~~$142,000 of accumulated other comprehensive loss that was reclassified into interest expense for the first ~~six~~nine months of 2021 and ~~$74,000~~$17,000 of accumulated other comprehensive income that was reclassified into interest expense for same period in 2020. On June 30, 2021, $20.0 million in notional value of the swaps ~~matured. The~~matured and on August 1, 2021, the remaining $10.0 million ~~matures on August 1, 2021.~~

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matured.

Amounts reported in accumulated other comprehensive income related to derivatives ~~will be~~were reclassified to interest expense as interest payments are made on the Company’s debt. ~~Until maturity in 2021, the Company estimates that $8,000 will be reclassified as an increase to interest expense should the rate environment remain the same.~~

The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):


June 30, 2021		Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
September 30, 2021										September 30, 2021	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:	Classified in Other Assets:									Classified in Other Assets:
3rd Party interest rate swaps	3rd Party interest rate swaps	$	265,427	8.7	3.08	%	1 Mo. LIBOR + 2.28	$	6,968	3rd Party interest rate swaps	$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	8,814
Customer interest rate swaps	Customer interest rate swaps	721,962		8.3	3.90	%	1 Mo. LIBOR + 1.93	47,244		Customer interest rate swaps	688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	41,200

Classified in Other Liabilities:	Classified in Other Liabilities:									Classified in Other Liabilities:
Customer interest rate swaps	Customer interest rate swaps	$	265,427	8.7	3.08	%	1 Mo. LIBOR + 2.28	$	(6,968)	Customer interest rate swaps	$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	(8,814)
3rd Party interest rate swaps	3rd Party interest rate swaps	721,962		8.3	3.90	%	1 Mo. LIBOR + 1.93	(47,244)		3rd Party interest rate swaps	688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	(41,200)
Interest rate swap (cash flow hedge)		10,000		0.1	1.10	%	3 Mo. LIBOR	(8)


December 31, 2020	December 31, 2020	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value		December 31, 2020	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:	Classified in Other Assets:									Classified in Other Assets:
3rd Party interest rate swaps	3rd Party interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	$	503	3rd Party interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	$	503
Customer interest rate swaps	Customer interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	80,231		Customer interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	80,231

Classified in Other Liabilities:	Classified in Other Liabilities:									Classified in Other Liabilities:
Customer interest rate swaps	Customer interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	(503)		Customer interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	(503)
3rd party interest rate swaps	3rd party interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	(80,231)		3rd party interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	(80,231)
Interest rate swap (cash flow hedge)	Interest rate swap (cash flow hedge)	30,000		0.5	1.10	%	3 Mo. LIBOR	(143)		Interest rate swap (cash flow hedge)	30,000		0.5	1.10	%	3 Mo. LIBOR	(143)

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Note 14 – Goodwill and Intangible Assets

The Company had goodwill of $156.3 million at both ~~June~~September 30, 2021 and December 31, 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 1 reporting unit. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, there were no triggering events that would more likely than not reduce the fair value of our 1 reporting unit below its carrying amount. There was 0no impairment of goodwill recognized during the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

The Company had core deposit intangibles of ~~$2.8~~$2.6 million and $3.3 million at ~~June~~September 30, 2021 and December 31, 2020, respectively. Amortization of core deposit intangible totaled ~~$221,000~~$211,000 and ~~$261,000~~$250,000 for the ~~second~~third quarters of 2021 and 2020, respectively, and ~~$447,000~~$658,000 and ~~$526,000~~$776,000 for the ~~six~~first nine months of 2021 and 2020, respectively. The estimated future amortization expense for the remainder of 2021 and for each of the succeeding five years ended December 31 is as follows (in thousands):

For the Year Ended
2021 $ 421
2022 711
2023 554
2024 425
2025 317
2026 210


For the Year Ended
2021	$	210
2022	711
2023	554
2024	425
2025	317
2026	210

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Note 15 – Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Measurement

Fair value is 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 following describes the three levels of fair value hierarchy:

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; or quoted prices for identical or similar assets or liabilities in markets that are not 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 upon 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 supported 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 from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).

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Recurring Fair Value Measurements

The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the ~~six~~nine months ended ~~June~~September 30, 2021 and during 2020, the Company did not make any transfers between any levels within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


(in thousands)	(in thousands)	Quoted 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)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
June 30, 2021
September 30, 2021										September 30, 2021
Assets:	Assets:									Assets:
Investment securities, available for sale	Investment securities, available for sale									Investment securities, available for sale
U.S. Treasury and government agencies	U.S. Treasury and government agencies	$	22,794	$	83,650	$	0	$	106,444	U.S. Treasury and government agencies	$	22,178	$	80,793	$	—	$	102,971
Mortgage-backed securities, residential	Mortgage-backed securities, residential	0		314,868		0		314,868		Mortgage-backed securities, residential	—		95,248		—		95,248
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	0		187,926		0		187,926		Collateralized mortgage obligations, residential	—		200,900		—		200,900
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	0		1,900		0		1,900		Mortgage-backed securities, multifamily	—		1,867		—		1,867
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	0		29,879		0		29,879		Collateralized mortgage obligations, multifamily	—		35,003		—		35,003
Asset-backed securities	Asset-backed securities	0		47,236		0		47,236		Asset-backed securities	—		54,007		—		54,007
Obligations of states and political subdivisions		0		265,251		0		265,251
Debt securities		0		35,169		0		35,169

Corporate bonds										Corporate bonds	—		39,385		—		39,385
Total securities available for sale	Total securities available for sale	22,794		965,879		0		988,673		Total securities available for sale	22,178		507,203		—		529,381
Equity securities, at fair value	Equity securities, at fair value	0		15,440		0		15,440		Equity securities, at fair value	—		16,422		—		16,422
Derivative assets	Derivative assets	0		54,212		0		54,212		Derivative assets	—		50,014		—		50,014
Total Assets	Total Assets	$	22,794	$	1,035,531	$	0	$	1,058,325	Total Assets	$	22,178	$	573,639	$	—	$	595,817
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	0	$	54,220	$	0	$	54,220	Derivative liabilities	$	—	$	50,014	$	—	$	50,014
Total Liabilities	Total Liabilities	$	0	$	54,220	$	0	$	54,220	Total Liabilities	$	—	$	50,014	$	—	$	50,014
December 31, 2020	December 31, 2020									December 31, 2020
Assets:	Assets:									Assets:
Investment securities, available for sale	Investment securities, available for sale									Investment securities, available for sale
U.S. Treasury and government agencies	U.S. Treasury and government agencies	$	9,392	$	55,610	$	0	$	65,002	U.S. Treasury and government agencies	$	9,392	$	55,610	$	—	$	65,002
Mortgage-backed securities, residential	Mortgage-backed securities, residential	0		228,156		0		228,156		Mortgage-backed securities, residential	—		228,156		—		228,156
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	0		209,038		0		209,038		Collateralized mortgage obligations, residential	—		209,038		—		209,038
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	0		1,944		0		1,944		Mortgage-backed securities, multifamily	—		1,944		—		1,944
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	0		41,535		0		41,535		Collateralized mortgage obligations, multifamily	—		41,535		—		41,535
Asset-backed securities	Asset-backed securities	0		40,690		0		40,690		Asset-backed securities	—		40,690		—		40,690
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0		233,710		0		233,710		Obligations of states and political subdivisions	—		233,710		—		233,710
Debt securities		0		35,671		0		35,671
Corporate bonds										Corporate bonds	—		35,671		—		35,671
Total securities available for sale	Total securities available for sale	9,392		846,354		0		855,746		Total securities available for sale	9,392		846,354		—		855,746
Equity securities, at fair value	Equity securities, at fair value	0		14,694		0		14,694		Equity securities, at fair value	—		14,694		—		14,694
Derivative assets	Derivative assets	0		80,734		0		80,734		Derivative assets	—		80,734		—		80,734
Total Assets	Total Assets	$	9,392	$	941,782	$	0	$	951,174	Total Assets	$	9,392	$	941,782	$	—	$	951,174
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	0	$	80,877	$	0	$	80,877	Derivative liabilities	$	—	$	80,877	$	—	$	80,877
Total Liabilities	Total Liabilities	$	0	$	80,877	$	0	$	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. At September 30, 2021 and December 31, 2020, the Company had no OREO or other repossessed assets.

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:


(in thousands)	(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value		(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
June 30, 2021
September 30, 2021										September 30, 2021
Assets:	Assets:									Assets:
Individually evaluated loans	Individually evaluated loans	$	0	$	0	$	5,767	$	5,767	Individually evaluated loans	$	—	$	—	$	2,049	$	2,049

Properties held for sale		0		0		746		746

December 31, 2020	December 31, 2020									December 31, 2020
Assets:	Assets:									Assets:
Individually evaluated loans	Individually evaluated loans	$	0	$	0	$	2,417	$	2,417	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 ~~June~~September 30, 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 purchased 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 is 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.

The net loan portfolio has been valued using an exit price approach, which incorporates a buildup discount rate calculation that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.

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For fixed maturity certificates of deposit, fair value is 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.

~~Table of Contents~~

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 value of commitments to extend credit and standby letters of credit are deemed immaterial.

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The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of ~~June~~September 30, 2021 and December 31, 2020:


(in thousands)	(in thousands)	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2021
September 30, 2021												September 30, 2021
Financial Assets:	Financial Assets:											Financial Assets:
Investment securities held to maturity, net		$	94,278	$	96,174	$	0	$	95,755	$	419
Investment securities, held to maturity												Investment securities, held to maturity
U.S. Treasury and U.S. government agencies												U.S. Treasury and U.S. government agencies	$	18,820	$	19,279	$	—	$	19,279	$	—
Mortgage-backed securities, residential												Mortgage-backed securities, residential	343,866		342,001		—		342,001		—
Collateralized mortgage obligations, residential												Collateralized mortgage obligations, residential	8,488		8,775		—		8,775		—
Mortgage-backed securities, multifamily												Mortgage-backed securities, multifamily	2,724		2,771		—		2,771		—

Obligations of states and political subdivisions												Obligations of states and political subdivisions	316,832		311,037		—		310,578		459
Corporate bonds												Corporate bonds	2,832		2,865		—		2,865		—
Total investment securities held to maturity, net												Total investment securities held to maturity, net	$	693,562	$	686,728	$	—	$	686,269	$	459
Federal Home Loan Bank and other membership bank stocks	Federal Home Loan Bank and other membership bank stocks	9,210		9,210		0		9,210		0		Federal Home Loan Bank and other membership bank stocks	9,340		9,340		—		9,340		—
Loans, net	Loans, net	5,928,443		5,934,005		0		0		5,934,005		Loans, net	5,822,849		5,844,767		—		—		5,844,767
Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Certificates of deposit	Certificates of deposit	832,439		828,779		0		828,779		0		Certificates of deposit	804,899		800,083		—		800,083		—
Other borrowings	Other borrowings	25,000		24,928		0		24,928		0		Other borrowings	25,000		24,902		—		24,902		—
Subordinated debentures	Subordinated debentures	113,045		110,902		0		0		110,902		Subordinated debentures	187,107		185,965		—		—		185,965
December 31, 2020	December 31, 2020											December 31, 2020
Financial Assets:	Financial Assets:											Financial Assets:
Investment securities held to maturity		$	90,766	$	93,868	$	0	$	93,868	$	0
Investment securities, held to maturity												Investment securities, held to maturity
U.S. Treasury and U.S. government agencies												U.S. Treasury and U.S. government agencies	25,565		26,344		—		26,344		—
Mortgage-backed securities, residential												Mortgage-backed securities, residential	39,276		40,733		—		40,733		—
Collateralized mortgage obligations, residential												Collateralized mortgage obligations, residential	14,590		15,122		—		15,122		—
Mortgage-backed securities, multifamily												Mortgage-backed securities, multifamily	705		759		—		759		—

Obligations of states and political subdivisions												Obligations of states and political subdivisions	10,630		10,910		—		10,910		—

Total investment securities held to maturity												Total investment securities held to maturity	$	90,766	$	93,868	$	—	$	93,868	$	—
Federal Home Loan Bank and other membership bank stocks	Federal Home Loan Bank and other membership bank stocks	11,979		11,979		0		11,979		0		Federal Home Loan Bank and other membership bank stocks	11,979		11,979		—		11,979		—
Loans, net	Loans, net	5,950,108		5,939,413		0		0		5,939,413		Loans, net	5,950,108		5,939,413		—		—		5,939,413
Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Certificates of deposit	Certificates of deposit	1,078,256		1,077,620		0		1,077,620		0		Certificates of deposit	1,078,256		1,077,620		—		1,077,620		—
Other borrowings	Other borrowings	25,000		25,206		0		25,206		0		Other borrowings	25,000		25,206		—		25,206		—
Subordinated debentures	Subordinated debentures	118,257		118,208		0		0		118,208		Subordinated debentures	118,257		118,208		—		—		118,208

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Note 16 – ~~Subsequent Event~~Business Combination

On July 11, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with 1st Constitution Bancorp pursuant to which 1st Constitution Bancorp (parent company of 1st Constitution Bank) will merge with and into the Company and 1st Constitution Bank will merge with and into Lakeland Bank. The merger agreement provides that the shareholders of 1st Constitution Bancorp will receive for each outstanding share of 1st Constitution Bancorp common stock that they own at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company expects to issue an aggregate of approximately 14.0 million shares of its common stock in the merger. As of July 11, 2021, the transaction is valued at approximately $244.4 million on a fully diluted basis. As of March 31, 2021, 1st Constitution Bancorp had consolidated total assets, total loans, total deposits and total stockholders' equity of $1.81 billion, $1.31 billion, $1.56 billion and $191.3 million, respectively. 1st Constitution Bancorp had net income of $4.9 million for the three months ended March 31, 2021.

The transaction has been approved by the boards of directors of the Company and 1st Constitution Bancorp. Federal Deposit Insurance Corporation and New Jersey Department of Banking and Insurance approval has been received. Subject to the approval of the shareholders of both the Company and 1st Constitution Bancorp, ~~regulatory approvals~~the approval or waiver by the Board of Governors of the Federal Reserve System and other customary closing conditions, the Company anticipates completing the merger in the ~~fourth quarter of 2021 or~~ first quarter of 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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 elsewhere in this document and in the Company's most recently filed Annual Report on Form 10-K, as supplemented by Exhibit 99.1 to the Company's Current Report on Form 8-K filed on September 8, 2021, 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; ~~and~~ 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~~Bank; regulatory and shareholder approvals required for the merger may not be obtained, or may not be obtained on the proposed terms or on the anticipated schedule; and we may incur unanticipated expenses, including litigation expenses, related to the merger.

The above-listed risk factors are not 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.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland and its subsidiaries, including Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All intercompany balances and transactions have been eliminated.

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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. There have been no material changes in the Company’s critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in the Company’s most recent Annual Report on Form 10-K.

~~Table of Contents~~

Executive Summary

~~The~~ COVID-19 ~~pandemic~~continues to impact the Company's financial results and ~~the impact of restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in the financial markets and in~~ consumer and commercial behaviors in the ~~United States and in the~~ markets we ~~serve. As restrictive measures are eased during 2021, the economy has begun to improve. We~~serve and we continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, our customers and the communities we serve. Our branch lobbies are open at normal operating hours for customers. Proper protocols are in place in our branches and corporate offices to ensure the continued safety of our associates and customers.

The Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and 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, including reviewing~~portfolio. The Company was an active participant in the ~~industries~~Small Business Administration ("SBA") Paycheck Protection Program ("PPP"), assisting customers with applications during the program. The Company had PPP balances of $109.3 million outstanding at September 30, 2021 and believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. The Company ~~believes are most likely~~granted payment deferrals to beborrowers impacted by ~~emerging~~ COVID-19 ~~events. These~~as provided for under the CARES Act. All COVID-related loan deferments have expired and ~~similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.~~borrowers began paying their pre-deferral loan payments.

Management has identified that the COVID-19 pandemic could adversely affect the liquidity of the Company. As such, management has taken 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 has 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.

In addition, the carrying value of investment securities, right-of-use assets, goodwill and other intangibles could decrease, resulting in future impairment losses. Management will continue to evaluate current economic conditions to determine if a triggering event would impact the current valuations for these assets. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company's business.

On July 11, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with 1st Constitution Bancorp pursuant to which 1st Constitution Bancorp (parent company of 1st Constitution Bank) will merge with and into the Company and 1st Constitution Bank will merge with and into Lakeland Bank. We are looking forward to the opportunity to partner with 1st Constitution and expand our product offerings and services to the customers of the combined company. We are also preparing for the expanded footprint in New Jersey this acquisition provides. The merger integration meetings are progressing and we remain on schedule to close the merger in January 2022, pending receipt of all required regulatory and shareholder approvals, of which we have received Federal Deposit Insurance Corporation and New Jersey Department of Banking and Insurance approvals.

On September 15, 2021, the Company issued $150 million aggregate principal amount of its 2.875% fixed-to-floating rate subordinated notes due 2031 (the "Notes"). The Company plans to use the net proceeds from the offering for general corporate purposes. On September 30, 2021, the Company redeemed $75 million of its 5.125% fixed-to-floating rate subordinated notes due September 30, 2026.

Financial Overview

For the ~~second~~third quarter of 2021, the Company reported net income of ~~$27.4~~$22.3 million and earnings per diluted share of ~~$0.53~~$0.43 compared to net income of ~~$11.9~~$14.4 million and earnings per diluted share of ~~$0.23~~$0.28 for the ~~second~~third quarter of 2020. For the ~~second~~third quarter of 2021, annualized return on average assets was ~~1.41%~~1.10%, annualized return on average common equity was ~~14.07%~~10.94% and annualized return on average tangible common equity was ~~17.67%~~13.63% compared to ~~0.67%~~0.76%, ~~6.42%~~7.64%, and ~~8.19%~~9.71%, respectively, for the ~~second~~third quarter of 2020.

For the ~~six~~nine months ended ~~June~~September 30, 2021 the Company reported net income of ~~$50.6~~$72.9 million, compared to ~~$24.2~~$38.7 million for the same period in 2020. For the ~~six~~nine months ended ~~June~~September 30, 2021, the Company reported earnings per diluted share of ~~$0.98,~~$1.42 compared to ~~$0.47~~$0.76 earnings per diluted share reported for the first ~~six~~nine months of 2020. For the first ~~six~~nine months of 2021, annualized return on average assets was ~~1.32%~~1.24%, annualized return on average common equity was ~~13.15%~~12.39%, and annualized return on average tangible common equity was ~~16.55%~~15.53% compared to ~~0.71%~~0.73%, ~~6.59%~~6.95% and ~~8.42%~~8.86%, respectively, for the same period in 2020.

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The ~~second~~third quarter and year-to-date 2021 results were favorably impacted by benefits for credit losses of ~~$6.0~~$2.7 million and ~~$8.6~~$11.3 million, respectively, compared to provisions of ~~$9.0~~$8.0 million and ~~$18.2~~$26.2 million for the same periods last year. The benefit for credit losses was due primarily to an improvement in forecasted macroeconomic conditions, a reduction in non-performing assets and continued strength in asset quality.

Net interest margin for the ~~second~~third quarter of 2021 of ~~3.27%~~3.10% increased ~~21 and 8~~14 basis points ~~respectively, from~~compared to the ~~second~~third quarter of 2020 and decreased 17 basis points compared to the ~~first~~second quarter of 2021. Net interest margin for the first ~~six~~nine months of 2021 ~~of 3.23%~~was 3.19% as compared to ~~3.16%~~3.09% for the same period in 2020. The increase in net interest margin compared to the ~~second~~third quarter 2020 and year-to-date 2020 was due primarily to a decrease in the cost of ~~interest bearing~~interest-bearing liabilities, while the ~~increase~~decrease in net interest margin compared to the linked quarter was due primarily to ana $326.7 million increase in lower yielding average federal funds sold.

During the ~~yield on interest-earning assets~~third quarter of 2021, the Company sold $6.2 million in non-performing loans primarily in the commercial secured by real estate loan category. The sale resulted in net recoveries to the allowance for credit losses of $502,000 as well as recovered interest on non-accrual loans of $755,000, which favorably impacted third quarter 2021 net interest margin by four basis points.

On September 15, 2021, the Company closed the offering of $150 million of its Notes. The Notes bear interest at a ~~reduction~~rate of 2.875% per annum until September 2026 and the interest rate will then reset quarterly to the three-month Secured Overnight Financing Rate ("SOFR") plus a spread of 220 basis points.

During the third quarter of 2021, the Company redeemed $75 million of its 5.125% fixed-to-floating rate subordinated notes due September 30, 2026, which were scheduled in September 2021 to reset quarterly to the ~~cost of interest-bearing liabilities.~~current three-month LIBOR rate plus 397 basis points. The Company expensed $831,000 in long-term debt extinguishment costs on the $75 million redemption.

Total loans, net of deferred fees, decreased ~~$32.4~~$140.4 million to ~~$5.99~~$5.88 billion during the first ~~six~~nine months of 2021.

Total deposits increased ~~$259.3~~$475.1 million, or 4%7%, during the first ~~six~~nine months of 2021, to ~~$6.72~~$6.93 billion.

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Comparison of Operating Results for the Three Months Ended ~~June~~September 30, 2021 and 2020

Net Income

Net income was ~~$27.4~~$22.3 million or ~~$0.53~~$0.43 per diluted share, for the ~~second~~third quarter of 2021 compared to net income of ~~$11.9~~$14.4 million or ~~$0.23~~$0.28 per diluted share, for the ~~second~~third quarter of 2020. The increase in net income compared to the ~~second~~third quarter of 2020 was due primarily to a benefit for credit losses ~~mentioned above.~~and an increase in net interest income.

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.

Net interest income on a tax equivalent basis for the ~~second~~third quarter of 2021 was ~~$59.9~~$59.5 million, compared to ~~$50.6~~$52.2 million for the ~~second~~third quarter of 2020. The increase in net interest income compared to the ~~second~~third quarter of 2020 was due primarily to a reduction in the cost of interest-bearing deposits as well as growth in the volume of interest-earning assets. The net interest margin increased to ~~3.27%~~3.10% in the ~~second~~third quarter of 2021 from ~~3.06%~~2.96% in the ~~second~~third quarter of 2020 primarily as a result of a decrease in the cost of interest-bearing liabilities. The components of net interest income are discussed in greater detail below.

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The following table reflects the components of the Company’s net interest income, setting forth for the periods 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 for the three months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020 are computed on a tax equivalent basis using a tax rate of 21%.


		For the Three Months Ended June 30, 2021						For the Three Months Ended June 30, 2020							For the Three Months Ended September 30, 2021						For the Three Months Ended September 30, 2020
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS	ASSETS													ASSETS
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	6,080,408	$	60,529	3.99	%	$	5,572,865	$	55,825	4.03	%	Loans (1)	$	5,943,698	$	59,957	4.00	%	$	5,775,093	$	56,801	3.91	%
Taxable investment securities and other	Taxable investment securities and other	938,632		4,029		1.72	%	825,465		4,763		2.31	%	Taxable investment securities and other	1,005,744		4,232		1.68	%	793,370		4,139		2.09	%
Tax-exempt securities	Tax-exempt securities	127,454		798		2.50	%	65,572		442		2.70	%	Tax-exempt securities	138,612		745		2.15	%	79,696		509		2.55	%
Federal funds sold (2)	Federal funds sold (2)	196,458		52		0.11	%	187,091		36		0.08	%	Federal funds sold (2)	523,205		161		0.12	%	361,780		92		0.10	%
Total interest-earning assets	Total interest-earning assets	7,342,952		65,408		3.57	%	6,650,993		61,066		3.69	%	Total interest-earning assets	7,611,259		65,095		3.40	%	7,009,939		61,541		3.49	%
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for credit losses	Allowance for credit losses	(67,214)						(52,099)						Allowance for credit losses	(60,490)						(60,882)
Other assets	Other assets	508,647						538,635						Other assets	519,281						567,012
TOTAL ASSETS	TOTAL ASSETS	$	7,784,385					$	7,137,529					TOTAL ASSETS	$	8,070,050					$	7,516,069

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY													LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings accounts	Savings accounts	$	639,540	$	84	0.05	%	$	525,224	$	86	0.07	%	Savings accounts	$	653,840	$	85	0.05	%	$	548,662	$	77	0.06	%
Interest-bearing transaction accounts	Interest-bearing transaction accounts	3,495,610		2,805		0.32	%	2,908,299		3,956		0.55	%	Interest-bearing transaction accounts	3,701,676		2,775		0.30	%	3,086,260		3,422		0.44	%
Time deposits	Time deposits	880,079		1,349		0.61	%	1,093,760		4,052		1.48	%	Time deposits	826,831		1,127		0.55	%	1,176,181		3,513		1.19	%
Borrowings	Borrowings	225,487		1,263		2.22	%	356,598		2,360		2.62	%	Borrowings	270,735		1,613		2.33	%	327,939		2,287		2.73	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,240,716		5,501		0.42	%	4,883,881		10,454		0.86	%	Total interest-bearing liabilities	5,453,082		5,600		0.41	%	5,139,042		9,299		0.72	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	1,660,825						1,364,785						Demand deposits	1,702,788						1,475,422
Other liabilities	Other liabilities	101,545						146,813						Other liabilities	106,224						150,506
Stockholders' equity	Stockholders' equity	781,299						742,050						Stockholders' equity	807,956						751,099
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,784,385					$	7,137,529					TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,070,050					$	7,516,069
Net interest income/spread	Net interest income/spread			59,907		3.15	%			50,612		2.83	%	Net interest income/spread			59,495		2.99	%			52,242		2.77	%
Tax equivalent basis adjustment	Tax equivalent basis adjustment			167						93				Tax equivalent basis adjustment			157						108
NET INTEREST INCOME	NET INTEREST INCOME			$	59,740					$	50,519			NET INTEREST INCOME			$	59,338					$	52,134
Net interest margin (3)	Net interest margin (3)					3.27	%					3.06	%	Net interest margin (3)					3.10	%					2.96	%

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(2)Includes interest-bearing cash accounts.

(3)Net interest income divided by interest-earning assets.

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Interest income on a tax equivalent basis increased ~~$4.3~~$3.6 million from ~~$61.1~~$61.5 million in the ~~second~~third quarter of 2020 to ~~$65.4~~$65.1 million in the ~~second~~third quarter of 2021. The impact of the 12nine basis point reduction in the yield on interest-earning assets was offset by growth in the volume of interest-earning assets. Average loans increased ~~$507.5~~$168.6 million compared to the ~~second~~third quarter of 2020 while the yield on average loans ~~decreased 4~~increased nine basis points to ~~3.99%~~4.00% in the ~~second~~third quarter of 2021 from the ~~second~~third quarter of 2020. Total average taxable investment securities increased ~~$113.2~~$212.4 million to ~~$938.6 million~~$1.01 billion for the ~~second~~third quarter of 2021 from the ~~second~~third quarter of 2020, while average tax-exempt securities increased ~~$61.9~~$58.9 million to ~~$127.5~~$138.6 million for the same periods. The yield on average taxable investment securities decreased 5941 basis points from the ~~second~~third quarter of 2020 to ~~1.72%~~1.68% for the ~~second~~third quarter of 2021, while the yield on average tax-exempt investment securities decreased 2040 basis points to ~~2.50%.~~2.15% due to declines in market interest rates during the period. Average federal funds sold in the ~~second~~third quarter of 2021 increased ~~$9.4~~$161.4 million compared to the ~~second~~third quarter of 2020, while the yield increased 3two basis points to ~~0.11%~~0.12% for the ~~second~~third quarter of 2021.

Total interest expense of ~~$5.5~~$5.6 million in the ~~second~~third quarter of 2021 was ~~$5.0~~$3.7 million less than the ~~$10.5~~$9.3 million reported for the same period in 2020. ~~Total average interest-bearing liabilities increased $356.8 million primarily as a result of organic growth while the~~The cost of average interest-bearing liabilities decreased from ~~0.86%~~0.72% in the ~~second~~third quarter of 2020 to ~~0.42%~~0.41% in the ~~second~~third quarter of 2021 and was largely driven by reductions in market interest rates and a change in mix of interest-bearing liabilities. Partially offsetting the impact of the decline in the cost of funds was a growth in average interest-bearing liabilities of $314.0 million during the same period. For the ~~second~~third quarter of 2021, lower costing ~~average~~ savings and interest bearing transaction account average balances increased ~~$114.3~~$105.2 million and ~~$587.3~~$615.4 million, respectively, while the cost decreased by 2one basis point and 14 basis points, ~~and 23 basis points~~respectively, when compared to the same period in 2020. Higher cost average time deposits and borrowings balances decreased ~~$213.7~~$349.4 million and ~~$131.1~~$57.2 million, respectively, in the ~~second~~third quarter of 2021 when compared to the ~~second~~third quarter of 2020 while the cost decreased 8764 points and 40 basis points, respectively. In 2020, the Company repaid a total of ~~$165.8~~$114.9 million in FHLB advances and federal funds purchased have been lower in 2021 as the increase in deposits has provided liquidity.

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~~$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. Quarterly amounts for the ~~second~~third quarter of 2020 do not reflect the adoption of ASU 2016-13.

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 and these estimates are subject to periodic refinement based on changes in underlying external or internal data.~~losses.

In the ~~second~~third quarter of 2021, a ~~$6.0~~$2.7 million benefit for credit losses was recorded, compared to ~~a $9.0~~an $8.0 million provision for credit losses for the same period last year. The benefit is comprised of a benefit for credit losses on loans of ~~$5.3~~$2.7 million, a benefit for the provision on off-balance-sheet exposures of ~~$659,000~~$72,000 and a provision for credit losses on securities of ~~$14,000.~~$75,000. 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 asset quality of loans. The Company recorded loan charge-offs of ~~$1.9 million~~$996,000 and recoveries on loans of ~~$312,000~~$1.3 million in the ~~second~~third quarter of 2021 compared to loan charge-offs of ~~$141,000~~$682,000 and loan recoveries of ~~$96,000~~$85,000 in the ~~second~~third quarter of 2020. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income decreased ~~$212,000~~$1.3 million to ~~$5.3~~$5.5 million for the ~~second~~third quarter of 2021 compared to ~~$5.5~~$6.8 million during the same period in ~~2020. Service charges on deposit accounts for the second quarter of 2021 increased $570,000 compared to the second quarter of~~ 2020 due primarily to ~~changes~~a reduction in customer behavior related to the pandemic. Commissions and fees for the second quarter of 2021 increased $559,000 compared to the second quarter of 2020 due primarily to increases in commercial loan fees and investment commission income. Gains on equity securitiesswap income and gains on sales of ~~loans decreased $187,000 and $103,000, respectively, for~~loans. There was no swap income during the ~~second~~third quarter of 2021 compared to income of $624,000 during the same period in 2020. The decrease in gains on sales of loans was driven primarily by a reduction in volume and the Company retaining more mortgages in portfolio. Swap income decreased $695,000 compared to the secondthird quarter of 2020 due primarily to changes to the yield curve which makes new swap agreements less attractive. ~~Other income~~Gains on sales of loans decreased ~~$343,000~~$887,000 driven primarily by a reduction in volume and the Company retaining more originated residential mortgages. Service charges on deposit accounts for the third quarter of 2021 increased $248,000 compared to the third quarter of 2020 due primarily to ~~a $400,000 impairment~~changes in customer behavior related to the pandemic. Additionally, losses on ~~a branch location held~~equity securities totaled $58,000 for ~~sale.~~the third quarter of 2021 compared to losses of $170,000 during the same period in 2020.

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Noninterest Expense

Noninterest expense in the ~~second~~third quarter of 2021 totaled ~~$34.1~~$37.2 million compared to ~~$31.5~~$32.1 million reported for the same quarter of 2020, an increase of ~~$2.6~~$5.1 million. Compensation and employee benefit expense for the ~~second~~third quarter of 2021 increased ~~$1.9~~$2.4 million, or ~~10%~~13%, when compared to the same quarter of 2020 as a result of staff additions and normal merit increases. Premises and equipment and data processing expense increased ~~$807,000~~$624,000 and $284,000, respectively, compared to the ~~second~~third quarter of 2020 predominately driven by ~~an increase~~increases in costs associated with the Company's digital strategy initiative. FDIC insurance expense totaled ~~$621,000~~$461,000 for the ~~second~~third quarter of 2021, ~~an increase~~a decrease of ~~$171,000~~$164,000 compared to the same period in 2020 due primarily to a decrease in assessment rates resulting ~~primarily~~ from ~~deposit growth.~~an improvement in the Company's capital and asset quality metrics. The third quarter of 2021 included $1.1 million in merger related costs for the upcoming merger with 1st Constitution Bancorp. Other operating expenses in the ~~second~~third quarter of 2021 were ~~$123,000 less~~$881,000 greater than the same period in ~~2020. Within other operating expenses, consulting fees decreased $355,000~~2020 due primarily to $831,000 in unamortized debt issuance costs ~~associated with~~resulting from the extinguishment of $75 million of the Company's ~~digital strategy incurred in the second quarter of 2020, while marketing expense increased $195,000~~5.125% fixed-to-floating rate subordinated notes due ~~primarily to marketing initiatives initially planned for the second quarter of 2020 that were delayed due to the pandemic.~~September 30, 2026.

The Company’s efficiency ratio, a non-GAAP financial measure, was ~~51.98%~~54.02% in the ~~second~~third quarter of 2021, compared to ~~55.62%~~53.96% for the same period last year. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry. The following table shows the calculation of the efficiency ratio for the periods presented:


		For the Three Months Ended June 30,							For the Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			(dollars in thousands)	2021			2020

Total noninterest expense	Total noninterest expense	$	34,097		$	31,462		Total noninterest expense	$	37,207		$	32,097
Amortization of core deposit intangibles	Amortization of core deposit intangibles	(221)			(261)			Amortization of core deposit intangibles	(211)			(250)
Merger-related expenses								Merger-related expenses	(1,072)			—

Long term debt extinguishment costs								Long term debt extinguishment costs	(831)			—
Noninterest expense, as adjusted	Noninterest expense, as adjusted	$	33,876		$	31,201		Noninterest expense, as adjusted	$	35,093		$	31,847

Net interest income	Net interest income	$	59,740		$	50,519		Net interest income	$	59,338		$	52,134
Noninterest income	Noninterest income	5,269			5,481			Noninterest income	5,469			6,773
Total revenue	Total revenue	65,009			56,000			Total revenue	64,807			58,907
Tax-equivalent adjustment on municipal securities	Tax-equivalent adjustment on municipal securities	167			93			Tax-equivalent adjustment on municipal securities	157			108
Gains on sales of investment securities		(9)			—

Total revenue, as adjusted	Total revenue, as adjusted	$	65,167		$	56,093		Total revenue, as adjusted	$	64,964		$	59,015
Efficiency ratio	Efficiency ratio	51.98		%	55.62		%	Efficiency ratio	54.02		%	53.96		%

Income Tax Expense

The effective tax rate in the ~~second~~third quarter of 2021 was ~~25.7%~~26.5% compared to ~~23.7%~~23.3% during the same period in 2020 primarily as a result of tax advantaged items declining as a percentage of pretax income due to the increase in pretax ~~income.~~income during the current period.

Comparison of Operating Results for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

Net Income

Net income was ~~$50.6~~$72.9 million, or ~~$0.98~~$1.42 per diluted share, for the first ~~six~~nine months of 2021 compared to net income of ~~$24,243,~~$38.7 million, or ~~$0.47~~$0.76 per diluted share, for the first ~~six~~nine months of 2020. Net income increased primarily as a result of the ~~$8.6~~$11.3 million benefit for credit losses recorded in the first ~~half~~nine months of 2021 ~~mentioned in~~compared to the ~~highlights section.~~$26.2 million provision recorded for the first nine months of 2020.

Net Interest Income

Net interest income on a tax equivalent basis for the first ~~six~~nine months of 2021 was ~~$116.8~~$176.3 million, compared to ~~$100.6~~$152.8 million for the first ~~six~~nine months of 2020. The increase in net interest income was due primarily to a reduction in the cost of interest-bearing deposits as well as growth in the volume of interest-earning assets. The net interest margin of ~~3.23%~~3.19% in the first ~~six~~nine months of 2021 compared to ~~3.16%~~3.09% for the same period in 2020. The increase in net interest margin resulted primarily from a 5546 basis point decrease in the cost of interest-bearing liabilities. The components of net interest income are discussed in greater detail below.

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The following table reflects the components of the Company’s net interest income, setting forth for the periods 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 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020 are computed on a tax equivalent basis using a tax rate of 21%.


		For the Six Months Ended June 30, 2021						For the Six Months Ended June 30, 2020							For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2020
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS	ASSETS													ASSETS
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	6,085,057	$	119,307	3.95	%	$	5,390,481	$	113,682	4.24	%	Loans (1)	$	6,037,419	$	179,264	3.97	%	$	5,519,621	$	170,483	4.13	%
Taxable investment securities and other	Taxable investment securities and other	910,187		8,010		1.76	%	821,304		9,992		2.43	%	Taxable investment securities and other	942,389		12,242		1.73	%	811,924		14,131		2.32	%
Tax-exempt securities	Tax-exempt securities	124,769		1,573		2.52	%	64,208		862		2.69	%	Tax-exempt securities	129,434		2,318		2.39	%	69,408		1,371		2.63	%
Federal funds sold (2)	Federal funds sold (2)	166,843		89		0.11	%	116,005		195		0.34	%	Federal funds sold (2)	286,936		250		0.12	%	198,528		287		0.19	%
Total interest-earning assets	Total interest-earning assets	7,286,856		128,979		3.57	%	6,391,998		124,731		3.92	%	Total interest-earning assets	7,396,178		194,074		3.51	%	6,599,481		186,272		3.77	%
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for loan losses		(69,767)						(46,360)
Allowance for credit losses														Allowance for credit losses	(66,641)						(51,236)
Other assets	Other assets	527,625						505,777						Other assets	524,814						525,193
TOTAL ASSETS	TOTAL ASSETS	$	7,744,714					$	6,851,415					TOTAL ASSETS	$	7,854,351					$	7,073,438

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY													LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings accounts	Savings accounts	$	622,331	$	162	0.05	%	$	511,011	$	171	0.07	%	Savings accounts	$	632,950	$	247	0.05	%	$	523,653	$	248	0.06	%
Interest-bearing transaction accounts	Interest-bearing transaction accounts	3,442,116		5,672		0.33	%	2,869,539		10,782		0.76	%	Interest-bearing transaction accounts	3,529,586		8,447		0.32	%	2,942,307		14,204		0.64	%
Time deposits	Time deposits	962,042		3,528		0.73	%	983,379		8,004		1.63	%	Time deposits	916,476		4,655		0.68	%	1,048,115		11,517		1.47	%
Borrowings	Borrowings	221,144		2,819		2.54	%	397,088		5,175		2.58	%	Borrowings	237,856		4,432		2.46	%	373,870		7,462		2.62	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,247,633		12,181		0.47	%	4,761,017		24,132		1.02	%	Total interest-bearing liabilities	5,316,868		17,781		0.45	%	4,887,945		33,431		0.91	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	1,603,714						1,237,212						Demand deposits	1,637,101						1,317,195
Other liabilities	Other liabilities	117,559						113,801						Other liabilities	113,740						124,980
Stockholders' equity	Stockholders' equity	775,808						739,385						Stockholders' equity	786,642						743,318
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,744,714					$	6,851,415					TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,854,351					$	7,073,438
Net interest income/spread	Net interest income/spread			116,798		3.10	%			100,599		2.91	%	Net interest income/spread			176,293		3.06	%			152,841		2.86	%
Tax equivalent basis adjustment	Tax equivalent basis adjustment			330						181				Tax equivalent basis adjustment			487						289
NET INTEREST INCOME	NET INTEREST INCOME			$	116,468					$	100,418			NET INTEREST INCOME			$	175,806					$	152,552
Net interest margin (3)	Net interest margin (3)					3.23	%					3.16	%	Net interest margin (3)					3.19	%					3.09	%

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(2)Includes interest-bearing cash accounts.

(3)Net interest income divided by interest-earning assets.

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Interest income on a tax equivalent basis increased from ~~$124.7~~$186.3 million in the first ~~six~~nine months of 2020 to ~~$129.0~~$194.1 million in the first ~~six~~nine months of 2021, an increase of ~~$4.2~~$7.8 million, or 3%4%. The increase in interest income was primarily due to growth in the volume of interest-earning assets partially offset by a decline in the yield on interest-earning assets. Average ~~federal funds sold increased $50.8 million in the first six months of 2021 compared to the same period in 2020, while the yield on federal funds sold decreased 23 basis points. Average~~ loans increased ~~$694.6~~$517.8 million compared to the first ~~six~~nine months of 2020, while the yield on average loans at ~~3.95%~~3.97% in the first ~~six~~nine months of 2021 was 2916 basis points lower than the same period in 2020. Average taxable and tax-exempt investment securities increased ~~$88.9~~$130.5 million and ~~$60.6~~$60.0 million, respectively, for the first ~~six~~nine months of 2021 compared to the same period in 2020, while the yield on average taxable and tax-exempt investment securities decreased 6759 basis points and 1724 basis points, respectively. Average federal funds sold increased $88.4 million in the first nine months of 2021 compared to the same period in 2020, while the yield on federal funds sold decreased seven basis points.

Total interest expense of ~~$12.2~~$17.8 million in the first ~~six~~nine months of 2021 was ~~$12.0~~$15.6 million less than the ~~$24.1~~$33.4 million reported for the same period in 2020. Total average interest-bearing liabilities increased ~~$486.6~~$428.9 million, while the cost of average interest-bearing liabilities decreased from ~~1.02%~~0.91% in the first ~~six~~nine months of 2020 to ~~0.47%~~0.45% in the first ~~six~~nine months of 2021. The increase in the balance and reduction in cost of interest-bearing liabilities was due primarily to the same reasons discussed in the quarterly analysis. The cost of interest-bearing transaction accounts and time deposits decreased by 4332 basis points and 9079 basis points, respectively, while the cost of borrowings decreased 416 basis points compared to the first ~~six~~nine months of 2020.

Provision for Credit Losses

In the first ~~six~~nine months of 2021, ~~a $8.6~~an $11.3 million benefit for credit losses was recorded, compared to ~~an $18.2~~a $26.2 million provision for the same period last year. The benefit is comprised of a benefit for credit losses on loans of ~~$8.1~~$10.8 million, a benefit for off-balance-sheet exposures of ~~$635,000~~$707,000 and a provision for credit losses on securities of ~~$156,000.~~$231,000. The benefit for credit losses on loans was due primarily to the same reasons discussed in the quarterly comparison. The Company charged off ~~$3.1~~$4.1 million and recovered ~~$519,000~~$1.8 million in the first ~~six~~nine months of 2021 compared to ~~$624,000~~$1.3 million and ~~$237,000,~~$322,000, respectively, in the first ~~six~~nine months of 2020. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income of ~~$11.0~~$16.5 million in the first ~~six~~nine months of 2021 decreased by ~~$2.5~~$3.8 million from ~~$13.5~~$20.3 million in the first ~~six~~nine months of 2020 due primarily to a ~~$3.0~~$3.6 million decrease in swap income resulting from the same reason discussed in the quarterly comparison. Gains on sales of loans decreased $697,000 driven primarily by a reduction in volume and the Company retaining more originated residential mortgages. Service charges on deposit accounts ~~and commissions and fees~~ increased ~~$366,000 and $517,000, respectively,~~$614,000 compared to the first ~~half~~nine months of 2020 due to the same reasons discussed in the quarterly ~~comparison.~~comparison, while commissions and fees increased $459,000 due primarily to an increase in commercial loan fees. Losses on equity securities totaled ~~$133,000~~$191,000 in the first ~~six~~nine months of 2021 compared to losses of ~~$455,000~~$625,000 in the first ~~six~~nine months of 2020. Other income decreased ~~$497,000~~$567,000 due primarily to ~~the same reason discussed in the quarterly comparison.~~a $400,000 write-down on a branch location held for sale. Additionally, the first ~~half~~nine months of 2020 included gains on ~~sales of~~ investment securities transactions of $342,000 compared to $9,000 for the same period in 2021.

Noninterest Expense

Noninterest expense in the first ~~six~~nine months of 2021 totaled ~~$68.0~~$105.2 million, which was ~~$4.0~~$9.1 million greater than the ~~$64.0~~$96.1 million reported for the first ~~six~~nine months of 2020. Compensation and employee benefit expense and premises and equipment expense increased ~~$2.7~~$5.1 million and ~~$1.7~~$2.4 million, respectively, compared to the first ~~half~~nine months of 2020 due to the same reasons discussed in the quarterly comparison. FDIC insurance expense in the first ~~six~~nine months of 2021 increased ~~$584,000~~$420,000 due primarily to deposit growth and assessment credits recorded in the first ~~half~~nine months of 2020. The first nine months of 2021 included $1.1 million in merger related costs for the upcoming merger with 1st Constitution Bancorp. Other operating expenses ~~decreased $852,000~~increased $29,000 in the first ~~half~~nine months of 2021 compared to the same period in ~~2020 due primarily to a decrease in consulting and professional fees. Additionally,~~2020. Within other operating expenses, marketing, telecommunications expense and ATM and debit card expense increased $300,000, $176,000 and $135,000, respectively, while consulting decreased $479,000 compared to the first nine months of 2020. In the nine months ended September 30, 2021, the Company recorded $831,000 in long-term debt extinguishment fees due to the $75.0 million redemption of its 5.125% fixed-to-floating rate subordinated notes due September 30, 2026, and in the ~~first half~~nine months ended September 30, 2020, the Company recorded $356,000 of ~~2020 included a~~ long-term debt prepayment ~~fee~~fees on the redemption of ~~$356,000 resulting from the payoff of $10.0 million in Federal Home Loan Bank debt yielding 2.89%~~FHLB borrowings. The Company’s efficiency ratio, a non-GAAP financial measure, was ~~52.85%~~53.24% in the first ~~six~~nine months of 2021, compared to ~~55.46%~~54.95% for the same period last year. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry.

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The following table shows the calculation of the efficiency ratio for the periods presented:


		Six Months Ended June 30,							Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			(dollars in thousands)	2021			2020

Total noninterest expense	Total noninterest expense	$	68,000		$	63,966		Total noninterest expense	$	105,207		$	96,063
Amortization of core deposit intangibles	Amortization of core deposit intangibles	(447)			(526)			Amortization of core deposit intangibles	(658)			(776)

Long-term debt prepayment fee		—			(356)
Merger-related expenses								Merger-related expenses	(1,072)			—
Long-term debt prepayment penalties								Long-term debt prepayment penalties	—			(356)
Long-term debt extinguishment costs								Long-term debt extinguishment costs	(831)			—
Noninterest expense, as adjusted	Noninterest expense, as adjusted	$	67,553		$	63,084		Noninterest expense, as adjusted	$	102,646		$	94,931

Net interest income	Net interest income	$	116,468		$	100,418		Net interest income	$	175,806		$	152,552
Noninterest income	Noninterest income	11,028			13,492			Noninterest income	16,497			20,265
Total revenue	Total revenue	127,496			113,910			Total revenue	192,303			172,817
Tax-equivalent adjustment on municipal securities	Tax-equivalent adjustment on municipal securities	330			181			Tax-equivalent adjustment on municipal securities	487			289
Gains on sales of investment securities	Gains on sales of investment securities	(9)			(342)			Gains on sales of investment securities	(9)			(342)
Total revenue, as adjusted	Total revenue, as adjusted	$	127,817		$	113,749		Total revenue, as adjusted	$	192,781		$	172,764
Efficiency ratio	Efficiency ratio	52.85		%	55.46		%	Efficiency ratio	53.24		%	54.95		%

Income Tax Expense

The effective tax rate in the first ~~six~~nine months of 2021 was ~~25.7%~~25.9% compared to ~~23.6%~~23.5% during the same period last year due primarily to tax advantaged items declining as a percentage of pretax income resulting from the increase in pretax ~~income.~~income during the current period.

Financial Condition

The Company’s total assets increased ~~$189.9~~$508.2 million from December 31, 2020, to ~~$7.85~~$8.17 billion at ~~June~~September 30, 2021. Total loans, net of deferred fees, were ~~$5.99~~$5.88 billion, a decrease of ~~$32.4~~$140.4 million or 1%2% from $6.02 billion at December 31, 2020. Total deposits were ~~$6.72~~$6.93 billion, an increase of ~~$259.3~~$475.1 million, or 4%7%, from December 31, 2020, while total borrowings ~~decreased $74.6~~increased $11.2 million to ~~$238.2~~$324.0 million at ~~June~~September 30, 2021.

Loans

Emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic was provided by the form of the CARES Act, which was signed into law on March 27, 2020, and the CAA, which was signed into law on December 27, 2020. The programs provided funding for the Small Business Administration ("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 under both programs. The SBA guarantees 100% of the PPP loans made to eligible borrowers with loan forgiveness under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for payroll and other qualifying expenses. In addition, 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, included criteria that enable financial institutions to exclude from TDR status loans that are modified for customers affected by COVID-19. ~~The Company elected to suspend the classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement.~~

The information below for ~~June~~September 30, 2021 and December 31, 2020 is presented in accordance with ASU 2016-13. At the time of adoption of ASU 2016-13, 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 in Notes to the Consolidated Financial Statements in the Company's December 31, 2020 Annual Report on Form 10-K for a full description of the segments. The Company did not reclassify comparative financial periods prior to December 31, 2020 and has presented those disclosures under previously applicable U.S. GAAP.

~~The amortized cost~~Total loans, net of ~~loans~~deferred fees, totaled ~~$5.99~~$5.88 billion at ~~June~~September 30, 2021 and decreased ~~$32.4~~$140.4 million compared to December 31, ~~2020, primarily due to a decrease in commercial,~~2020. Commercial, industrial and other loans decreased $244.9 million, of ~~$152.5 million. Included in the commercial, industrial and other category~~which $175.3 million was attributable to a net decrease in PPP loans. Non-owner occupied commercial loans ~~of $77.6~~decreased $98.3 million and consumer loans decreased $25.0 million compared to December 31, 2020. Partially offsetting ~~the~~these year-to-date ~~decrease~~decreases in loan segments were increases in multifamily, construction and owner occupied commercial loans of $94.7 million, $66.0 million and $57.1 million, respectively. Residential mortgage loans also increased $29.6 million from December 31, 2020 to $407.0 million at

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September 30, 2021. Although loan demand has been strong to date during 2021, loan payoffs outpaced demand in several loan categories, including PPP loans reported in the commercial, industrial and other ~~loans was~~loans; non-owner occupied commercial ~~loans secured by real estate~~loans; consumer loans; and ~~construction loans which increased $53.6 million and $68.3 million, respectively.~~non-owner occupied residential loans. For more information on the loan portfolio, see Note 4 in Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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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-performing assets, including ~~PCD~~purchased credit deteriorated ("PCD") loans, decreased from $42.8 million at December 31, 2020 to ~~$22.6~~$12.2 million at ~~June~~September 30, 2021. The Company sold approximately ~~$15.1~~$21.7 million in non-performing loans during the first ~~half~~nine months of 2021 and recorded net charge-offs of ~~$1.2 million~~$706,000 and recovered $755,000 in interest on the sales. Non-accrual loans in the ~~non owner~~non-owner occupied and owner occupied commercial loans secured by real estate categories decreased ~~$5.1~~$11.8 million and ~~$7.1~~$9.6 million, respectively. The percentage of non-performing assets to total assets was ~~0.29%~~0.15% at ~~June~~September 30, 2021 compared to 0.56% at December 31, 2020. Non-accrual loans at ~~June~~September 30, 2021 included ~~three~~two loan relationships with a balance of $1 million or greater, totaling ~~$14.1~~$8.0 million and ~~four~~two loan relationships between $500,000 and $1.0 million, totaling ~~$2.2~~$1.1 million. At ~~June~~September 30, 2021, there were no loans that were past due more than 89 days and still accruing and at December 31, 2020, one loan with a recorded investment of $1,000 was past due more than 89 days and still accruing.

Troubled debt restructurings ("TDR") are those loans where the Company has granted concessions to the borrower in payment terms, either in rate or in term, as a result of the financial condition of the borrower. The CARES Act provided relief from TDR classification for certain loan ~~modification~~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. In December 2020, the 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. The Company elected these provisions of the CARES Act and CAA and excluded modified loans that met the required guidelines for relief from its TDR classification. On ~~June~~September 30, 2021, the Company had ~~$3.6~~$3.4 million in loans that were ~~troubled debt restructurings~~TDRs and accruing interest income compared to $3.9 million at December 31, 2020. These loans are expected to be able to perform under the modified terms of the loan. At ~~June~~September 30, 2021 and December 31, 2020, the Company had ~~$812,000~~$241,000 and $1.1 million, respectively, in ~~troubled debt restructurings~~TDRs that were included in non-accrual loans.

Since the end of March 2020, the Company has been working with borrowers negatively impacted by the COVID-19 pandemic. At ~~June~~September 30, 2021, there were no loans on payment deferral compared to $9.7 million, or 0.2% of total loans at December 31, 2020. At ~~June~~September 30, 2021, CARES Act and CAA modifications totaled ~~$60.9~~$61.2 million compared to $40.0 million at December 31, 2020.

At ~~June~~September 30, 2021 and December 31, 2020, the Company had ~~$126.2~~$115.2 million and $139.4 million, respectively, of loans that were rated substandard that were not classified as non-performing. There were no loans at ~~June~~September 30, 2021, other than those designated non-performing or substandard, where the Company was aware of any credit conditions of any borrowers or obligors that would indicate a strong possibility of the borrowers not complying with 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.

Allowance for credit losses on loans

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. 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

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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.

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The overall balance of the allowance for credit losses on loans of ~~$60.4~~$58.0 million at ~~June~~September 30, 2021 decreased ~~$10.7~~$13.2 million from December 31, 2020, a decrease of ~~15%~~19% due primarily to an improvement in forecasted macroeconomic conditions, a reduction in nonperforming assets and continued strength in asset quality. The change in the allowance within 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 following table sets forth for the periods presented, the historical relationships among the allowance for credit losses on loans, the (benefit) provision for credit losses on loans, the amount of loans charged-off and the amount of loan recoveries:


(dollars in thousands)	(dollars in thousands)	For the Six Months Ended June 30, 2021			For the Six Months Ended June 30, 2020			For the Year Ended December 31, 2020			(dollars in thousands)	For the Nine Months Ended September 30, 2021			For the Nine Months Ended September 30, 2020			For the Year Ended December 31, 2020
Allowance balance, beginning of the year	Allowance balance, beginning of the year	$	71,124		$	40,003		$	40,003		Allowance balance, beginning of the year	$	71,124		$	40,003		$	40,003
Impact of adopting ASU 2016-13 (1)	Impact of adopting ASU 2016-13 (1)	—			—			6,656			Impact of adopting ASU 2016-13 (1)	—			—			6,656
Loans charged off:	Loans charged off:										Loans charged off:
Non-owner occupied commercial	Non-owner occupied commercial	$	(2,243)					$	(53)		Non-owner occupied commercial	$	(2,708)					$	(53)
Owner occupied commercial	Owner occupied commercial	(78)						(369)			Owner occupied commercial	(282)						(369)
Multifamily	Multifamily	—						—			Multifamily	(28)						—
Non-owner occupied residential	Non-owner occupied residential	(212)						—			Non-owner occupied residential	(223)						—
Total commercial, secured by real estate (1)	Total commercial, secured by real estate (1)	(2,533)			(169)			(422)			Total commercial, secured by real estate (1)	(3,241)			(498)			(422)
Commercial, industrial and other	Commercial, industrial and other	(375)			—			(814)			Commercial, industrial and other	(401)			(204)			(814)
Construction	Construction	—			—			(77)			Construction	(54)			—			(77)
Equipment finance	Equipment finance	(104)			(98)			(284)			Equipment finance	(242)			(194)			(284)
Residential Mortgage	Residential Mortgage	(36)			(116)			(116)			Residential Mortgage	(64)			(116)			(116)
Consumer	Consumer	(84)			(241)			(340)			Consumer	(126)			(294)			(340)
Total loans charged off	Total loans charged off	(3,132)			(624)			(2,053)			Total loans charged off	(4,128)			(1,306)			(2,053)
Recoveries:	Recoveries:										Recoveries:
Non-owner occupied commercial	Non-owner occupied commercial	$	3					$	29		Non-owner occupied commercial	$	462					$	29
Owner occupied commercial	Owner occupied commercial	17						21			Owner occupied commercial	301						21
Multifamily	Multifamily	—						—			Multifamily	—						—
Non-owner occupied residential	Non-owner occupied residential	13						22			Non-owner occupied residential	29						22
Total commercial, secured by real estate (1)	Total commercial, secured by real estate (1)	33			47			72			Total commercial, secured by real estate (1)	792			57			72
Commercial, industrial and other	Commercial, industrial and other	149			43			207			Commercial, industrial and other	439			74			207
Construction	Construction	67			48			100			Construction	71			69			100
Equipment finance	Equipment finance	17			38			65			Equipment finance	17			39			65
Residential Mortgage	Residential Mortgage	176			20			21			Residential Mortgage	177			21			21
Consumer	Consumer	77			41			76			Consumer	289			62			76
Total recoveries	Total recoveries	519			237			541			Total recoveries	1,785			322			541
Net recoveries (charge-offs)		(2,613)			(387)			(1,512)
Net charge-offs											Net charge-offs	(2,343)			(984)			(1,512)
(Benefit) provision for credit losses on loans	(Benefit) provision for credit losses on loans	(8,122)			18,223			25,977			(Benefit) provision for credit losses on loans	(10,828)			26,223			25,977
Allowance balance, end of year	Allowance balance, end of year	$	60,389		$	57,839		$	71,124		Allowance balance, end of year	$	57,953		$	65,242		$	71,124

Net charge-offs as a percentage of average loans outstanding	Net charge-offs as a percentage of average loans outstanding	0.09		%	0.01		%	0.03		%	Net charge-offs as a percentage of average loans outstanding	0.05		%	0.02		%	0.03		%
Allowance for credit losses on loans as a percentage of total loans outstanding	Allowance for credit losses on loans as a percentage of total loans outstanding	1.01		%	1.00		%	1.18		%	Allowance for credit losses on loans as a percentage of total loans outstanding	0.99		%	1.11		%	1.18		%
Allowance for credit losses on loans as a percentage of non-accrual loans	Allowance for credit losses on loans as a percentage of non-accrual loans	267.03		%	176.05		%	166.32		%	Allowance for credit losses on loans as a percentage of non-accrual loans	473.16		%	197.17		%	166.32		%
Non-accrual loans to total loans outstanding	Non-accrual loans to total loans outstanding	0.38		%	0.57		%	0.71		%	Non-accrual loans to total loans outstanding	0.21		%	0.57		%	0.71		%

(1) Periods prior to December 31, 2020 do not reflect the adoption of ASU 2016-13.

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Non-accrual loans of ~~$22.6~~$12.2 million at ~~June~~September 30, 2021 decreased ~~$20.1~~$30.5 million from December 31, 2020. The allowance for credit losses as a percent of total loans was ~~1.01%~~0.99% at ~~June~~September 30, 2021 compared to 1.18% at December 31, 2020. The decrease in the allowance for credit losses as a percent of total loans was primarily due to the ~~$8.6~~$11.3 million benefit for credit losses recorded in the first ~~half~~nine months of 2021 resulting primarily from improvement in forecasted macroeconomic conditions, a reduction in nonperforming assets and continued strength in asset quality. Management believes, based on appraisals and estimated selling costs, that the majority of the Company's non-performing loans are adequately secured and that 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 to be adequate at ~~June~~September 30, 2021.

Investment Securities

Investment securities totaled ~~$1.08~~$1.22 billion at ~~June~~September 30, 2021, increasing ~~$136.4~~$276.4 million compared to $946.5 million at December 31, 2020. 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 is 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 $158,000 during the third quarter of 2021. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 3 in Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Deposits

Total deposits increased from $6.46 billion at December 31, 2020 to ~~$6.72~~$6.93 billion at ~~June~~September 30, 2021, an increase of ~~$259.3~~$475.1 million, or 4%7%. Savings and interest-bearing transaction accounts increased ~~$331.4~~$534.1 million due primarily to an increase in money market ~~deposit~~and interest bearing checking accounts resulting from ~~increased marketing efforts and~~ a change in customer behavior towards more traditional banking alternatives in the current ~~economy.~~economy as well as increased marketing efforts focused on money market accounts. Noninterest-bearing deposits increased ~~$173.7~~$214.4 million during the first ~~half~~nine months of 2021 due primarily to organic growth. Time deposits decreased ~~$245.8~~$273.4 million in the first ~~half~~nine months of 2021 due to a decline in brokered deposits and a change in customer preferences in the low interest rate environment from term deposits to deposits that are available on demand.

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 ~~$46.1~~$70.4 million for the first ~~six~~nine months of 2021 compared to ~~$57.9~~$61.7 million for the same period in 2020.

•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In the first ~~six~~nine months of 2021, Lakeland’s deposits increased ~~$259.3~~$475.1 million compared to an increase of ~~$831.9~~$972.7 million during the first ~~six~~nine months of 2020.

•Sales of investment securities. At ~~June~~September 30, 2021 the Company had ~~$988.7~~$529.4 million in securities designated “available for sale.” Of these securities, ~~$582.0~~$312.0 million were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

•Repayments on loans.

•Credit lines. As a member of the FHLB, Lakeland has the ability to borrow overnight based on the fair value of collateral pledged. Lakeland had no overnight borrowings from the FHLB on ~~June~~September 30, 2021. Lakeland also has overnight federal funds lines available for it to borrow up to $215.0 million, of which none were outstanding at ~~June~~September 30, 2021. 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 York as of ~~June~~September 30, 2021.

•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~~fair 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 Lakeland to pledge additional collateral to meet that margin call.

Table of Contents

Management and the Board 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. Management is closely monitoring changes in liquidity needs, including those that may result from the COVID-19 pandemic. The Company has increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While we are 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.

~~Table of Contents~~

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. A discussion of the cash flow statement for the ~~six~~nine months ended ~~June~~September 30, 2021 follows.

Cash and cash equivalents totaling ~~$375.4~~$662.6 million on ~~June~~September 30, 2021 increased ~~$105.3~~$392.5 million from December 31, 2020. Operating activities provided ~~$46.1~~$70.4 million in net cash. Investing activities used ~~$111.9~~$141.9 million in net cash, primarily reflecting an increase in investment ~~securities available for sale.~~securities. Financing activities provided ~~$171.1~~$464.1 million in net cash primarily reflecting the net increase in deposits of ~~$259.3~~$475.2 million and $148.2 million in net proceeds from the issuance of subordinated debt partially offset by the repayment of subordinated debentures of $80.8 million and a ~~$69.4~~$57.7 million decrease in federal funds purchased and securities sold under agreements to repurchase. The Company anticipates that it will have sufficient funds available to meet its current loan commitments and deposit maturities.

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of ~~June~~September 30, 2021. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.


(in thousands)	(in thousands)	Total		Within One Year		After One But Within Three Years		After Three But Within Five Years		After Five Years		(in thousands)	Total		Within One Year		After One But Within Three Years		After Three But Within Five Years		After Five Years

Minimum annual rentals on noncancellable operating leases	Minimum annual rentals on noncancellable operating leases	$	20,134	$	3,156	$	5,139	$	4,000	$	7,839	Minimum annual rentals on noncancellable operating leases	$	19,252	$	2,956	$	5,081	$	3,792	$	7,423
Benefit plan commitments	Benefit plan commitments	4,720		397		810		745		2,768		Benefit plan commitments	4,621		397		804		745		2,675
Remaining contractual maturities of time deposits	Remaining contractual maturities of time deposits	832,439		665,173		152,200		15,066		—		Remaining contractual maturities of time deposits	804,899		672,362		113,923		18,614		—
Subordinated debentures	Subordinated debentures	113,045		—		—		7,675		105,370		Subordinated debentures	187,107		—		—		7,666		179,441
Loan commitments	Loan commitments	1,207,761		868,402		164,214		27,315		147,830		Loan commitments	1,150,456		830,717		160,884		27,342		131,513
Other borrowings	Other borrowings	25,000		—		—		25,000		—		Other borrowings	25,000		—		—		25,000		—
Interest on other borrowings (1)	Interest on other borrowings (1)	34,243		5,426		10,853		10,216		7,748		Interest on other borrowings (1)	56,615		5,895		11,790		10,975		27,955
Standby letters of credit	Standby letters of credit	20,241		19,318		923		—		—		Standby letters of credit	20,156		19,711		445		—		—
Total	Total	$	2,257,583	$	1,561,872	$	334,139	$	90,017	$	271,555	Total	$	2,268,106	$	1,532,038	$	292,927	$	94,134	$	349,007

(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of ~~3.93%~~2.78%.

Capital Resources

Total stockholders’ equity increased to ~~$796.7~~$814.1 million on ~~June~~September 30, 2021 from $763.8 million on December 31, 2020, an increase of ~~$32.9~~$50.3 million. Book value per common share increased to ~~$15.74~~$16.09 on ~~June~~September 30, 2021 from $15.13 on December 31, 2020. Tangible book value per share increased from $11.97 per share on December 31, 2020 to ~~$12.60~~$12.95 per share on ~~June~~September 30, 2021, an increase of 5%8%. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2020 to ~~June~~September 30, 2021 was primarily due to ~~$50.6~~$72.9 million of net income, partially offset by other comprehensive loss of ~~$6.1~~$4.9 million and by the payment of cash dividends on common stock of ~~$13.2~~$20.2 million.

The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal 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 or their financial statements. As of ~~June~~September 30, 2021, the Company and Lakeland met all capital adequacy requirements to which they are subject.

As of ~~June~~September 30, 2021, the Company’s capital levels remained characterized as “well-capitalized.”

~~Table of Contents~~

The capital ratios for the Company and Lakeland Bank for the periods presented are as follows:

Tier 1 Capital to Total
Average Assets Ratio Common Equity Tier 1 to
Risk-Weighted Assets
Ratio Tier 1 Capital to Risk-
Weighted Assets Ratio Total Capital to Risk-
Weighted Assets Ratio
June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020
The Company 8.70 % 8.37 % 10.29 % 9.73 % 10.78 % 10.22 % 13.11 % 12.84 %
Lakeland Bank 9.19 % 9.04 % 11.39 % 11.03 % 11.39 % 11.03 % 12.39 % 12.22 %
Required capital ratios including conservation buffer 4.00 % 4.00 % 7.00 % 7.00 % 8.50 % 8.50 % 10.50 % 10.50 %
“Well capitalized” institution under FDIC Regulations 5.00 % 5.00 % 6.50 % 6.50 % 8.00 % 8.00 % 10.00 % 10.00 %

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	Tier 1 Capital to Total Average Assets Ratio				Common Equity Tier 1 to Risk-Weighted Assets Ratio				Tier 1 Capital to Risk- Weighted Assets Ratio				Total Capital to Risk- Weighted Assets Ratio
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
The Company	8.60	%	8.37	%	10.70	%	9.73	%	11.19	%	10.22	%	14.73	%	12.84	%
Lakeland Bank	9.87	%	9.04	%	12.85	%	11.03	%	12.85	%	11.03	%	13.83	%	12.22	%
Required capital ratios including conservation buffer	4.00	%	4.00	%	7.00	%	7.00	%	8.50	%	8.50	%	10.50	%	10.50	%
“Well capitalized” institution under FDIC Regulations	5.00	%	5.00	%	6.50	%	6.50	%	8.00	%	8.00	%	10.00	%	10.00	%

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. The Company and Lakeland Bank elected not to use the Community Bank Leverage Ratio framework.

Non-GAAP Financial Measures

Reported amounts are presented in accordance with U.S. GAAP. The Company’s management uses certain supplemental non-GAAP information in its analysis of the Company’s financial results. Specifically, the Company provides measurements and ratios based on tangible equity and tangible assets. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.

The Company also provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.

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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.


(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)	June 30, 2021			December 31, 2020			(dollars in thousands, except per share amounts)	September 30, 2021			December 31, 2020
Calculation of Tangible Book Value per Common Share	Calculation of Tangible Book Value per Common Share							Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP	Total common stockholders’ equity at end of period - GAAP	$	796,676		$	763,784		Total common stockholders’ equity at end of period - GAAP	$	814,128		$	763,784
Less:	Less:							Less:
Goodwill	Goodwill	156,277			156,277			Goodwill	156,277			156,277
Other identifiable intangible assets, net	Other identifiable intangible assets, net	2,841			3,288			Other identifiable intangible assets, net	2,631			3,288
Total tangible common stockholders’ equity at end of period - Non-GAAP	Total tangible common stockholders’ equity at end of period - Non-GAAP	$	637,558		$	604,219		Total tangible common stockholders’ equity at end of period - Non-GAAP	$	655,220		$	604,219
Shares outstanding at end of period	Shares outstanding at end of period	50,601			50,480			Shares outstanding at end of period	50,602			50,480
Book value per share - GAAP	Book value per share - GAAP	$	15.74		$	15.13		Book value per share - GAAP	$	16.09		$	15.13
Tangible book value per share - Non-GAAP	Tangible book value per share - Non-GAAP	$	12.60		$	11.97		Tangible book value per share - Non-GAAP	$	12.95		$	11.97
Calculation of Tangible Common Equity to Tangible Assets	Calculation of Tangible Common Equity to Tangible Assets							Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP	Total tangible common stockholders’ equity at end of period - Non-GAAP	$	637,558		$	604,219		Total tangible common stockholders’ equity at end of period - Non-GAAP	$	655,220		$	604,219

Total assets at end of period	Total assets at end of period	$	7,854,238		$	7,664,297		Total assets at end of period	$	8,172,479		$	7,664,297
Less:	Less:							Less:
Goodwill	Goodwill	156,277			156,277			Goodwill	156,277			156,277
Other identifiable intangible assets, net	Other identifiable intangible assets, net	2,841			3,288			Other identifiable intangible assets, net	2,631			3,288
Total tangible assets at end of period - Non-GAAP	Total tangible assets at end of period - Non-GAAP	$	7,695,120		$	7,504,732		Total tangible assets at end of period - Non-GAAP	$	8,013,571		$	7,504,732
Common equity to assets - GAAP	Common equity to assets - GAAP	10.14		%	9.97		%	Common equity to assets - GAAP	9.96		%	9.97		%
Tangible common equity to tangible assets - Non-GAAP	Tangible common equity to tangible assets - Non-GAAP	8.29		%	8.05		%	Tangible common equity to tangible assets - Non-GAAP	8.18		%	8.05		%


		For the Three Months Ended June 30,						For the Six Months Ended June 30,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			2021			2020			(dollars in thousands)	2021			2020			2021			2020
Calculation of Return on Average Tangible Common Equity	Calculation of Return on Average Tangible Common Equity													Calculation of Return on Average Tangible Common Equity
Net income - GAAP	Net income - GAAP	$	27,407		$	11,851		$	50,582		$	24,243		Net income - GAAP	$	22,289		$	14,427		$	72,871		$	38,670
Total average common stockholders’ equity	Total average common stockholders’ equity	$	781,299		$	742,050		$	775,808		$	739,385		Total average common stockholders’ equity	$	807,956		$	751,099		$	786,642		$	743,318
Less:	Less:													Less:
Average goodwill	Average goodwill	156,277			156,277			156,277			156,277			Average goodwill	156,277			156,277			156,277			156,277
Average other identifiable intangible assets, net	Average other identifiable intangible assets, net	2,979			3,942			3,085			4,073			Average other identifiable intangible assets, net	2,758			3,689			2,975			3,944
Total average tangible common stockholders’ equity - Non-GAAP	Total average tangible common stockholders’ equity - Non-GAAP	$	622,043		$	581,831		$	616,446		$	579,035		Total average tangible common stockholders’ equity - Non-GAAP	$	648,921		$	591,133		$	627,390		$	583,097
Return on average common stockholders’ equity - GAAP	Return on average common stockholders’ equity - GAAP	14.07		%	6.42		%	13.15		%	6.59		%	Return on average common stockholders’ equity - GAAP	10.94		%	7.64		%	12.39		%	6.95		%
Return on average tangible common stockholders’ equity - Non-GAAP	Return on average tangible common stockholders’ equity - Non-GAAP	17.67		%	8.19		%	16.55		%	8.42		%	Return on average tangible common stockholders’ equity - Non-GAAP	13.63		%	9.71		%	15.53		%	8.86		%

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Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("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 was 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 3. Quantitative and Qualitative Disclosures About Market Risk

The Company manages interest rate risk and market risk by identifying and quantifying interest rate risk exposures using simulation analysis and economic value at risk models. 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 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.

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 period-end levels. The net interest income estimated for this purpose for the next twelve months (the base case) is ~~$217.6~~$212.7 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					Changes in Interest Rates
Rate Ramp	Rate Ramp	+200 bp		-100 bp		Rate Ramp	+200 bp		-100 bp
Asset/Liability Policy limit	Asset/Liability Policy limit	(5.0)	%	(5.0)	%	Asset/Liability Policy limit	(5.0)	%	(5.0)	%
June 30, 2021		0.7	%	1.3	%
September 30, 2021						September 30, 2021	1.6	%	1.0	%
December 31, 2020	December 31, 2020	0.2	%	1.4	%	December 31, 2020	0.2	%	1.4	%

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The Company’s 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									Changes in Interest Rates
Rate Shock	Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp		Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp
Asset/Liability policy limit	Asset/Liability policy limit	(15.0)	%	(10.0)	%	(5.0)	%	(5.0)	%	Asset/Liability policy limit	(15.0)	%	(10.0)	%	(5.0)	%	(5.0)	%
June 30, 2021		3.0	%	1.9	%	1.1	%	0.9	%
September 30, 2021										September 30, 2021	5.7	%	3.8	%	1.9	%	—	%
December 31, 2020	December 31, 2020	0.5	%	0.4	%	0.6	%	1.5	%	December 31, 2020	0.5	%	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 period-end levels. The net portfolio value at ~~June~~September 30, 2021 (the base case) was ~~$1.17~~$1.24 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. Rate shocks assume that current interest rates change immediately.


		Changes in Interest Rates									Changes in Interest Rates
Rate Shock	Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp		Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp
Asset/Liability policy limit	Asset/Liability policy limit	(25.0)	%	(20.0)	%	(10.0)	%	(10.0)	%	Asset/Liability policy limit	(25.0)	%	(20.0)	%	(10.0)	%	(10.0)	%
June 30, 2021		(0.9)	%	(0.1)	%	1.2	%	(9.2)	%
September 30, 2021										September 30, 2021	(2.2)	%	(0.7)	%	0.9	%	(9.8)	%
December 31, 2020	December 31, 2020	0.3	%	1.5	%	2.8	%	(10.1)	%	December 31, 2020	0.3	%	1.5	%	2.8	%	(10.1)	%

The information set forth in the above tables and the net interest income estimate set forth above are based on significant estimates and assumptions, and constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. For more information regarding the Company’s market risk and assumptions used in the Company’s simulation models, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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.

Item 4. Controls and Procedures

(a)Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s 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.

(b)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 ~~June~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

5153

Table of Contents

PART II. OTHER INFORMATION

Item 1. 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 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2020, as supplemented by Exhibit 99.1 to the Company's Current Report on Form 8-K filed on September 8, 2021.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information regarding shares of our common stock repurchased during the ~~second~~third quarter of 2021.


Period	Total Number of Shares (or Units) Purchased (1)	Weighted Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs






~~April 1 to April 30, 2021~~	—	$	—	—	~~2,393,423~~
~~May 1 to May 31, 2021~~	—	—		—	~~2,393,423~~
~~June 1 to June 30, 2021~~	—	—		—	~~2,393,423~~



July 1 to July 31, 2021	—	$	—	—	2,393,423
August 1 to August 31, 2021	—	—		—	2,393,423
September 1 to September 30, 2021	—	—		—	2,393,423

(1)On October 24, 2019, the Company announced that its Board of Directors authorized a new share repurchase program. Under the repurchase program, 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 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. The share repurchase program has no expiration date.


Item 3. Defaults Upon Senior Securities			Not Applicable


Item 4. Mine Safety Disclosures			Not Applicable


Item 5. Other Information			Not applicable

Item 6. Exhibits


2.1			Agreement and Plan of Merger, dated as of July 11, 2021, by and between Lakeland Bancorp, Inc. and 1st Constitution Bancorp (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 12, 2021)
4.1			Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.2			First Supplemental Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.3			Form of 2.875% Fixed-to-Floating Rate Subordinated Notes due 2031 (included in Exhibit 4.2)
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			Inline 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.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

5255

SIGNATURES

Pursuant to the requirements 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.
(Registrant)

/s/ Thomas J. Shara
Thomas J. Shara
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Thomas F. Splaine
Thomas F. Splaine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: ~~August 6,~~November 8, 2021

5356


	For the Six Months Ended
	June 30, 2021						June 30, 2020
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding (losses) gains arising during period	$	(8,908)	$	2,886	$	(6,022)	$	13,124	$	(3,328)	$	9,796
Reclassification adjustment for net gains arising during the period	0		0		0		(342)		88		(254)
Net unrealized (losses) gains	(8,908)		2,886		(6,022)		12,782		(3,240)		9,542
Unrealized gains (losses) on derivatives	135		(165)		(30)		(528)		155		(373)

Other comprehensive (losses) income, net	$	(8,773)	$	2,721	$	(6,052)	$	12,254	$	(3,085)	$	9,169