Loans and Other Real Estate | LOANS AND OTHER REAL ESTATE The following sets forth the composition of the Company’s loan portfolio: (in thousands) March 31, 2019 December 31, 2018 Commercial, secured by real estate $ 3,436,550 $ 3,057,779 Commercial, industrial and other 389,230 336,735 Equipment finance 90,791 87,925 Real estate - residential mortgage 335,290 329,854 Real estate - construction 332,995 319,545 Home equity and consumer 339,815 328,609 Total loans 4,924,671 4,460,447 Less: deferred fees (3,280 ) (3,714 ) Loans, net of deferred fees $ 4,921,391 $ 4,456,733 At March 31, 2019 and December 31, 2018 , home equity and consumer loans included overdraft deposit balances of $368,000 and $452,000 , respectively. At March 31, 2019 and December 31, 2018 , the Company had $1.32 billion and $1.16 billion , respectively, in loans pledged for actual and potential borrowings at the Federal Home Loan Bank of New York (“FHLB”). Purchased Credit Impaired Loans The carrying value of loans acquired in the Highlands merger and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $13.7 million which was substantially the same as the balance at acquisition on January 4, 2019. The carrying value of the purchased credit impaired ("PCI") loans acquired in the Pascack Community Bank ("Pascack") acquisition was $145,000 at March 31, 2019 compared to $ 157,000 at December 31, 2018 . The carrying value of PCI loans acquired in the Harmony Bank ("Harmony") acquisition was $485,000 at March 31, 2019 compared to $495,000 at December 31, 2018 . The following table presents changes in the accretable yield for PCI loans: For the Three Months Ended (in thousands) March 31, 2019 March 31, 2018 Balance, beginning of period $ 81 $ 129 Acquisitions 1,420 — Accretion (193 ) (44 ) Net reclassification non-accretable difference 30 28 Balance, end of period $ 1,338 $ 113 Non-Performing Assets and Past Due Loans The following schedule sets forth certain information regarding the Company’s non-performing assets and its accruing troubled debt restructurings, excluding PCI loans: (in thousands) March 31, 2019 December 31, 2018 Commercial, secured by real estate $ 9,817 $ 7,192 Commercial, industrial and other 2,202 1,019 Equipment finance 383 501 Real estate - residential mortgage 1,740 1,986 Home equity and consumer 1,581 1,432 Total non-accrual loans $ 15,723 $ 12,130 Other real estate and other repossessed assets 715 830 TOTAL NON-PERFORMING ASSETS $ 16,438 $ 12,960 Troubled debt restructurings, still accruing $ 6,352 $ 9,293 Non-accrual loans included $2.8 million and $3.6 million of troubled debt restructurings for the periods ended March 31, 2019 and December 31, 2018 , respectively. At March 31, 2019 and December 31, 2018 , the Company had $1.2 million and $1.5 million , respectively, in residential mortgages and consumer home equity loans that were in the process of foreclosure which are included in non-accrual loans in the above table. An age analysis of past due loans, segregated by class of loans as of March 31, 2019 and December 31, 2018 , is as follows: (in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total Loans Recorded Investment Greater than 89 Days and Still Accruing March 31, 2019 Commercial, secured by real estate $ 14,944 $ 3,060 $ 3,913 $ 21,917 $ 3,414,633 $ 3,436,550 $ — Commercial, industrial and other 1,084 220 377 1,681 387,549 389,230 — Equipment finance 358 210 383 951 89,840 90,791 — Real estate - residential mortgage 2,406 — 1,146 3,552 331,738 335,290 — Real estate - construction — — 3,423 3,423 329,572 332,995 — Home equity and consumer 1,845 365 1,297 3,507 336,308 339,815 78 $ 20,637 $ 3,855 $ 10,539 $ 35,031 $ 4,889,640 $ 4,924,671 $ 78 December 31, 2018 Commercial, secured by real estate $ 1,477 $ 639 $ 2,237 $ 4,353 $ 3,053,426 $ 3,057,779 $ — Commercial, industrial and other 173 243 750 1,166 335,569 336,735 — Equipment finance 533 13 501 1,047 86,878 87,925 — Real estate - residential mortgage 743 111 1,776 2,630 327,224 329,854 — Real estate - construction — — — — 319,545 319,545 — Home equity and consumer 1,917 216 850 2,983 325,626 328,609 — $ 4,843 $ 1,222 $ 6,114 $ 12,179 $ 4,448,268 $ 4,460,447 $ — Impaired Loans The Company defines impaired loans as all non-accrual loans with recorded investments of $500,000 or greater. Impaired loans also include all loans that have been modified in troubled debt restructurings, but excludes PCI loans. Impaired loans as of March 31, 2019 and December 31, 2018 are as follows: (in thousands) Recorded Investment in Impaired Loans Contractual Unpaid Principal Balance Specific Allowance Average Investment in Impaired Loans Interest Income Recognized March 31, 2019 Loans without specific allowance: Commercial, secured by real estate $ 12,188 $ 12,883 $ — $ 8,878 $ 52 Commercial, industrial and other 2,309 2,633 — 1,142 4 Equipment finance 301 597 — 301 — Real estate - residential mortgage — — — — — Real estate - construction — — — — — Home equity and consumer — — — — — Loans with specific allowance: Commercial, secured by real estate 3,797 4,070 229 6,642 72 Commercial, industrial and other 200 199 8 199 3 Equipment finance 26 26 12 26 — Real estate - residential mortgage 715 875 4 718 5 Real estate - construction — — — — — Home equity and consumer 700 741 6 697 8 Total: Commercial, secured by real estate $ 15,985 $ 16,953 $ 229 $ 15,520 $ 124 Commercial, industrial and other 2,509 2,832 8 1,341 7 Equipment finance 327 623 12 327 — Real estate - residential mortgage 715 875 4 718 5 Real estate - construction — — — — — Home equity and consumer 700 741 6 697 8 $ 20,236 $ 22,024 $ 259 $ 18,603 $ 144 (in thousands) Recorded Contractual Specific Average Interest December 31, 2018 Loans without specific allowance: Commercial, secured by real estate $ 9,284 $ 9,829 — $ 7,369 $ 188 Commercial, industrial and other 1,151 1,449 — 1,834 19 Equipment finance 301 597 — 376 — Real estate - residential mortgage — — — 242 4 Real estate - construction — — — 726 — Home equity and consumer — — — — — Loans with specific allowance: Commercial, secured by real estate 7,270 7,597 307 7,594 317 Commercial, industrial and other 209 209 7 209 12 Equipment finance 30 30 14 19 — Real estate - residential mortgage 730 884 4 745 20 Real estate - construction — — — — — Home equity and consumer 727 765 6 898 32 Total: Commercial, secured by real estate $ 16,554 $ 17,426 $ 307 $ 14,963 $ 505 Commercial, industrial and other 1,360 1,658 7 2,043 31 Equipment finance 331 627 14 395 — Real estate - residential mortgage 730 884 4 987 24 Real estate - construction — — — 726 — Home equity and consumer 727 765 6 898 32 $ 19,702 $ 21,360 $ 338 $ 20,012 $ 592 Interest income recognized on impaired loans was $144,000 and $177,000 for the three months ended March 31, 2019 and 2018 , respectively. Interest that would have been accrued on impaired loans during the first three months of 2019 and 2018 had the loans been performing under original terms would have been $268,000 and $307,000 , respectively. Credit Quality Indicators The class of loans is determined by internal risk rating. 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 commercial 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 Lakeland’s commercial loan portfolios. The risk rating system assists senior management in evaluating Lakeland’s commercial loan portfolio, analyzing trends, and determining the proper level of required reserves to be recommended to the Board. In assigning risk ratings, management considers, among other things, a borrower’s debt service coverage, earnings strength, loan to value ratios, guarantor support, industry conditions and economic conditions. Management categorizes commercial loans and commitments into a one (1) to nine (9) numerical structure with rating 1 being the strongest rating and rating 9 being the weakest. Ratings 1 through 5W are considered ‘Pass’ ratings. The following table shows the Company’s commercial loan portfolio as of March 31, 2019 and December 31, 2018 , by the risk ratings discussed above (in thousands): March 31, 2019 Commercial, Secured by Real Estate Commercial, Industrial and Other Real Estate - Construction RISK RATING 1 $ — $ 2,450 $ — 2 — 18,444 — 3 68,756 36,739 — 4 933,390 88,551 18,204 5 2,247,650 205,999 302,190 5W - Watch 89,295 19,381 5,873 6 - Other assets especially mentioned 46,466 3,988 2,267 7 - Substandard 50,993 13,678 4,461 8 - Doubtful — — — 9 - Loss — — — Total $ 3,436,550 $ 389,230 $ 332,995 December 31, 2018 Commercial, Commercial, Real Estate - RISK RATING 1 $ — $ 1,119 $ — 2 — 18,462 — 3 69,995 36,367 — 4 933,577 91,145 17,375 5 1,910,423 168,474 297,625 5W - Watch 61,626 7,798 3,493 6 - Other assets especially mentioned 38,844 2,033 — 7 - Substandard 43,314 11,337 1,052 8 - Doubtful — — — 9 - Loss — — — Total $ 3,057,779 $ 336,735 $ 319,545 The risk rating tables above do not include residential mortgage loans, consumer loans, or equipment finance because they are evaluated on their payment status. Allowance for Loan Losses The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2019 and 2018 : (in thousands) Commercial, Secured by Real Estate Commercial, Industrial and Other Equipment Finance Real Estate- Residential Mortgage Real Estate- Construction Home Equity and Consumer Total Three Months Ended March 31, 2019 Beginning Balance $ 27,881 $ 1,742 $ 987 $ 1,566 $ 3,015 $ 2,497 $ 37,688 Charge-offs (187 ) (147 ) (87 ) (50 ) — (45 ) (516 ) Recoveries 115 97 2 9 5 71 299 Provision (294 ) 900 45 39 (133 ) (49 ) 508 Ending Balance $ 27,515 $ 2,592 $ 947 $ 1,564 $ 2,887 $ 2,474 $ 37,979 (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total Three Months Ended March 31, 2018 Beginning Balance $ 25,704 $ 2,313 $ 630 $ 1,557 $ 2,731 $ 2,520 $ 35,455 Charge-offs (22 ) (1,012 ) (23 ) (93 ) — (100 ) (1,250 ) Recoveries 31 20 2 2 5 95 155 Provision 104 447 433 123 196 (19 ) 1,284 Ending Balance $ 25,817 $ 1,768 $ 1,042 $ 1,589 $ 2,932 $ 2,496 $ 35,644 Loans receivable summarized by portfolio segment and impairment method are as follows: (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total March 31, 2019 Ending Balance: Individually evaluated for impairment $ 15,985 $ 2,509 $ 327 $ 715 $ — $ 700 $ 20,236 Ending Balance: Collectively evaluated for impairment 3,413,062 384,213 90,464 334,177 329,566 338,573 4,890,055 Ending Balance: Loans acquired with deteriorated credit quality 7,503 2,508 — 398 3,429 542 14,380 Ending Balance (1) $ 3,436,550 $ 389,230 $ 90,791 $ 335,290 $ 332,995 $ 339,815 $ 4,924,671 (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total December 31, 2018 Ending Balance: Individually evaluated for impairment $ 16,554 $ 1,360 $ 331 $ 730 $ — $ 727 $ 19,702 Ending Balance: Collectively evaluated for impairment 3,040,573 335,375 87,594 329,124 319,545 327,882 4,440,093 Ending balance: Loans acquired with deteriorated credit quality 652 — — — — — 652 Ending Balance (1) $ 3,057,779 $ 336,735 $ 87,925 $ 329,854 $ 319,545 $ 328,609 $ 4,460,447 (1) Excludes deferred fees The allowance for loan losses is summarized by portfolio segment and impairment classification as follows: (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total March 31, 2019 Ending Balance: Individually evaluated for impairment $ 229 $ 8 $ 12 $ 4 $ — $ 6 $ 259 Ending Balance: Collectively evaluated for impairment 27,286 2,584 935 1,560 2,887 2,468 37,720 Ending Balance $ 27,515 $ 2,592 $ 947 $ 1,564 $ 2,887 $ 2,474 $ 37,979 (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total December 31, 2018 Ending Balance: Individually evaluated for impairment $ 307 $ 7 $ 14 $ 4 $ — $ 6 $ 338 Ending Balance: Collectively evaluated for impairment 27,574 1,735 973 1,562 3,015 2,491 37,350 Ending Balance $ 27,881 $ 1,742 $ 987 $ 1,566 $ 3,015 $ 2,497 $ 37,688 Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities. This reserve was $2.3 million as of March 31, 2019 and December 31, 2018 . The Company analyzes the adequacy of the reserve for unfunded lending commitments quarterly. Troubled Debt Restructurings Loans are classified as troubled debt restructured loans 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 Company considers the potential losses on these loans as well as the remainder of its impaired loans while considering the adequacy of the allowance for loan losses. The following table summarizes loans that have been restructured during the three months ended March 31, 2019 and 2018 : For the Three Months Ended March 31, 2019 For the Three Months Ended March 31, 2018 (dollars in thousands) Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Commercial, secured by real estate — $ — $ — 2 $ 1,657 $ 1,657 — $ — $ — 2 $ 1,657 $ 1,657 There were no loans as of March 31, 2019 and 2018 that were restructured within the previous twelve months that have subsequently defaulted. Other Real Estate and Other Repossessed Assets At March 31, 2019 and December 31, 2018 , the Company had other real estate owned of $715,000 and $830,000 , respectively. Included in other real estate owned was residential property acquired as a result of foreclosure proceedings totaling $624,000 and $702,000 at March 31, 2019 and December 31, 2018 , respectively. There were no balances of other repossessed assets at both March 31, 2019 and December 31, 2018 . |