Loans and Other Real Estate | LOANS AND OTHER REAL ESTATE The following sets forth the composition of the Company’s loan portfolio: (in thousands) June 30, 2019 December 31, 2018 Commercial, secured by real estate $ 3,431,709 $ 3,057,779 Commercial, industrial and other 407,776 336,735 Equipment finance 99,351 87,925 Real estate - residential mortgage 336,810 329,854 Real estate - construction 305,738 319,545 Home equity and consumer 343,916 328,609 Total loans 4,925,300 4,460,447 Less: deferred fees (2,927 ) (3,714 ) Loans, net of deferred fees $ 4,922,373 $ 4,456,733 At June 30, 2019 and December 31, 2018 , home equity and consumer loans included overdraft deposit balances of $465,000 and $452,000 , respectively. At June 30, 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 following sets forth the carrying value of the purchased credit impaired ("PCI") loans acquired in mergers: (in thousands) June 30, 2019 December 31, 2018 Acquisition Highlands $ 13,446 $ — Pascack Community Bank ("Pascack") 134 157 Harmony Bank ("Harmony") 470 495 Total $ 14,050 $ 652 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 $13.8 million at acquisition on January 4, 2019. The following table presents changes in the accretable yield for PCI loans: For the Three Months Ended For the Six Months Ended (in thousands) June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 Balance, beginning of period $ 1,338 $ 113 $ 81 $ 129 Acquisitions 11 — 1,431 — Accretion (188 ) (43 ) (381 ) (87 ) Net reclassification non-accretable difference 30 30 60 58 Balance, end of period $ 1,191 $ 100 $ 1,191 $ 100 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) June 30, 2019 December 31, 2018 Commercial, secured by real estate $ 10,205 $ 7,192 Commercial, industrial and other 662 1,019 Equipment finance 136 501 Real estate - residential mortgage 1,548 1,986 Home equity and consumer 1,873 1,432 Total non-accrual loans $ 14,424 $ 12,130 Other real estate and other repossessed assets 532 830 TOTAL NON-PERFORMING ASSETS $ 14,956 $ 12,960 Troubled debt restructurings, still accruing $ 5,139 $ 9,293 Non-accrual loans included $3.3 million and $3.6 million of troubled debt restructurings at June 30, 2019 and December 31, 2018 , respectively. At June 30, 2019 and December 31, 2018 , the Company had $1.4 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, excluding PCI loans which are accounted for on a pool basis, segregated by class of loans as of June 30, 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 June 30, 2019 Commercial, secured by real estate $ 5,398 $ 4,947 $ 6,210 $ 16,555 $ 3,408,255 $ 3,424,810 $ — Commercial, industrial and other 1,321 154 131 1,606 403,654 405,260 — Equipment finance 248 68 136 452 98,899 99,351 — Real estate - residential mortgage 3,038 223 1,262 4,523 331,825 336,348 — Real estate - construction 493 — — 493 301,607 302,100 — Home equity and consumer 1,588 217 1,689 3,494 339,887 343,381 — $ 12,086 $ 5,609 $ 9,428 $ 27,123 $ 4,884,127 $ 4,911,250 $ — December 31, 2018 Commercial, secured by real estate $ 1,477 $ 639 $ 2,080 $ 4,196 $ 3,052,931 $ 3,057,127 $ — 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 $ 5,957 $ 12,022 $ 4,447,773 $ 4,459,795 $ — 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 June 30, 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 June 30, 2019 Loans without specific allowance: Commercial, secured by real estate $ 11,465 $ 11,863 $ — $ 10,074 $ 103 Commercial, industrial and other 644 633 — 1,146 9 Equipment finance — — — 255 — Real estate - residential mortgage — — — — — Real estate - construction — — — — — Home equity and consumer — — — — — Loans with specific allowance: Commercial, secured by real estate 3,758 4,033 219 5,201 112 Commercial, industrial and other 128 128 7 128 4 Equipment finance 23 23 10 28 13 Real estate - residential mortgage 700 865 3 708 10 Real estate - construction — — — — — Home equity and consumer 667 713 5 680 15 Total: Commercial, secured by real estate $ 15,223 $ 15,896 $ 219 $ 15,275 $ 215 Commercial, industrial and other 772 761 7 1,274 13 Equipment finance 23 23 10 283 13 Real estate - residential mortgage 700 865 3 708 10 Real estate - construction — — — — — Home equity and consumer 667 713 5 680 15 $ 17,385 $ 18,258 $ 244 $ 18,220 $ 266 (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 $266,000 and $308,000 for the six months ended June 30, 2019 and 2018 , respectively. Interest that would have been accrued on impaired loans during the first six months of 2019 and 2018 had the loans been performing under original terms would have been $500,000 and $566,000 , 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 June 30, 2019 and December 31, 2018 , by the risk ratings discussed above (in thousands): June 30, 2019 Commercial, Secured by Real Estate Commercial, Industrial and Other Real Estate - Construction RISK RATING 1 $ — $ 2,414 $ — 2 — 19,465 — 3 72,155 37,113 — 4 937,855 96,762 17,086 5 2,222,710 217,158 274,322 5W - Watch 96,095 17,997 7,738 6 - Other assets especially mentioned 51,572 4,942 2,267 7 - Substandard 51,322 11,925 4,325 8 - Doubtful — — — 9 - Loss — — — Total $ 3,431,709 $ 407,776 $ 305,738 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 loans 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 and six months ended June 30, 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 June 30, 2019 Beginning Balance $ 27,515 $ 2,592 $ 947 $ 1,564 $ 2,887 $ 2,474 $ 37,979 Charge-offs — (38 ) (293 ) — — (82 ) (413 ) Recoveries 25 947 — 2 60 62 1,096 Provision 555 (868 ) 401 40 (239 ) 111 — Ending Balance $ 28,095 $ 2,633 $ 1,055 $ 1,606 $ 2,708 $ 2,565 $ 38,662 (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total Three Months Ended June 30, 2018 Beginning Balance $ 25,817 $ 1,768 $ 1,042 $ 1,589 $ 2,932 $ 2,496 $ 35,644 Charge-offs (210 ) (289 ) (72 ) — (248 ) (144 ) (963 ) Recoveries 274 76 3 3 3 72 431 Provision 293 457 291 (7 ) 376 82 1,492 Ending Balance $ 26,174 $ 2,012 $ 1,264 $ 1,585 $ 3,063 $ 2,506 $ 36,604 (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 Six Months Ended June 30, 2019 Beginning Balance $ 27,881 $ 1,742 $ 987 $ 1,566 $ 3,015 $ 2,497 $ 37,688 Charge-offs (187 ) (185 ) (380 ) (50 ) — (127 ) (929 ) Recoveries 140 1,044 2 11 65 133 1,395 Provision 261 32 446 79 (372 ) 62 508 Ending Balance $ 28,095 $ 2,633 $ 1,055 $ 1,606 $ 2,708 $ 2,565 $ 38,662 (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total Six Months Ended June 30, 2018 Beginning Balance $ 25,704 $ 2,313 $ 630 $ 1,557 $ 2,731 $ 2,520 $ 35,455 Charge-offs (232 ) (1,301 ) (95 ) (93 ) (248 ) (244 ) (2,213 ) Recoveries 305 96 5 5 8 167 586 Provision 397 904 724 116 572 63 2,776 Ending Balance $ 26,174 $ 2,012 $ 1,264 $ 1,585 $ 3,063 $ 2,506 $ 36,604 Loans receivable summarized by portfolio segment and impairment method are as follows: (in thousands) Commercial, Commercial, Equipment Finance Real Estate- Real Estate- Home Total June 30, 2019 Ending Balance: Individually evaluated for impairment $ 15,223 $ 772 $ 23 $ 700 $ — $ 667 $ 17,385 Ending Balance: Collectively evaluated for impairment 3,409,587 404,488 99,328 335,648 302,100 342,714 4,893,865 Ending Balance: Loans acquired with deteriorated credit quality 6,899 2,516 — 462 3,638 535 14,050 Ending Balance (1) $ 3,431,709 $ 407,776 $ 99,351 $ 336,810 $ 305,738 $ 343,916 $ 4,925,300 (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 June 30, 2019 Ending Balance: Individually evaluated for impairment $ 219 $ 7 $ 10 $ 3 $ — $ 5 $ 244 Ending Balance: Collectively evaluated for impairment 27,876 2,626 1,045 1,603 2,708 2,560 38,418 Ending Balance $ 28,095 $ 2,633 $ 1,055 $ 1,606 $ 2,708 $ 2,565 $ 38,662 (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 $1.8 million and $2.3 million as of June 30, 2019 and December 31, 2018 , respectively. 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 and six months ended June 30, 2019 and 2018 : For the Three Months Ended June 30, 2019 For the Three Months Ended June 30, 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 — $ — $ — 1 $ 170 $ 170 Commercial, industrial and other — — — 1 950 950 — $ — $ — 2 $ 1,120 $ 1,120 For the Six Months Ended June 30, 2019 For the Six Months Ended June 30, 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 — $ — $ — 3 $ 1,827 $ 1,827 Commercial, industrial and other — — — 1 950 950 — $ — $ — 4 $ 2,777 $ 2,777 The following table summarizes as of June 30, 2019 and 2018 , loans that were restructured within the previous twelve months that have subsequently defaulted: June 30, 2019 June 30, 2018 (dollars in thousands) Number of Recorded Number of Recorded Commercial, secured by real estate — $ — 2 $ 1,234 Commercial, industrial and other — — 1 950 Equipment financing — — 1 11 — $ — 4 $ 2,195 Other Real Estate and Other Repossessed Assets At June 30, 2019 and December 31, 2018 , the Company had other real estate owned of $532,000 and $830,000 , respectively. Included in other real estate owned was residential property acquired as a result of foreclosure proceedings totaling $467,000 and $702,000 at June 30, 2019 and December 31, 2018 , respectively. There were no balances of other repossessed assets at both June 30, 2019 and December 31, 2018 . |