Loans | 89 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance Non-owner occupied commercial $ 864 $ — $ — $ — Owner occupied commercial 8,076 — — 7,675 Multifamily 266 — — — Non-owner occupied residential 41 — — — Commercial, industrial and other 1,737 — — — Construction — — — — Equipment finance 644 — — — Residential mortgage 1,954 — — — Consumer 2,486 — — 68 Total $ 16,068 $ — $ — $ 7,743 December 31, 2022 (in thousands) Non-accrual Interest Income Recognized on Non-accrual Loans Amortized Cost Basis of Loans > 89 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance Non-owner occupied commercial $ 618 $ — $ — $ — Owner occupied commercial 9,439 — — 8,859 Non-owner occupied residential 441 — — 440 Commercial, industrial and other 2,978 — — — Construction 980 — — 980 Equipment finance 114 — — — Residential mortgage 2,011 — — — Consumer 781 — — 79 Total $ 17,362 $ — $ — $ 10,358 At June 30, 2023 and December 31, 2022, there were no loans that were past due more than 89 days and still accruing. The Company had no residential mortgages and consumer loans included in non-accrual and that were in the process of foreclosure at June 30, 2023 and $898,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2022. Purchased Credit Deteriorated ("PCD") Loans The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of the closing date, January 6, 2022. (in thousands) PCD Loans Gross amortized cost basis $ 140,300 Interest component of expected cash flows (accretable difference) (3,792) Allowance for credit losses on PCD loans (12,077) Net PCD loans $ 124,431 At June 30, 2023, net PCD loans acquired from 1st Constitution totaled $74.2 million. Troubled Debt Restructurings and Modifications of Loans to Debtors Experiencing Financial Difficulty The Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") as of January 1, 2023. Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of troubled debt restructured loans ("TDRs") so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure above. It also replaces the historical disclosure of TDRs with the new disclosure of modifications of receivables to debtors experiencing financial difficulty. Prior to the adoption of ASU 2022-02, loans were classified as TDRs in cases where borrowers experienced financial difficulties and Lakeland made certain concessionary modifications to contractual terms. Restructured loans typically involved 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. During the three and six months ended June 30, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing TDRs. There were no loans that were restructured during the three and six months ended June 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted during the six months ended June 30, 2023 or 2022, respectively." id="sjs-B4">Loans The following sets forth the composition of the Company’s loan portfolio: (in thousands) June 30, 2023 December 31, 2022 Non-owner occupied commercial $ 2,991,124 $ 2,906,014 Owner occupied commercial 1,201,049 1,246,189 Multifamily 1,314,255 1,260,814 Non-owner occupied residential 205,818 218,026 Commercial, industrial and other 594,790 606,711 Construction 354,918 380,100 Equipment finance 173,469 151,574 Residential mortgage 922,109 765,552 Home equity and consumer 343,755 331,070 Total $ 8,101,287 $ 7,866,050 Loans are recorded 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 $25.2 million at June 30, 2023 and $24.5 million at December 31, 2022. 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 totaled $1.3 million at June 30, 2023 and $2.1 million at December 31, 2022. At June 30, 2023 and December 31, 2022, SBA Paycheck Protection Program ("PPP") loans totaled $389,000 and $435,000, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $604,000 and $1.3 million, at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, the Company had $4.34 billion and $2.89 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB"), respectively. Credit Quality Indicators Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions. Management categorizes loans and commitments into the following risk ratings: Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral. Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share. Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date. Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. Doubtful: "Doubtful" assets 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 30, 2023. Term Loans by Origination Year (in thousands) 2023 2022 2021 2020 2019 Pre-2019 Revolving Loans Revolving to Term Total Non-owner occupied commercial Pass $ 180,461 $ 664,822 $ 383,091 $ 480,262 $ 278,174 $ 831,539 $ 18,989 — $ 2,837,338 Watch 764 1,260 — 21,375 8,875 58,777 — — 91,051 Special mention — — — 4,951 3,021 24,617 — — 32,589 Substandard — — — — — 30,146 — — 30,146 Total 181,225 666,082 383,091 506,588 290,070 945,079 18,989 — 2,991,124 Owner occupied commercial Pass 19,416 264,157 207,564 154,511 73,809 360,207 8,140 234 1,088,038 Watch — — 3,718 1,689 3,390 30,667 250 — 39,714 Special mention — 1,310 20,191 5,707 1,840 17,997 — — 47,045 Substandard — — 97 14,133 4,916 7,106 — — 26,252 Total 19,416 265,467 231,570 176,040 83,955 415,977 8,390 234 1,201,049 Multifamily Pass 68,918 302,926 240,378 249,302 65,575 328,008 2,723 — 1,257,830 Watch — — 5,753 24,477 — 2,463 — — 32,693 Special mention — 500 1,119 2,395 3,824 10,890 — — 18,728 Substandard — — — — — 5,004 — — 5,004 Total 68,918 303,426 247,250 276,174 69,399 346,365 2,723 — 1,314,255 Non-owner occupied residential Pass 3,448 35,027 28,833 20,029 24,831 79,203 5,675 4 197,050 Watch — — — — — 3,855 75 — 3,930 Special mention — — — — 500 1,743 — — 2,243 Substandard — — — 41 548 2,006 — — 2,595 Total 3,448 35,027 28,833 20,070 25,879 86,807 5,750 4 205,818 Commercial, industrial and other Pass 13,029 45,275 46,009 24,715 29,601 47,435 343,805 1,507 551,376 Watch 2,556 223 583 72 162 2,447 6,488 — 12,531 Special mention 98 — — — 203 424 2,641 — 3,366 Substandard — 375 464 — — 348 26,330 — 27,517 Total 15,683 45,873 47,056 24,787 29,966 50,654 379,264 1,507 594,790 Current YTD period: Gross charge-offs — — — — — 13 — — 13 Construction Pass 22,533 119,661 122,275 22,832 5,827 4,662 17,122 3,711 318,623 Watch 2 1,798 8,131 13,194 — — 472 — 23,597 Substandard — — — — — 12,698 — — 12,698 Total 22,535 121,459 130,406 36,026 5,827 17,360 17,594 3,711 354,918 Current YTD period: Gross charge-offs — 13 — — — — — — 13 Term Loans by Origination Year (in thousands) 2023 2022 2021 2020 2019 Pre-2019 Revolving Loans Revolving to Term Total Equipment finance Pass 49,046 66,112 29,587 15,427 9,976 1,958 — — 172,106 Substandard 64 269 135 47 837 11 — — 1,363 Total 49,110 66,381 29,722 15,474 10,813 1,969 — — 173,469 Current YTD period: Gross charge-offs — — 60 — 13 10 — — 83 Residential mortgage Pass 183,889 316,549 163,362 104,090 33,785 118,480 — — 920,155 Substandard — — — 195 459 1,300 — — 1,954 Total 183,889 316,549 163,362 104,285 34,244 119,780 — — 922,109 Consumer Pass 12,756 42,949 29,623 8,088 3,769 21,263 222,820 2 341,270 Substandard — — — — — 690 29 1,766 2,485 Total 12,756 42,949 29,623 8,088 3,769 21,953 222,849 1,768 343,755 Current YTD period: Gross charge-offs 138 6 18 — 1 15 — — 178 Total loans $ 556,980 $ 1,863,213 $ 1,290,913 $ 1,167,532 $ 553,922 $ 2,005,944 $ 655,559 $ 7,224 $ 8,101,287 Current YTD period: Gross charge-offs 138 19 78 — 14 38 — — 287 The following table presents the risk category of loans by class of loan and vintage as of December 31, 2022. Term Loans by Origination Year (in thousands) 2022 2021 2020 2019 2018 Pre-2018 Revolving Loans Revolving to Term Total Non-owner occupied commercial Pass $ 673,235 $ 391,748 $ 495,618 $ 271,109 $ 183,971 $ 703,852 $ 19,317 2,502 $ 2,741,352 Watch 1,272 — 21,720 26,906 12,099 48,314 — — 110,311 Special mention — — 494 830 15,586 16,304 — — 33,214 Substandard — — — — 133 21,004 — — 21,137 Total 674,507 391,748 517,832 298,845 211,789 789,474 19,317 2,502 2,906,014 Owner occupied commercial Pass 267,754 198,131 191,603 85,343 61,581 317,434 13,328 — 1,135,174 Watch — — 2,888 3,520 4,728 28,659 75 — 39,870 Special mention 585 17,778 5,749 1,862 3,701 20,292 — — 49,967 Substandard — 97 8,876 1,899 475 9,831 — — 21,178 Total 268,339 216,006 209,116 92,624 70,485 376,216 13,403 — 1,246,189 Multifamily Pass 312,910 221,306 265,187 67,072 95,432 249,021 5,288 — 1,216,216 Watch — 5,817 11,692 — — 2,504 — — 20,013 Special mention 500 — 2,421 — — 11,274 — — 14,195 Substandard — — — 3,864 — 6,526 — — 10,390 Total 313,410 227,123 279,300 70,936 95,432 269,325 5,288 — 1,260,814 Non-owner occupied residential Pass 37,445 29,365 22,133 24,205 18,489 67,114 7,513 21 206,285 Watch — — — 2,068 — 5,244 75 — 7,387 Special mention — — — 507 822 1,017 — — 2,346 Substandard — — — — — 2,008 — — 2,008 Total 37,445 29,365 22,133 26,780 19,311 75,383 7,588 21 218,026 Commercial, industrial and other Pass 48,719 51,894 27,644 57,124 13,936 39,892 339,040 245 578,494 Watch 251 704 237 211 — 1,424 10,001 — 12,828 Special mention 375 258 — 179 36 378 4,878 — 6,104 Substandard 776 242 — 450 4,722 183 2,912 — 9,285 Total 50,121 53,098 27,881 57,964 18,694 41,877 356,831 245 606,711 Construction Pass 79,420 172,849 35,295 31,447 7,245 4,005 19,294 — 349,555 Watch 1,159 5,480 10,299 — — — 171 — 17,109 Substandard — 95 — — — 13,341 — — 13,436 Total 80,579 178,424 45,594 31,447 7,245 17,346 19,465 — 380,100 Equipment finance Pass 74,840 36,087 20,382 15,738 3,862 546 — — 151,455 Substandard — — — 97 22 — — — 119 Total 74,840 36,087 20,382 15,835 3,884 546 — — 151,574 Residential mortgage Pass 323,636 167,791 110,199 35,180 20,218 106,391 — — 763,415 Substandard — — — 490 341 1,306 — — 2,137 Total 323,636 167,791 110,199 35,670 20,559 107,697 — — 765,552 Consumer Pass 47,282 31,368 8,658 4,143 3,093 21,482 213,857 — 329,883 Substandard 33 — — — 23 853 278 — 1,187 Total 47,315 31,368 8,658 4,143 3,116 22,335 214,135 — 331,070 Total loans $ 1,870,192 $ 1,331,010 $ 1,241,095 $ 634,244 $ 450,515 $ 1,700,199 $ 636,027 $ 2,768 $ 7,866,050 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. 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, 2023 Past Due (in thousands) Current 30 - 59 Days 60 - 89 Days Greater than 89 days Total Total Loans Non-owner occupied commercial $ 2,990,533 $ — $ — $ 591 $ 591 $ 2,991,124 Owner occupied commercial 1,192,553 98 1,692 6,706 8,496 1,201,049 Multifamily 1,312,870 1,119 — 266 1,385 1,314,255 Non-owner occupied residential 205,803 15 — — 15 205,818 Commercial, industrial and other 593,029 14 76 1,671 1,761 594,790 Construction 354,918 — — — — 354,918 Equipment finance 172,290 757 276 146 1,179 173,469 Residential mortgage 917,114 2,669 1,215 1,111 4,995 922,109 Consumer 341,819 391 74 1,471 1,936 343,755 Total $ 8,080,929 $ 5,063 $ 3,333 $ 11,962 $ 20,358 $ 8,101,287 December 31, 2022 Past Due (in thousands) Current 30 - 59 Days 60 - 89 Days Greater than 89 days Total Total Loans Non-owner occupied commercial $ 2,905,049 $ 346 $ — $ 619 $ 965 $ 2,906,014 Owner occupied commercial 1,235,134 2,854 477 7,724 11,055 1,246,189 Multifamily 1,260,135 — 679 — 679 1,260,814 Non-owner occupied residential 217,407 178 — 441 619 218,026 Commercial, industrial and other 603,731 55 3 2,922 2,980 606,711 Construction 379,120 — — 980 980 380,100 Equipment finance 150,842 494 238 — 732 151,574 Residential mortgage 760,638 3,031 271 1,612 4,914 765,552 Consumer 330,119 841 62 48 951 331,070 Total $ 7,842,175 $ 7,799 $ 1,730 $ 14,346 $ 23,875 $ 7,866,050 The following tables present information on non-accrual loans at June 30, 2023 and December 31, 2022: June 30, 2023 (in thousands) Non-accrual Interest Income Recognized on Non-accrual Loans Amortized Cost Basis of Loans > 89 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance Non-owner occupied commercial $ 864 $ — $ — $ — Owner occupied commercial 8,076 — — 7,675 Multifamily 266 — — — Non-owner occupied residential 41 — — — Commercial, industrial and other 1,737 — — — Construction — — — — Equipment finance 644 — — — Residential mortgage 1,954 — — — Consumer 2,486 — — 68 Total $ 16,068 $ — $ — $ 7,743 December 31, 2022 (in thousands) Non-accrual Interest Income Recognized on Non-accrual Loans Amortized Cost Basis of Loans > 89 days Past due but still accruing Amortized Cost Basis of Non-accrual Loans without Related Allowance Non-owner occupied commercial $ 618 $ — $ — $ — Owner occupied commercial 9,439 — — 8,859 Non-owner occupied residential 441 — — 440 Commercial, industrial and other 2,978 — — — Construction 980 — — 980 Equipment finance 114 — — — Residential mortgage 2,011 — — — Consumer 781 — — 79 Total $ 17,362 $ — $ — $ 10,358 At June 30, 2023 and December 31, 2022, there were no loans that were past due more than 89 days and still accruing. The Company had no residential mortgages and consumer loans included in non-accrual and that were in the process of foreclosure at June 30, 2023 and $898,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2022. Purchased Credit Deteriorated ("PCD") Loans The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of the closing date, January 6, 2022. (in thousands) PCD Loans Gross amortized cost basis $ 140,300 Interest component of expected cash flows (accretable difference) (3,792) Allowance for credit losses on PCD loans (12,077) Net PCD loans $ 124,431 At June 30, 2023, net PCD loans acquired from 1st Constitution totaled $74.2 million. Troubled Debt Restructurings and Modifications of Loans to Debtors Experiencing Financial Difficulty The Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") as of January 1, 2023. Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of troubled debt restructured loans ("TDRs") so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure above. It also replaces the historical disclosure of TDRs with the new disclosure of modifications of receivables to debtors experiencing financial difficulty. Prior to the adoption of ASU 2022-02, loans were classified as TDRs in cases where borrowers experienced financial difficulties and Lakeland made certain concessionary modifications to contractual terms. Restructured loans typically involved 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. During the three and six months ended June 30, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing TDRs. There were no loans that were restructured during the three and six months ended June 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted during the six months ended June 30, 2023 or 2022, respectively. |