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		September 30, ~~2020~~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 ~~November 3, 2020,~~October 29, 2021, there were ~~50,468,835~~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 September 30, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 ~~and 2019~~ (unaudited)	8
	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3437

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5152

Item 4.	Controls and Procedures	5253

	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	5354

Item 3.	Defaults Upon Senior Securities	5354

Item 4.	Mine Safety Disclosures	5354

Item 5.	Other Information	5354

Item 6.	Exhibits	5455

Signatures		5556

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

~~CONSOLIDATED BALANCE SHEETS~~Consolidated Balance Sheets


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
(dollars in thousands)	(dollars in thousands)	(unaudited)				(dollars in thousands)	(unaudited)

ASSETS
Assets						Assets
Cash	Cash	$	314,591	$	275,794	Cash	$	641,861	$	262,327
Interest-bearing deposits due from banks	Interest-bearing deposits due from banks	31,337		6,577		Interest-bearing deposits due from banks	20,774		7,763
Total cash and cash equivalents	Total cash and cash equivalents	345,928		282,371		Total cash and cash equivalents	662,635		270,090
Investment securities available for sale, at fair value		783,331		755,900
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	14,076		16,473		Equity securities, at fair value	16,422		14,694
Investment securities held to maturity; fair value of $101,205 at September 30, 2020 and $124,904 at December 31, 2019		97,893		123,975
Federal Home Loan Bank and other membership bank stock, at cost	Federal Home Loan Bank and other membership bank stock, at cost	14,235		22,505		Federal Home Loan Bank and other membership bank stock, at cost	9,340		11,979
Loans held for sale	Loans held for sale	4,197		1,743		Loans held for sale	851		1,335
Loans, net of deferred fees	Loans, net of deferred fees	5,843,591		5,137,823		Loans, net of deferred fees	5,880,802		6,021,232
Less: Allowance for loan losses		65,242		40,003
Less: Allowance for credit losses						Less: Allowance for credit losses	57,953		71,124
Net loans	Net loans	5,778,349		5,097,820		Net loans	5,822,849		5,950,108
Premises and equipment, net	Premises and equipment, net	47,810		47,608		Premises and equipment, net	46,163		48,495
Operating lease right-of-use assets	Operating lease right-of-use assets	17,028		18,282		Operating lease right-of-use assets	14,809		16,772
Accrued interest receivable	Accrued interest receivable	21,480		16,832		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	3,538		4,314		Other identifiable intangible assets	2,631		3,288
Bank owned life insurance	Bank owned life insurance	114,418		112,392		Bank owned life insurance	117,073		115,115
Other assets	Other assets	123,624		54,744		Other assets	82,304		110,293
TOTAL ASSETS		$	7,522,184	$	6,711,236
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing		$	1,474,847	$	1,124,121
Savings and interest-bearing transaction accounts		3,647,328		3,298,854
Time deposits $250 thousand and under		961,402		652,144
Time deposits over $250 thousand		182,939		218,660
Total deposits		6,266,516		5,293,779
Total Assets						Total Assets	$	8,172,479	$	7,664,297
Liabilities and Stockholders' Equity						Liabilities and Stockholders' Equity
Liabilities						Liabilities

Deposits						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	97,874		328,658		Federal funds purchased and securities sold under agreements to repurchase	111,907		169,560
Other borrowings	Other borrowings	135,111		165,816		Other borrowings	25,000		25,000
Subordinated debentures	Subordinated debentures	118,248		118,220		Subordinated debentures	187,107		118,257
Operating lease liabilities	Operating lease liabilities	18,471		19,814		Operating lease liabilities	16,105		18,183
Other liabilities	Other liabilities	132,392		59,686		Other liabilities	87,320		113,730
TOTAL LIABILITIES		6,768,612		5,985,973
STOCKHOLDERS’ EQUITY
Common stock, no par value; authorized shares, 100,000,000; issued shares 50,598,670 and outstanding shares 50,467,635 at September 30, 2020 and issued and outstanding shares 50,498,410 at December 31, 2019		561,817		560,263
Total Liabilities						Total Liabilities	7,358,351		6,900,513
Stockholders' Equity						Stockholders' Equity
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	182,329		162,752		Retained earnings	244,092		191,418
Treasury shares, at cost, 131,035 shares at September 30, 2020 and 0 shares at December 31, 2019		(1,452)		0
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	10,878		2,248		Accumulated other comprehensive income	6,514		11,397
TOTAL STOCKHOLDERS’ EQUITY		753,572		725,263
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	7,522,184	$	6,711,236
Total Stockholders' Equity						Total Stockholders' Equity	814,128		763,784
Total Liabilities and Stockholders' Equity						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)~~Consolidated Statements of Income (Unaudited)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands, except per share data) 2020 2019 2020 2019
INTEREST INCOME
Loans and fees $ 56,801 $ 58,563 $ 170,483 $ 175,324
Federal funds sold and interest-bearing deposits with
banks
92 695 287 1,297
Taxable investment securities and other 4,139 5,007 14,131 14,865
Tax-exempt investment securities 401 361 1,082 1,165
TOTAL INTEREST INCOME 61,433 64,626 185,983 192,651
INTEREST EXPENSE
Deposits 7,012 13,267 25,969 37,526
Federal funds purchased and securities sold under
agreements to repurchase
27 231 531 1,333
Other borrowings 2,260 2,446 6,931 7,306
TOTAL INTEREST EXPENSE 9,299 15,944 33,431 46,165
NET INTEREST INCOME 52,134 48,682 152,552 146,486
Provision for loan losses 8,000 536 26,223 1,044
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 44,134 48,146 126,329 145,442
NONINTEREST INCOME
Service charges on deposit accounts 2,288 2,851 6,663 8,179
Commissions and fees 1,667 1,545 4,503 4,682
Income on bank owned life insurance 670 691 2,000 2,064
(Loss) gain on equity securities (170) 72 (625) 525
Gains on sales of loans 1,437 486 2,562 1,285
Gains on sales of investment securities, net 0 0 342 0
Swap income 624 730 4,234 1,585
Other income 257 325 586 492
TOTAL NONINTEREST INCOME 6,773 6,700 20,265 18,812
NONINTEREST EXPENSE
Salaries and employee benefits 19,694 19,062 60,198 57,672
Net occupancy expense 2,692 2,767 8,016 8,350
Furniture and equipment 2,890 2,084 8,233 6,365
FDIC insurance expense 625 (420) 1,373 431
Stationery, supplies and postage 488 366 1,268 1,214
Marketing expense 381 423 840 1,430
Data processing expense 1,211 1,248 3,900 3,800
Telecommunications expense 501 480 1,399 1,451
ATM and debit card expense 615 588 1,738 1,773
Core deposit intangible amortization 250 288 776 893
Other real estate and repossessed asset expense
(income) (2) 29 53 223
Long-term debt prepayment fee 0 0 356 0
Merger related expenses 0 0 0 3,178
Other expenses 2,752 2,648 7,913 8,453
TOTAL NONINTEREST EXPENSE 32,097 29,563 96,063 95,233
Income before provision for income taxes 18,810 25,283 50,531 69,021
Provision for income taxes 4,383 6,409 11,861 17,064
NET INCOME $ 14,427 $ 18,874 $ 38,670 $ 51,957
PER SHARE OF COMMON STOCK
Basic earnings $ 0.28 $ 0.37 $ 0.76 $ 1.02
Diluted earnings 0.28 0.37 0.76 1.02
Dividends 0.125 0.125 0.375 0.365


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Interest Income
Loans and fees	$	59,957	$	56,801	$	179,264	$	170,483
Federal funds sold and interest-bearing deposits with banks	161		92		250		287
Taxable investment securities and other	4,232		4,139		12,242		14,131
Tax-exempt investment securities	588		401		1,831		1,082
Total Interest Income	64,938		61,433		193,587		185,983
Interest Expense
Deposits	3,987		7,012		13,349		25,969
Federal funds purchased and securities sold under agreements to repurchase	19		27		58		531
Other borrowings	1,594		2,260		4,374		6,931
Total Interest Expense	5,600		9,299		17,781		33,431
Net Interest Income	59,338		52,134		175,806		152,552
(Benefit) provision for credit losses (1)	(2,703)		8,000		(11,304)		26,223
Net Interest Income after (Benefit) Provision for Credit Losses	62,041		44,134		187,110		126,329
Noninterest Income
Service charges on deposit accounts	2,536		2,288		7,277		6,663
Commissions and fees	1,609		1,667		4,962		4,503
Income on bank owned life insurance	645		670		1,922		2,000
Loss on equity securities	(58)		(170)		(191)		(625)
Gains on sales of loans	550		1,437		1,865		2,562
Gains on investment securities transactions, net	—		—		9		342
Swap income	—		624		634		4,234
Other income	187		257		19		586
Total Noninterest Income	5,469		6,773		16,497		20,265
Noninterest Expense
Compensation and employee benefits	21,478		19,065		62,403		57,282
Premises and equipment	6,206		5,582		18,602		16,249
FDIC insurance	461		625		1,793		1,373
Data processing	1,495		1,211		4,049		3,900
Merger related expenses	1,072		—		1,072		—
Other operating expenses	6,495		5,614		17,288		17,259
Total Noninterest Expense	37,207		32,097		105,207		96,063
Income before provision for income taxes	30,303		18,810		98,400		50,531
Provision for income taxes	8,014		4,383		25,529		11,861
Net Income	$	22,289	$	14,427	$	72,871	$	38,670
Per Share of Common Stock
Basic earnings	$	0.43	$	0.28	$	1.42	$	0.76
Diluted earnings	$	0.43	$	0.28	$	1.42	$	0.76
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)~~Consolidated Statements of Comprehensive Income (Unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

NET INCOME		$	14,427	$	18,874	$	38,670	$	51,957
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net Income										Net Income	$	22,289	$	14,427	$	72,871	$	38,670
Other comprehensive income, net of tax:										Other comprehensive income, net of tax:
Unrealized (losses) gains on securities available for sale	Unrealized (losses) gains on securities available for sale	(576)		1,480		9,220		11,619		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		(254)		0		Reclassification for securities gains included in net income	—		—		—		(254)
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	37		(78)		(336)		(571)		Unrealized gains (losses) on derivatives	5		37		(25)		(336)

Other comprehensive (loss) income		(539)		1,402		8,630		11,048
TOTAL COMPREHENSIVE INCOME		$	13,888	$	20,276	$	47,300	$	63,005
Other comprehensive income (loss)										Other comprehensive income (loss)	1,169		(539)		(4,883)		8,630
Total Comprehensive Income										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)~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020


(in thousands, except per share data)	(in thousands, except per share data)	Common Stock		Retained Earnings		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

June 30, 2019		$	558,768	$	137,887	$	0	$	1,808	$	698,463

Net income		—		18,874		—		—		18,874
Other comprehensive income, net of tax		—		—		—		1,402		1,402

Stock based compensation		558		—		—		—		558

Retirement of restricted stock		(38)		—		—		—		(38)
Exercise of stock options		307		—		—		—		307
Cash dividends on common stock of $0.125 per share		—		(6,362)		—		—		(6,362)
September 30, 2019		$	559,595	$	150,399	$	0	$	3,210	$	713,204

June 30, 2020		$	561,257	$	174,267	$	(1,452)	$	11,417	$	745,489
July 1, 2020												July 1, 2020	$	561,257	$	174,267	$	(1,452)	$	11,417	$	745,489

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

Stock based compensation	Stock based compensation	585		—		—		—		585		Stock based compensation	585		—		—		—		585

Retirement of restricted stock	Retirement of restricted stock	(25)		—		—		—		(25)		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)		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	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	—		22,289		—		—		22,289
Other comprehensive income, net of tax												Other comprehensive income, net of tax	—		—		—		1,169		1,169

Stock based compensation												Stock based compensation	958		—		—		—		958

Retirement of restricted stock												Retirement of restricted stock	36		—		—		—		36

Cash dividends on common stock of $0.135 per share												Cash dividends on common stock of $0.135 per share	—		(7,000)		—		—		(7,000)
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.

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2021 and 2020


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

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


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

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

Cash dividends on common stock of $0.375 per share	—		(19,093)		—		—		(19,093)
September 30, 2020	561,817		182,329		(1,452)		10,878		753,572

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


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


Stock based compensation	3,154		—		—		—		3,154
Retirement of restricted stock	(620)		—		—		—		(620)
Exercise of stock options	19		—		—		—		19
Cash dividends on common stock of $0.395 per share	—		(20,197)		—		—		(20,197)
September 30, 2021	$	564,974	$	244,092	$	(1,452)	$	6,514	$	814,128

(1) The Company adopted ASU 2016-13 at December 31, 2020, ~~and 2019~~

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

January 1, 2019 $ 514,703 $ 116,874 $ 0 $ (7,838) $ 623,739
Cumulative adjustment for adoption of ASU 842
— 125 — — 125
January 1, 2019, as adjusted 514,703 116,999 0 (7,838) 623,864
Net income — 51,957 — — 51,957
Other comprehensive income, net of tax — — — 11,048 11,048
Stock based compensation 1,822 — — — 1,822
Issuance of stock for Highlands acquisition 43,417 — — — 43,417
Retirement of restricted stock (654) — — — (654)
Exercise of stock options 307 — — — 307
Cash dividends on common stock of $0.37 per share — (18,557) — — (18,557)
September 30, 2019 $ 559,595 $ 150,399 $ 0 $ 3,210 $ 713,204
January 1, 2020 $ 560,263 $ 162,752 $ 0 $ 2,248 $ 725,263
Net income — 38,670 — — 38,670
Other comprehensive income, net of tax — — — 8,630 8,630
Purchase of treasury stock, 131,035 shares — — (1,452) — (1,452)
Stock based compensation 2,046 — — — 2,046
Retirement of restricted stock (492) — — — (492)
Cash dividends on common stock of $0.38 per share — (19,093) — — (19,093)
September 30, 2020 $ 561,817 $ 182,329 $ (1,452) $ 10,878 $ 753,572
effective January 1, 2020, adjusting Retained Earnings by a negative $3,395. Retained earnings for the nine months ended September 30, 2020 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 CASH FLOWS (UNAUDITED)~~Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30,
(in thousands) 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,670 $ 51,957
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs 209 1,533
Depreciation and amortization 2,588 1,162
Amortization of intangible assets 776 893
Amortization of operating lease right-of-use assets 1,995 1,938
Provision for loan losses 26,223 1,044
Loans originated for sale (78,204) (40,074)
Proceeds from sales of loans held for sale 78,312 40,508
Gains on sales of securities (342) 0
Change in market value of equity securities 625 (525)
Gains on sales of loans held for sale (2,562) (1,285)
(Gains) losses on other real estate and other repossessed assets (76) 87
Losses on sales of premises and equipment 54 486
Long-term debt prepayment penalty 356 0
Stock-based compensation 2,046 1,822
Excess tax (deficiencies) benefits (128) 183
Increase in other assets (79,414) (20,386)
Increase in other liabilities 70,544 21,935
NET CASH PROVIDED BY OPERATING ACTIVITIES 61,672 61,278
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired in acquisitions 0 13,454
Proceeds from repayments and maturities of available for sale securities 633,574 102,133
Proceeds from repayments and maturities of held to maturity securities 26,816 22,330
Proceeds from sales of equity securities 3,000 1,153
Proceeds from sales of available for sale securities 94,696 0
Purchase of available for sale securities (746,035) (149,182)
Purchase of held to maturity securities (1,160) (18,897)
Purchase of equity securities (1,228) (259)
Death benefit proceeds from bank owned life insurance policy 0 121
Proceeds from redemptions of Federal Home Loan Bank stock 97,127 79,217
Purchases of Federal Home Loan Bank stock (88,857) (82,155)
Net increase in loans (702,010) (38,308)
Proceeds from sales of other real estate and repossessed assets 1,032 399
Proceeds from dispositions and sales of premises and equipment 49 1,827
Purchases of premises and equipment (5,155) (4,166)
NET CASH USED IN INVESTING ACTIVITIES (688,151) (72,333)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 972,917 180,990
Decrease in federal funds purchased and securities sold under agreements to repurchase (230,784) (34,579)
Proceeds from other borrowings 25,000 46,260
Repayments of other borrowings (56,060) (89,353)
Purchase of treasury stock (1,452) 0
Exercise of stock options 0 307
Retirement of restricted stock (492) (654)
Dividends paid (19,093) (18,557)
NET CASH PROVIDED BY FINANCING ACTIVITIES 690,036 84,414
Net increase in cash and cash equivalents 63,557 73,359
Cash and cash equivalents, beginning of period 282,371 208,599
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 345,928 $ 281,958


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

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

Excess tax deficiencies	(93)		(128)
Decrease (increase) in other assets	30,945		(77,414)
(Decrease) increase in other liabilities	(27,653)		70,544
Net Cash Provided by Operating Activities	70,383		61,672
Cash Flows from Investing Activities:

Proceeds from repayments and maturities of available for sale securities	149,651		633,574
Proceeds from repayments and maturities of held to maturity securities	38,432		26,816
Proceeds from sales of equity securities	—		3,000
Proceeds from sales of available for sale securities	—		94,696
Purchase of available for sale securities	(329,351)		(746,035)
Purchase of held to maturity securities	(148,684)		(1,160)
Purchase of equity securities	(1,919)		(1,228)


Proceeds from redemptions of Federal Home Loan Bank stock	13,524		97,127
Purchases of Federal Home Loan Bank stock	(10,885)		(88,857)
Net decrease (increase) in loans	128,284		(702,010)
Proceeds from sales of loans previously held for investment	21,765		—
Proceeds from sales of other real estate and repossessed assets	17		1,032
Proceeds from dispositions and sales of premises and equipment	676		49
Purchases of premises and equipment	(3,422)		(5,155)
Net Cash Used in Investing Activities	(141,912)		(688,151)

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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 Nine Months Ended September 30,
(in thousands) 2020 2019

Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes $ 17,386 $ 10,847
Cash paid during the period for interest 35,472 46,532
Transfer of loans into other repossessed assets and other real estate owned 393 599
Initial recognition of operating lease right-of-use assets 0 18,651
Initial recognition of operating lease liabilities 0 20,203
Right-of-use assets obtained in exchange for new lease liabilities 741 765
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock 0 1,767
Investment securities 0 22,734
Loans, including loans held for sale 0 426,118
Goodwill and other intangible assets, net 0 23,125
Other assets 0 9,304
Total non-cash assets acquired 0 483,048
Liabilities assumed:
Deposits 0 409,638
Other borrowings 0 40,957
Other liabilities 0 2,490
Total liabilities assumed 0 453,085
Common stock issued $ 0 $ 43,417




Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	$	22,964	$	17,386
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	494,164		—
Transfer of loans to loans held for sale	21,689		—
Transfer of loans to other real estate owned	—		393


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~~Notes to Consolidated Financial Statements

~~NOTE~~Note 1 – ~~SIGNIFICANT ACCOUNTING POLICIES~~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 ~~accounting principles~~U.S. generally accepted ~~in the United States of America~~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 nine months ended September 30, ~~2020~~2021 do not necessarily indicate the results that the Company will achieve for all of ~~2020.~~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/A~~10-K for the year ended December 31, ~~2019.~~2020. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

~~NOTE~~Note 2 – ~~ACQUISITIONS~~

On January 4, 2019, the Company completed its acquisition of Highlands Bancorp, Inc. ("Highlands"), a bank holding company headquartered in Vernon, New Jersey. Highlands was the parent of Highlands State Bank, which operated 4 branches in Sussex, Passaic and Morris Counties in New Jersey. This acquisition enabled the Company to broaden its presence in those counties. Effective as of the close of business on January 4, 2019, Highlands merged into the Company and Highlands State Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of Highlands received for each outstanding share of Highlands common stock that they owned at the effective time of the merger, 1.015 shares of Lakeland Bancorp, Inc. common stock. The Company issued 2,837,524 shares of its common stock in the merger. Outstanding Highlands stock options were paid out in cash at the difference between $14.71 and an average strike price of $8.09 for a total cash payment of $797,000.

The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date. Highlands' assets were recorded at their preliminary estimated fair values as of January 4, 2019 and Highlands' results of operations have been included in the Company's Consolidated Statements of Income from that date forward.

The assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values based on management's best estimates using information available at the date of the acquisition, including the use of a third-party valuation specialist.

During the second quarter of 2019, the Company revised the estimated fair value of the acquired assets as of the acquisition date as the result of additional information obtained. The adjustment related to credit-impaired loans acquired in the acquisition that were recorded at fair value and subsequently accounted for in accordance with Accounting Standards Codification ("ASC") Subtopic 310-30 and resulted in a $1.7 million increase in goodwill.

As a result of new information obtained during the third quarter of 2019, about facts and circumstances that existed as of the acquisition date, the Company revised the estimated fair value on two Highlands branches acquired. The adjustment resulted in an increase in goodwill of $447,000.

~~Table of Contents~~

Earnings Per Share

The following ~~table summarizes~~schedule shows the ~~estimated fair value of~~Company’s earnings per share calculations for the ~~acquired assets~~periods presented:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Net income available to common shareholders	$	22,289	$	14,427	$	72,871	$	38,670
Less: earnings allocated to participating securities	303		131		839		342
Net income allocated to common shareholders	$	21,986	$	14,296	$	72,032	$	38,328
Weighted average number of common shares outstanding - basic	50,637		50,526		50,616		50,544
Share-based plans	238		94		220		101
Weighted average number of common shares outstanding - diluted	50,875		50,620		50,836		50,645
Basic earnings per share	$	0.43	$	0.28	$	1.42	$	0.76
Diluted earnings per share	$	0.43	$	0.28	$	1.42	$	0.76

There were no antidilutive options to purchase common stock excluded from the computation for the three and ~~liabilities assumed at the date of acquisition for Highlands.~~


~~(in thousands)~~
~~Assets acquired:~~
~~Cash and cash equivalents~~	$	~~13,454~~
~~Securities, available for sale~~	~~21,234~~
~~Securities, held to maturity~~	~~1,500~~
~~Federal Home Loan Bank stock~~	~~1,767~~
~~Loans held for sale~~	~~1,113~~
~~Loans~~	~~425,005~~
~~Premises and equipment~~	~~2,613~~
~~Goodwill~~	~~19,844~~
~~Identifiable intangible assets~~	~~3,728~~
~~Accrued interest receivable and other assets~~	~~6,244~~
~~Total assets acquired~~	~~496,502~~
~~Liabilities assumed:~~
~~Deposits~~	~~(409,638)~~
~~Other borrowings~~	~~(27,800)~~
~~Subordinated debt~~	~~(13,157)~~
~~Other liabilities~~	~~(2,490)~~
~~Total liabilities assumed~~	~~(453,085)~~
~~Net assets acquired~~	$	~~43,417~~

Loans acquired in the Highlands acquisition were recorded at fair value and subsequently accounted for in accordance with ASC Topic 310. There was no carryover related allowance for loan losses. The fair values of loans acquired from Highlands were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted for estimated future credit losses and the rate of prepayments. Projected cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.

~~The following is a summary of the credit impaired loans acquired in the Highlands acquisition as of the closing date.~~

~~(in thousands)~~

~~Contractually required principal and interest at acquisition~~

~~22,363~~

~~Contractual cash flows not expected to be collected (non-accretable difference)~~

~~7,129~~

~~Expected cash flows at acquisition~~

~~15,234~~

~~Interest component of expected cash flows (accretable difference)~~

~~1,431~~

~~Fair value of acquired loans~~

~~13,803~~

The core deposit intangible totaled $3.7 million and is being amortized over its estimated useful life of approximately ten years using an accelerated method. The goodwill will be evaluated annually for impairment. The goodwill is not deductible for tax purposes.

The fair values of deposit liabilities with no stated maturities such as checking, money market and savings accounts, were assumed to equal the carrying amounts since these deposits are payable on demand. The fair values of certificates of deposit and IRAs represent the present value of contractual cash flows discounted at market rates for similar certificates of deposit and IRAs.

Direct costs related to the acquisition were expensed as incurred. The Company incurred 0 merger and acquisition integration-related expenses during the third quarter of 2019 and $3.2 million of merger and acquisition integration-related expenses during the nine months ended September 30, ~~2019, which have been separately stated in the Company's Consolidated Statements of Income. There were 0 merger or acquisition integration-related expenses in~~2021 and 2020.

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~~NOTE 3 – 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.

~~Table of Contents~~

~~The following table sets forth the components of noninterest income for the three and nine months ended September 30, 2020 and 2019:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Deposit Related Fees and Charges:
Debit card interchange income $ 1,472 $ 1,429 $ 3,910 $ 4,059
Overdraft charges 533 1,047 1,935 3,024
ATM service charges 138 226 367 626
Demand deposit fees and charges 129 124 394 389
Savings service charges 16 25 57 81
Total 2,288 2,851 6,663 8,179
Commissions and Fees:
Loan fees 510 303 1,063 1,182
Wire transfer charges 372 316 1,021 888
Investment services income 392 474 1,231 1,253
Merchant fees 184 202 598 586
Commissions from sales of checks 73 85 216 299
Safe deposit income 85 94 256 275
Other income 51 66 138 187
Total 1,667 1,540 4,523 4,670
Gains on sales of loans 1,437 486 2,562 1,285
Other Income:
Gains on customer swap transactions 624 730 4,234 1,585
Title insurance income 46 9 126 128
Other income 200 627 370 755
Total 870 1,366 4,730 2,468
Revenue not from contracts with customers 511 457 1,787 2,210
Total Noninterest Income $ 6,773 $ 6,700 $ 20,265 $ 18,812
Timing of Revenue Recognition:
Products and services transferred at a point in time 6,243 6,224 18,422 16,546
Products and services transferred over time 19 19 56 56
Revenue not from contracts with customers 511 457 1,787 2,210
Total Noninterest Income $ 6,773 $ 6,700 $ 20,265 $ 18,812

~~Table of Contents~~

~~NOTE 4~~Note 3 – ~~EARNINGS PER SHARE~~

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands, except per share data) 2020 2019 2020 2019
Net income available to common shareholders $ 14,427 $ 18,874 $ 38,670 $ 51,957
Less: earnings allocated to participating securities 131 156 342 443
Net income allocated to common shareholders $ 14,296 $ 18,718 $ 38,328 $ 51,514
Weighted average number of common shares outstanding - basic 50,526 50,553 50,544 50,447
Share-based plans 94 141 101 148
Weighted average number of common shares outstanding - diluted 50,620 50,694 50,645 50,595
Basic earnings per share $ 0.28 $ 0.37 $ 0.76 $ 1.02
Diluted earnings per share $ 0.28 $ 0.37 $ 0.76 $ 1.02

~~There were 0 antidilutive options to purchase common stock excluded from the computation for the three and nine months ended September 30, 2020 and 2019.~~

~~NOTE 5 – INVESTMENT SECURITIES~~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:


	September 30, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	102,149	$	1,377	$	(555)	$	—	$	102,971
Mortgage-backed securities, residential	94,049		1,675		(476)		—		95,248
Collateralized mortgage obligations, residential	199,020		2,731		(851)		—		200,900
Mortgage-backed securities, multifamily	1,935		—		(68)		—		1,867
Collateralized mortgage obligations, multifamily	34,409		798		(204)		—		35,003
Asset-backed securities	53,809		231		(33)		—		54,007

Corporate bonds	38,500		946		(11)		(50)		39,385
Total	$	523,871	$	7,758	$	(2,198)	$	(50)	$	529,381


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


		September 30, 2020								December 31, 2019									September 30, 2021
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies		$	71,953	$	1,640	$	(318)	$	73,275	$	135,361	$	722	$	(436)	$	135,647
U.S. government agencies																		U.S. government agencies	$	18,820	$	459	$	—	$	—	$	19,279
Mortgage-backed securities, residential	Mortgage-backed securities, residential	421,453		10,583		(246)		431,790		500,245		3,185		(1,551)		501,879		Mortgage-backed securities, residential	343,866		1,005		(2,870)		—		342,001
Collateralized mortgage obligations, residential																		Collateralized mortgage obligations, residential	8,488		287		—		—		8,775
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	42,943		2,107		(13)		45,037		48,675		633		(123)		49,185		Mortgage-backed securities, multifamily	2,724		47		—		—		2,771
Asset-backed securities		41,354		0		(643)		40,711		0		0		0		0

Obligations of states and political subdivisions	Obligations of states and political subdivisions	162,296		2,859		(445)		164,710		58,979		1,077		(35)		60,021		Obligations of states and political subdivisions	316,847		198		(5,993)		(15)		311,037
Debt securities		27,559		250		(1)		27,808		9,000		168		0		9,168
		$	767,558	$	17,439	$	(1,666)	$	783,331	$	752,260	$	5,785	$	(2,145)	$	755,900
Corporate bonds																		Corporate bonds	3,000		33		—		(168)		2,865
Total																		Total	$	693,745	$	2,029	$	(8,863)	$	(183)	$	686,728

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		September 30, 2020								December 31, 2019									December 31, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
HELD TO MATURITY
U.S. government agencies	U.S. government agencies	$	25,805	$	853	$	0	$	26,658	$	31,335	$	182	$	(8)	$	31,509	U.S. government agencies	$	25,565	$	779	$	—	$	—	$	26,344
Mortgage-backed securities, residential	Mortgage-backed securities, residential	60,737		2,133		(1)		62,869		76,229		734		(176)		76,787		Mortgage-backed securities, residential	39,276		1,469		(12)		—		40,733
Collateralized mortgage obligations, residential																		Collateralized mortgage obligations, residential	14,590		532		—		—		15,122
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	717		54		0		771		1,750		4		(2)		1,752		Mortgage-backed securities, multifamily	705		54		—		—		759

Obligations of states and political subdivisions	Obligations of states and political subdivisions	8,134		273		0		8,407		12,161		195		0		12,356		Obligations of states and political subdivisions	10,630		280		—		—		10,910
Debt securities		2,500		0		0		2,500		2,500		0		0		2,500
		$	97,893	$	3,313	$	(1)	$	101,205	$	123,975	$	1,115	$	(186)	$	124,904
																			$	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 September 30, ~~2020.~~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	$	14,138	$	14,207	$	8,697	$	8,791	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	73,990		76,199		21,870		22,847		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	45,274		46,617		5,872		5,927		Due after five years through ten years	76,126		77,101		22,756		22,549
Due after ten years	Due after ten years	128,406		128,770		0		0		Due after ten years	29,111		29,247		258,373		252,596
		261,808		265,793		36,439		37,565			140,649		142,356		338,667		333,181
Mortgage-backed and asset-backed securities	Mortgage-backed and asset-backed securities	505,750		517,538		61,454		63,640		Mortgage-backed and asset-backed securities	383,222		387,025		355,078		353,547
Total securities	Total securities	$	767,558	$	783,331	$	97,893	$	101,205	Total securities	$	523,871	$	529,381	$	693,745	$	686,728

~~There were 0 sales of available-for-sale securities for~~For the three and nine months ended September 30, 2021 and the three months ended September 30, 2020, ~~and 2019 or~~there were no sales of available for sale securities. There were proceeds from sales of available for sale securities of $94.7 million for the nine months ended September 30, ~~2019. For the nine months ended September 30,~~ 2020 ~~proceeds from sales of available-for-sale securities totaled $94.7 million~~ 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 ~~$578.5~~$675.5 million and ~~$581.1~~$578.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

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


September 30, 2020		Less Than 12 Months				12 Months or Longer				Total
September 30, 2021																September 30, 2021	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses
AVAILABLE FOR SALE
Available for Sale																Available for Sale
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	4,993	$	2	$	21,228	$	316	7		$	26,221	$	318	U.S. Treasury and U.S. government agencies	$	15,366	$	132	$	15,548	$	423	8		$	30,914	$	555
Mortgage-backed securities, residential	Mortgage-backed securities, residential	57,063		175		6,021		71		27		63,084		246		Mortgage-backed securities, residential	39,399		433		5,728		43		18		45,127		476
Collateralized mortgage obligations, residential																Collateralized mortgage obligations, residential	66,336		851		—		—		15		66,336		851
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,557		13		0		0		2		2,557		13		Mortgage-backed securities, multifamily	1,867		68		—		—		1		1,867		68
Collateralized mortgage obligations, multifamily																Collateralized mortgage obligations, multifamily	7,004		171		1,402		33		4		8,406		204
Asset-backed securities	Asset-backed securities	40,711		643		0		0		6		40,711		643		Asset-backed securities	14,885		33		—		—		3		14,885		33
Obligations of states and political subdivisions		51,342		445		0		0		31		51,342		445
Debt securities		1,055		1		0		0		1		1,055		1
		$	157,721	$	1,279	$	27,249	$	387	$	74	$	184,970	$	1,666
HELD TO MATURITY
Corporate bonds																Corporate bonds	2,957		—		982		11		1		3,939		11
Total																Total	$	147,814	$	1,688	$	23,660	$	510	$	50	$	171,474	$	2,198
Held to Maturity																Held to Maturity

Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	119	$	1	$	25	0		$	5	144		$	1	Mortgage-backed securities, residential	$	293,496	$	2,869	$	108	1		79		$	293,604	$	2,870

Obligations of states and political subdivisions																Obligations of states and political subdivisions	294,935		5,993		—		—		235		294,935		5,993
		$	119	$	1	$	25	$	0	5		$	144	$	1
Total																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 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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December 31, 2019 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 $ 11,625 $ 39 $ 41,617 $ 397 11 $ 53,242 $ 436
Mortgage-backed securities, residential 125,782 561 99,489 990 86 225,271 1,551
Mortgage-backed securities, multifamily 7,651 118 4,878 5 3 12,529 123
Obligations of states and political subdivisions 373 2 6,559 33 5 6,932 35
$ 145,431 $ 720 $ 152,543 $ 1,425 105 $ 297,974 $ 2,145
HELD TO MATURITY
U.S. government agencies $ 3,195 $ 6 $ 5,102 $ 2 2 $ 8,297 $ 8
Mortgage-backed securities, residential 12,462 46 10,592 130 16 23,054 176
Mortgage-backed securities, multifamily 0 0 998 2 1 998 2
$ 15,657 $ 52 $ 16,692 $ 134 19 $ 32,349 $ 186

~~Management has evaluated~~The tables below indicate the ~~securities in the above tables and has concluded that none~~credit profile of the Company's held to maturity investment securities ~~with unrealized losses has impairments that are other-than-temporary. Fair value below cost is solely due to interest rate movements and is deemed temporary.~~at amortized cost:

Investment securities, including mortgage-backed securities, asset-backed securities and corporate securities, are evaluated on a periodic basis to determine if factors are identified that would require further analysis. In evaluating the Company’s securities, management considers the following items:


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

Obligations of states and political subdivisions	105,609		209,739		1,080		—		419		316,847
Corporate bonds	—		—		—		3,000		—		3,000
Total	$	479,507	$	209,739	$	1,080	$	3,000	$	419	$	693,745

•The Company’s ability and intent to hold the securities, including an evaluation of the need to sell the security to meet certain liquidity measures, or whether the Company has sufficient levels of cash to hold the identified security in order to recover the entire amortized cost of the security;

•~~The financial condition of the underlying issuer;~~

•~~The credit ratings of the underlying issuer and if any changes in the credit rating have occurred;~~

•~~The length of time the security’s fair value has been less than amortized cost; and~~

•~~Adverse conditions related to the security or its issuer if the issuer has failed to make scheduled payments or other factors.~~

~~If the above factors indicate that an additional analysis is required, management will perform a discounted cash flow analysis evaluating the security.~~


December 31, 2020	AAA		AA		Total
(in thousands)
U.S. Treasury and U.S. government agencies	$	25,565	$	—	$	25,565
Mortgage-backed securities, residential	39,276		—		39,276
Collateralized mortgage obligations, residential	14,590		—		14,590
Mortgage-backed securities, multifamily	705		—		705

Obligations of states and political subdivisions	2,959		7,671		10,630

Total	$	83,095	$	7,671	$	90,766

Equity securities at fair value

The Company has an equity securities portfolio which consists of investments in ~~other financial institutions for market appreciation purposes and investments in~~ Community Reinvestment funds. The ~~market~~fair value of ~~these investments~~the equity portfolio was ~~$14.1~~$16.4 million and ~~$16.5~~$14.7 million at September 30, ~~2020~~2021 and December 31, ~~2019, respectively. The Company recorded purchases of $1.2 million and $259,000 for the nine months ended September 30,~~ 2020, ~~and 2019,~~ respectively. For the three and nine months ended September 30, ~~2020 and for the three months ended September 30, 2019,~~2021, the Company recorded no sales of equity securities and recorded ~~proceeds from~~ sales of ~~equity securities of $1.2~~Community Reinvestment funds totaling $3.0 million for the three and nine months ended September 30, ~~2019.~~2020. The Company recorded ~~a market~~fair value ~~loss~~losses on equity securities of $58,000 and $170,000 for the third quarter of 2021 and 2020, ~~and $72,000 in market value gain for the third quarter of 2019 on equity securities.~~respectively. For the nine months ended September 30, 2021 and 2020, the Company recorded ~~$625,000 in market~~fair value losses of $191,000 and ~~$525,000 in market value gains for the nine months ended September 30, 2019 on equity securities. Market~~$625,000, respectively. Fair value gain or loss on equity securities are recorded in noninterest income.

As of September 30, ~~2020,~~2021, the ~~equity~~Company's investments in ~~other financial institutions and Community Reinvestment funds had a market value of $898,000 and $13.2 million, respectively. The~~ 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 ~~market~~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 September 30, ~~2020,~~2021, the net amortized cost equaled the ~~market~~fair value of the investment. There are 0no unfunded commitments related to these investments.

~~Table of Contents~~

The Community Reinvestment funds also include ~~$9.7~~$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 September 30, ~~2020.~~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.

~~NOTE 6 – LOANS AND OTHER REAL ESTATE~~

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

(in thousands) September 30, 2020 December 31, 2019
Commercial, secured by real estate $ 4,049,331 $ 3,589,593
Commercial, industrial and other 426,821 431,934
Paycheck Protection Program ("PPP") 325,115 0
Equipment finance 116,410 111,076
Real estate - residential mortgage 342,583 335,191
Real estate - construction 276,743 335,169
Home equity and consumer 318,021 337,977
Total loans 5,855,024 5,140,940
Less: deferred fees (11,433) (3,117)
Loans, net of deferred fees $ 5,843,591 $ 5,137,823

At September 30, 2020 and December 31, 2019, home equity and consumer loans included overdraft deposit balances of $254,000 and $789,000, respectively. At September 30, 2020 and December 31, 2019, the Company had $2.15 billion and $1.29 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) September 30, 2020 December 31, 2019
Acquisition
Highlands $ 7,236 $ 8,194
Pascack Community Bank ("Pascack") 98 113
Harmony Bank ("Harmony") 430 441
Total $ 7,764 $ 8,748

~~The following table presents changes in the accretable yield for PCI loans:~~

For the Three Months Ended For the Nine Months Ended
(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Balance, beginning of period $ 183 $ 1,191 $ 363 $ 81
Acquisitions 0 — 0 1,431
Accretion (186) (306) (600) (687)
Net reclassification non-accretable difference 89 16 323 76
Balance, end of period $ 86 $ 901 $ 86 $ 901

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~~Non-Performing Assets~~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 ~~Past Due Loans~~risk characteristics, as well as historical reporting metrics and data availability. All disclosures as of and for the three and nine months ended 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 ~~schedule~~ sets forth ~~certain information regarding~~the composition of the Company’s ~~non-performing assets~~loan portfolio:


(in thousands)	September 30, 2021		December 31, 2020
Non-owner occupied commercial	$	2,300,637	$	2,398,946
Owner occupied commercial	884,144		827,092
Multifamily	907,903		813,225
Non-owner occupied residential	177,592		200,229
Commercial, industrial and other	473,324		718,189
Construction	332,868		266,883
Equipment finance	119,709		116,690
Residential mortgage	407,021		377,380
Home equity and consumer	277,604		302,598
Total	$	5,880,802	$	6,021,232

Loans are recognized at amortized cost, which includes principal balance and ~~its accruing troubled debt restructurings, excluding PCI loans:~~

(in thousands) September 30, 2020 December 31, 2019
Commercial, secured by real estate $ 25,238 $ 12,314
Commercial, industrial and other 1,484 1,539
Equipment finance 444 284
Real estate - residential mortgage 2,695 3,428
Real estate - construction 907 967
Home equity and consumer 2,322 2,606
Total non-accrual loans $ 33,090 $ 21,138
Other real estate and other repossessed assets 0 563
TOTAL NON-PERFORMING ASSETS $ 33,090 $ 21,701
Troubled debt restructurings, still accruing $ 4,299 $ 5,650

~~Non-accrual loans included $1.3~~net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled $13.5 million ~~and $1.6 million of troubled debt restructurings~~ at September 30, ~~2020~~2021 and $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 $7.7 million at September 30, 2021 and $10.0 million at December 31, 2020.

At September 30, 2021 and December 31, ~~2019,~~2020, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $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 $188,000 and $650,000, at September 30, 2021 and December 31, 2020, respectively. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~$1.8 million~~$2.29 billion and ~~$2.0 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 aging analysis of past due loans, excluding PCI loans which are accounted for on a pool basis, segregated by class~~$2.28 billion of loans aspledged for potential borrowings at the Federal Home Loan Bank of ~~September 30, 2020 and December 31, 2019, 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
September 30, 2020
Commercial, secured by real estate $ 4,623 $ 6,071 $ 22,423 $ 33,117 $ 4,010,888 $ 4,044,005 $ 0
Commercial, industrial and other (including PPP) 4,892 630 966 6,488 744,690 751,178 0
Equipment finance 246 0 443 689 115,721 116,410 0
Real estate - residential mortgage 429 167 1,494 2,090 340,074 342,164 0
Real estate - construction 0 0 694 694 275,291 275,985 0
Home equity and consumer 970 187 1,220 2,377 315,141 317,518 165
$ 11,160 $ 7,055 $ 27,240 $ 45,455 $ 5,801,805 $ 5,847,260 $ 165
December 31, 2019
Commercial, secured by real estate $ 3,578 $ 1,200 $ 9,702 $ 14,480 $ 3,569,008 $ 3,583,488 $ 0
Commercial, industrial and other 353 71 1,064 1,488 429,502 430,990 0
Equipment finance 166 80 284 530 110,546 111,076 0
Real estate - residential mortgage 1,138 251 2,075 3,464 331,337 334,801 0
Real estate - construction 0 0 967 967 333,418 334,385 0
Home equity and consumer 1,573 287 1,533 3,393 334,059 337,452 0
$ 6,808 $ 1,889 $ 15,625 $ 24,322 $ 5,107,870 $ 5,132,192 $ 0

~~Table of Contents~~

~~Impaired Loans~~New York ("FHLB").

The Company ~~defines impaired~~transferred approximately $21.7 million of commercial and residential mortgage loans ~~as all non-accrual~~from the loan portfolio to 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 September 30, 2020 and December 31, 2019 are as follows:

(in thousands) Recorded
Investment in
Impaired Loans Contractual
Unpaid
Principal
Balance Specific
Allowance Average
Investment in
Impaired Loans Interest
Income
Recognized
September 30, 2020
Loans without specific allowance:
Commercial, secured by real estate $ 24,396 $ 25,015 $ — $ 20,863 $ 119
Commercial, industrial and other 1,632 1,628 — 1,312 11
Equipment finance 0 0 — 0 0
Real estate - residential mortgage 1,503 1,640 — 1,570 0
Real estate - construction 694 694 — 926 10
Home equity and consumer 0 0 — 0 0
Loans with specific allowance:
Commercial, secured by real estate 3,183 3,434 207 3,248 110
Commercial, industrial and other 94 94 4 94 4
Equipment finance 15 15 6 16 0
Real estate - residential mortgage 337 525 2 582 12
Real estate - construction 0 0 0 0 0
Home equity and consumer 595 689 4 603 22
Total:
Commercial, secured by real estate $ 27,579 $ 28,449 $ 207 $ 24,111 $ 229
Commercial, industrial and other 1,726 1,722 4 1,406 15
Equipment finance 15 15 6 16 0
Real estate - residential mortgage 1,840 2,165 2 2,152 12
Real estate - construction 694 694 0 926 10
Home equity and consumer 595 689 4 603 22
$ 32,449 $ 33,734 $ 223 $ 29,214 $ 288

~~Table of Contents~~

(in thousands) Recorded
Investment in
Impaired Loans Contractual
Unpaid
Principal
Balance Specific
Allowance Average
Investment in
Impaired Loans Interest
Income
Recognized
December 31, 2019
Loans without specific allowance:
Commercial, secured by real estate $ 12,478 $ 12,630 $ — $ 10,386 $ 164
Commercial, industrial and other 1,391 1,381 — 1,334 16
Equipment finance 0 0 — 0 0
Real estate - residential mortgage 803 815 — 233 0
Real estate - construction 1,663 1,661 — 82 2
Home equity and consumer 0 0 — 0 0
Loans with specific allowance:
Commercial, secured by real estate 3,470 3,706 228 4,554 190
Commercial, industrial and other 113 113 5 113 6
Equipment finance 23 23 10 21 0
Real estate - residential mortgage 1,512 1,682 104 926 19
Real estate - construction 0 0 0 0 0
Home equity and consumer 671 765 5 693 29
Total:
Commercial, secured by real estate $ 15,948 $ 16,336 $ 228 $ 14,940 $ 354
Commercial, industrial and other 1,504 1,494 5 1,447 22
Equipment finance 23 23 10 21 0
Real estate - residential mortgage 2,315 2,497 104 1,159 19
Real estate - construction 1,663 1,661 0 82 2
Home equity and consumer 671 765 5 693 29
$ 22,124 $ 22,776 $ 352 $ 18,342 $ 426

~~Interest income recognized on impaired loans was $288,000 and $342,000~~held for sale during the nine months ended September 30, ~~2020~~2021 and ~~2019, respectively. Interest that would have been accrued on impaired~~subsequently sold these loans. Excluding the loan transfers, there were no other sales of loans from the held for investment portfolio during the ~~first~~ nine months ~~of 2020 and 2019 had the loans been performing under original terms would have been $1.3 million and $703,000, respectively.~~ended September 30, 2021.

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~~the loan portfolios. The risk rating system assists senior management in evaluating ~~Lakeland’s commercial~~the loan portfolio and analyzing ~~trends, and determining the proper level of required reserves to be recommended to the Board.~~trends. In assigning risk ratings, management considers, among other things, athe borrower’s ability to service the debt ~~service coverage, earnings strength, loan to value ratios, guarantor support, industry conditions~~based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.

Management categorizes ~~commercial~~ loans and commitments into ~~a one (1)~~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 ~~nine (9) numerical structure~~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 ~~rating 1 being~~ the ~~strongest rating~~Coronavirus Aid, Relief and ~~rating 9 being~~Economic Security ("CARES") Act or the ~~weakest. Ratings 1 through 5W are considered ‘Pass’ ratings.~~interagency statement issued by bank regulatory agencies has been classified by management as watch or worse.

2015

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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 ~~shows~~presents the ~~Company’s commercial~~risk category of loans by class of loan ~~portfolio~~and vintage as of September 30, ~~2020 and December 31, 2019, by the risk ratings discussed above (in thousands):~~2021:

September 30, 2020 Commercial,
Secured by
Real Estate Commercial,
Industrial
and Other (including PPP) Real Estate -
Construction Total Commercial Loans
RISK RATING
1 $ 0 $ 325,510 $ 0 $ 325,510
2 0 16,344 0 16,344
3 72,698 26,492 0 99,190
4 955,104 91,708 18,901 1,065,713
5 1,954,831 205,623 221,750 2,382,204
5W - Watch 796,979 51,092 21,924 869,995
6 - Other assets especially mentioned 147,407 22,476 12,503 182,386
7 - Substandard 122,312 12,691 1,665 136,668
8 - Doubtful 0 0 0 0
9 - Loss 0 0 0 0
Total $ 4,049,331 $ 751,936 $ 276,743 $ 5,078,010

December 31, 2019 Commercial,
Secured by
Real Estate Commercial,
Industrial
and Other Real Estate -
Construction Total Commercial Loans
RISK RATING
1 $ 0 $ 898 $ 0 $ 898
2 0 17,988 0 17,988
3 74,072 39,112 0 113,184
4 965,825 107,376 17,941 1,091,142
5 2,332,863 215,975 307,824 2,856,662
5W - Watch 100,347 30,192 6,959 137,498
6 - Other assets especially mentioned 55,438 11,328 0 66,766
7 - Substandard 61,048 9,065 2,445 72,558
8 - Doubtful 0 0 0 0
9 - Loss 0 0 0 0
Total $ 3,589,593 $ 431,934 $ 335,169 $ 4,356,696

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. Included in the Commercial, Industrial and Other column for Risk Rating 1 are the PPP balances at September 30, 2020.

~~Allowance for Loan Losses~~

The Coronavirus Aid, Relief and Economic Security ("CARES") Act, a stimulus package signed into law on March 27, 2020 to address economic disruption caused by the COVID-19 pandemic, provided financial institutions with the option to defer adoption of the Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) until the earlier of the end of the pandemic or December 31, 2020. The Company elected to defer adoption of ASU 2016-13 and its Current Expected Credit Loss methodology ("CECL").


	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial
Pass	$	231,072	$	527,479	$	307,663	$	191,755	$	214,269	$	612,630	$	19,746	14	$	2,104,628
Watch	—		—		25,434		11,811		4,673		37,995		—		—	79,913
Special mention	—		3,353		2,731		8,274		14,757		29,028		30		—	58,173
Substandard	98		894		336		2,657		8,112		45,826		—		—	57,923
Total	231,170		531,726		336,164		214,497		241,811		725,479		19,776		14	2,300,637
Owner occupied commercial
Pass	166,660		130,638		103,320		61,259		50,889		275,250		6,725		52	794,793
Watch	—		—		2,171		1,220		282		18,708		20		—	22,401
Special mention	—		—		2,152		13,615		100		24,679		—		—	40,546
Substandard	5		—		18		2,647		1,311		22,423		—		—	26,404
Total	166,665		130,638		107,661		78,741		52,582		341,060		6,745		52	884,144
Multifamily
Pass	141,957		250,242		73,107		87,035		76,472		228,609		10,289		302	868,013
Watch	—		970		—		—		872		7,174		—		—	9,016
Special mention	—		12,115		—		—		2,391		4,310		—		—	18,816
Substandard	—		—		5,484		1,325		—		5,049		200		—	12,058
Total	141,957		263,327		78,591		88,360		79,735		245,142		10,489		302	907,903
Non-owner occupied residential
Pass	20,108		18,924		17,058		17,834		18,647		54,147		7,593		579	154,890
Watch	—		—		—		—		916		5,412		—		—	6,328
Special mention	—		—		1,023		841		474		286		515		—	3,139
Substandard	—		3,315		512		5,028		1,738		2,642		—		—	13,235
Total	20,108		22,239		18,593		23,703		21,775		62,487		8,108		579	177,592



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




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

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








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


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

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	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total

Residential mortgage
Pass	118,452		116,567		28,856		26,376		9,946		106,566		—		—		406,763


Substandard	—		—		—		123		—		135		—		—		258
Total	118,452		116,567		28,856		26,499		9,946		106,701		—		—		407,021



Consumer
Pass	24,133		12,093		6,199		5,276		3,445		27,531		197,703		220		276,600


Substandard	42		—		—		—		1		318		266		377		1,004
Total	24,175		12,093		6,199		5,276		3,446		27,849		197,969		597		277,604
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 ~~details activity in~~presents the ~~allowance for~~risk category of loans by class of loan ~~losses by portfolio segment for the three~~ and ~~nine months ended September 30, 2020 and 2019:~~vintage as of December 31, 2020:

(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 September 30, 2020
Beginning Balance $ 43,280 $ 4,698 $ 2,971 $ 1,436 $ 3,119 $ 2,335 $ 57,839
Charge-offs (329) (204) (96) 0 0 (53) (682)
Recoveries 10 31 1 1 21 21 85
Provision 7,305 460 8 256 (37) 8 8,000
Ending Balance $ 50,266 $ 4,985 $ 2,884 $ 1,693 $ 3,103 $ 2,311 $ 65,242

(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 September 30, 2019
Beginning Balance $ 28,095 $ 2,633 $ 1,055 $ 1,606 $ 2,708 $ 2,565 $ 38,662
Charge-offs (314) (425) 0 0 0 (70) (809)
Recoveries 72 32 0 55 39 68 266
Provision 672 218 55 (57) (186) (166) 536
Ending Balance $ 28,525 $ 2,458 $ 1,110 $ 1,604 $ 2,561 $ 2,397 $ 38,655

(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
Nine Months Ended September 30, 2020
Beginning Balance $ 28,950 $ 3,289 $ 957 $ 1,725 $ 2,672 $ 2,410 $ 40,003
Charge-offs (498) (204) (194) (116) 0 (294) (1,306)
Recoveries 57 74 39 21 69 62 322
Provision 21,757 1,826 2,082 63 362 133 26,223
Ending Balance $ 50,266 $ 4,985 $ 2,884 $ 1,693 $ 3,103 $ 2,311 $ 65,242

(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
Nine Months Ended September 30, 2019
Beginning Balance $ 27,881 $ 1,742 $ 987 $ 1,566 $ 3,015 $ 2,497 $ 37,688
Charge-offs (501) (610) (380) (50) 0 (197) (1,738)
Recoveries 212 1,076 2 66 104 201 1,661
Provision 933 250 501 22 (558) (104) 1,044
Ending Balance $ 28,525 $ 2,458 $ 1,110 $ 1,604 $ 2,561 $ 2,397 $ 38,655

~~Loans receivable summarized by portfolio segment and impairment method are as follows:~~

(in thousands) Commercial,
Secured by
Real Estate Commercial,
Industrial
and Other (including PPP) Equipment Finance Real Estate-
Residential
Mortgage Real Estate-
Construction Home
Equity and
Consumer Total
September 30, 2020
Ending Balance: Individually evaluated for impairment $ 27,579 $ 1,726 $ 15 $ 1,840 $ 694 $ 595 $ 32,449
Ending Balance: Collectively evaluated for impairment 4,016,426 749,452 116,395 340,324 275,291 316,923 5,814,811
Ending Balance: Loans acquired with deteriorated credit quality 5,326 758 0 419 758 503 7,764
Ending Balance (1) $ 4,049,331 $ 751,936 $ 116,410 $ 342,583 $ 276,743 $ 318,021 $ 5,855,024


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






Non-owner occupied residential
Pass	23,506		24,378		27,752		24,344		21,488		53,200		8,180		171	183,019
Watch	—		300		—		1,174		—		5,757		—		—	7,231
Special mention	—		496		1,199		392		293		656		655		—	3,691
Substandard	876		512		1,200		1,295		692		1,713		—		—	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		—	8,781
Special mention	—		—		884		764		2,275		—		4,727		—	8,650
Substandard	7,177		50		3,559		1,547		1,497		729		9,422		—	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		—	242,980
Watch	—		—		2,183		11,959		—		—		—		—	14,142
Special mention	—		—		—		8,321		—		—		—		—	8,321
Substandard	—		—		—		206		719		515		—		—	1,440
Total	56,734		77,117		71,810		49,789		8,400		843		2,190		—	266,883

2217

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(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
December 31, 2019
Ending Balance: Individually evaluated for impairment $ 15,948 $ 1,504 $ 23 $ 2,315 $ 1,663 $ 671 $ 22,124
Ending Balance: Collectively evaluated for impairment 3,567,540 429,486 111,053 332,486 332,722 336,781 5,110,068
Ending balance: Loans acquired with deteriorated credit quality 6,105 944 0 390 784 525 8,748
Ending Balance (1) $ 3,589,593 $ 431,934 $ 111,076 $ 335,191 $ 335,169 $ 337,977 $ 5,140,940


	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
Equipment finance
Pass	41,528		41,717		20,697		8,834		3,162		426		—		—		116,364


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


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


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

~~(1)Excludes deferred fees~~Past Due and Non-accrual Loans

Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.

In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria included in an interagency statement issued by bank regulatory agencies.

The ~~allowance for loan losses is summarized by portfolio segment and impairment classification as follows:~~

(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
September 30, 2020
Ending Balance: Individually evaluated for impairment $ 207 $ 4 $ 6 $ 2 $ 0 $ 4 $ 223
Ending Balance: Collectively evaluated for impairment 50,059 4,981 2,878 1,691 3,103 2,307 65,019
Ending Balance $ 50,266 $ 4,985 $ 2,884 $ 1,693 $ 3,103 $ 2,311 $ 65,242

(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
December 31, 2019
Ending Balance: Individually evaluated for impairment $ 228 $ 5 $ 10 $ 104 $ 0 $ 5 $ 352
Ending Balance: Collectively evaluated for impairment 28,722 3,284 947 1,621 2,672 2,405 39,651
Ending Balance $ 28,950 $ 3,289 $ 957 $ 1,725 $ 2,672 $ 2,410 $ 40,003

~~Lakeland has not allocated a reserve for loan losses on PPP~~following tables present the payment status of the recorded investment in past due loans as ~~these~~of the periods noted, by class of loans.


September 30, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,295,310	$	336	$	432	$	4,559	$	5,327	$	2,300,637
Owner occupied commercial	878,881		616		263		4,384		5,263		884,144
Multifamily	904,961		2,942		—		—		2,942		907,903
Non-owner occupied residential	174,412		102		2,156		922		3,180		177,592
Commercial, industrial and other	471,628		595		—		1,101		1,696		473,324
Construction	332,868		—		—		—		—		332,868
Equipment finance	119,439		44		156		70		270		119,709
Residential mortgage	406,091		807		—		123		930		407,021
Consumer	276,610		563		54		377		994		277,604
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 are 100% guaranteed by the SBA. In addition to the allowances described above, Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities. This reserve was $2.0 million and $1.8 million as ofat September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020:


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 September 30, 2021, there were no 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 ~~analyzes~~had no loans included in total non-accrual loans that were in the ~~adequacy~~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 ~~reserve for unfunded lending commitments quarterly.~~process of foreclosure at December 31, 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 ~~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.~~

~~Section 4013~~elected this provision of the CARES Act ~~as interpreted by the "Interagency Statement on Loan Modifications~~ and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (“Revised Statement”), dated April 17, 2020, includes criteria that enable financial institutions to exclude from TDR statusexcluded modified loans that ~~are modified in connection with COVID-19. Under these provisions,~~met the required guidelines for relief from its TDR status is not required for the term of a loan modification if (i) the loan modification is made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31, 2019 and (iii) the loan modification is entered into during the period between March 1, 2020, and the earlier of (a) 60 days after COVID-19 is no longer characterized as a National Emergency or (b) December 31, 2020. Furthermore, pursuant to the Revised Statement, for loan modifications that do not meet these criteria but are made in connection with COVID-19, such loans may be presumed not to be TDR if the loan was current at the time the loan modification program was implemented and the modifications are short-term (e.g., six months). If the criteria are not met under either Section 4013 or the Revised Statement, banks are required to follow their existing accounting policies to determine whether COVID-related modifications should be accounted for as a TDR. The Company has elected to suspend the classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement. For past due status, the CARES Act also provides for lenders to continue

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~~to report loans in the same delinquency bucket they were in at the time of modification. The Company has applied this guidance related to modifications during the first half of 2020.~~

As of June 30, 2020, commercial loans totaling $927.0 million were granted 90-day, COVID-related payment deferments, of which 91% were commercial real estate loans. In addition, payment deferments on equipment finance loans totaled $40.0 million and residential and consumer loans totaled $53.0 million at June 30, 2020. During the third quarter of 2020, new payment deferments were granted to 6 loan relationships totaling $6.4 million.classification. At September 30, ~~2020, approximately $149.0 million in commercial~~2021, no loans ~~$3.0 million in equipment finance loans and $3.0 million in residential mortgage and consumer loans remained~~were on COVID-related ~~deferral. During~~deferrals as the ~~third quarter, many~~remaining 90-day loan deferments expired and borrowers began paying their pre-deferral loan ~~payments.~~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.

~~The following table summarizes~~At September 30, 2021 and December 31, 2020, TDRs totaled $3.7 million and $5.0 million, respectively. Accruing TDRs totaled $3.4 million and non-accrual TDRs totaled $241,000 at September 30, 2021. Accruing TDRs and non-accrual TDRs totaled $3.9 million and $1.1 million, respectively, at December 31, 2020. There was 1 consumer loan totaling $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 nine months ended September 30, ~~2020 and 2019~~2020. There were no restructured loans that ~~met~~subsequently defaulted in the ~~definition of a TDR:~~

Three Months Ended
September 30, 2020 Three Months Ended
September 30, 2019
(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
Home equity and consumer 0 $ 0 $ 0 2 $ 83 $ 83
0 $ 0 $ 0 2 $ 83 $ 83

Nine Months Ended
September 30, 2020 Nine Months Ended
September 30, 2019
(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
Home equity and consumer 0 $ 0 $ 0 2 $ 83 $ 83
0 $ 0 $ 0 2 $ 83 $ 83

~~The following table summarizes as of~~nine months ended September 30, ~~2020 and 2019, loans~~2021; however, 1 construction loan totaling $694,000 that ~~were TDRs~~was a TDR within the previous twelve months had subsequently defaulted in the nine months ended 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 ~~have subsequently defaulted:~~

September 30, 2020 September 30, 2019
(dollars in thousands) Number of
Contracts Recorded
Investment Number of
Contracts Recorded
Investment
Construction 1 $ 694 0 $ 0
Home equity and consumer 0 0 2 83
1 $ 694 2 $ 83

~~Other Real Estate~~do not share common risk characteristics are evaluated on an individual basis and ~~Other Repossessed Assets~~

are excluded from the collective evaluation. At September 30, ~~2020~~2021, loans totaling $5.86 billion were evaluated collectively and the ~~Company had 0 other real estate owned~~allowance on these balances totaled $57.3 million and ~~at December 31, 2019,~~loans evaluated on an individual basis totaled $16.6 million with the ~~Company had other real estate owned~~specific allocations of ~~$563,000, consisting of residential property acquired as a result of foreclosure proceedings. There were 0 other repossessed assets at either~~the allowance for credit losses totaling $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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Balance at beginning of the period	$	60,389	$	57,839	$	71,124	$	40,003

Charge-offs	(996)		(682)		(4,128)		(1,306)
Recoveries	1,266		85		1,785		322
Net recoveries (charge-offs)	270		(597)		(2,343)		(984)
(Benefit) provision for credit loss - loans	(2,706)		8,000		(10,828)		26,223
Balance at end of the period	$	57,953	$	65,242	$	57,953	$	65,242

The benefit for credit losses for the three and nine months ended September 30, ~~2020 or December 31, 2019.~~2021 was largely due to an improvement in economic conditions utilized in the calculation.

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~~NOTE 7~~Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheets, totaled $13.5 million at September 30, 2021 and $16.0 million at December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

Non-performing loans totaling $6.6 million were sold during the third quarter of 2021 resulting in a net recoveries of $502,000. During the nine months ended September 30, 2021, the Company sold $21.7 million of non-performing loans and recorded net charge-offs of $706,000.

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


(in thousands)	Balance at 6/30/2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021
Non-owner occupied commercial	$	20,906	$	(465)	$	459	$	(387)	$	20,513
Owner occupied commercial	4,100		(204)		284		131		4,311
Multifamily	7,177		(28)		—		418		7,567
Non-owner occupied residential	2,592		(11)		16		206		2,803
Commercial, industrial and other	10,489		(26)		290		(2,678)		8,075
Construction	1,034		(54)		4		(118)		866
Equipment finance	5,120		(138)		—		(142)		4,840
Residential mortgage	3,885		(28)		1		348		4,206
Consumer	5,086		(42)		212		(484)		4,772
Total	$	60,389	$	(996)	$	1,266	$	(2,706)	$	57,953


(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)	43,280		$	(329)	$	10	$	7,305	50,266
Commercial, industrial and other	4,698		(204)		31		460		4,985
Construction	3,119		—		21		(37)		3,103
Equipment finance	2,971		(96)		1		8		2,884
Residential mortgage	1,436		—		1		256		1,693
Consumer	2,335		(53)		21		8		2,311
Total	$	57,839	$	(682)	$	85	$	8,000	$	65,242


(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021
Non-owner occupied commercial	$	25,910	$	(2,708)	$	462	$	(3,151)	$	20,513
Owner occupied commercial	3,955		(282)		301		337		4,311
Multifamily	7,253		(28)		—		342		7,567
Non-owner occupied residential	3,321		(223)		29		(324)		2,803
Commercial, industrial and other	13,665		(401)		439		(5,628)		8,075
Construction	786		(54)		71		63		866
Equipment finance	6,552		(242)		17		(1,487)		4,840
Residential mortgage	3,623		(64)		177		470		4,206
Consumer	6,059		(126)		289		(1,450)		4,772
Total	$	71,124	$	(4,128)	$	1,785	$	(10,828)	$	57,953

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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.

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


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 September 30, 2021, the balance of the allowance for credit loss on available for sale and held to maturity securities was $50,000 and $183,000, respectively. At December 31, 2020, the Company reported an allowance for credit losses on available for sale securities of $2,000 and no allowance for credit losses on held to maturity securities. For the three months ended September 30, 2021, the Company recorded a provision for credit losses on available for sale securities of $32,000 and a provision for credit losses on held to maturity securities of $43,000. For the nine months ended September 30, 2021, the Company recorded a provision for credit losses of $51,000 and $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 $4.6 million at 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.

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

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

Note 6 – ~~LEASES~~Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through ~~2024.~~2027. At September 30, ~~2020,~~2021, the Company had lease liabilities totaling ~~$18.5~~$16.1 million and right-of-use assets totaling ~~$17.0~~$14.8 million related to these leases. At December 31, ~~2019,~~2020, the Company had lease liabilities totaling ~~$19.8~~$18.2 million and right-of-use assets totaling ~~$18.3~~$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 leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.~~

For the nine months ended September 30, 2021, the weighted average remaining lease term for operating leases was 9.54 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.46%. At December 31, 2020, the weighted average remaining lease term for operating leases was ~~9.87~~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 September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
Operating lease cost	Operating lease cost	$	828	$	819	$	2,484	$	2,465	Operating lease cost	$	769	$	828	$	2,427	$	2,484
Short-term lease cost		0		0		0		0

Variable lease cost	Variable lease cost	22		32		87		100		Variable lease cost	22		22		67		87
Sublease income	Sublease income	$	(31)	$	(31)	(92)		(92)		Sublease income	$	(30)	$	(31)	(91)		(92)
Net lease cost	Net lease cost	$	819	$	820	$	2,479	$	2,473	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 for the nine months ended September 30, 2020 and 2019:~~leases:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		(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	$	2,085	$	1,977	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	741		765		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 ~~three and~~ nine months ended September 30, 2021 or September 30, 2020. At September 30, ~~2020,~~2021, the Company had 0no leases that had not yet commenced.

A maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to the total operating lease liability at September 30, ~~2020~~2021 are as follows:


(in thousands)
Within one year	$	~~3,309~~2,956
After one year but within three years	~~5,405~~5,081
After three years but within five years	~~4,320~~3,792
After 5five years	~~9,160~~7,423
Total undiscounted cash flows	~~22,194~~19,252
Discount on cash flows	~~(3,723)~~(3,147)
Total lease liability	$	~~18,471~~16,105

Note 7 - Deposits

The following table sets forth the details of total deposits:


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

Noninterest-bearing demand	$	1,724,646	24.9	%	$	1,510,224	23.4	%
Interest-bearing checking	2,231,162		32.2	%	2,057,052		31.9	%
Money market	1,512,578		21.8	%	1,225,890		19.0	%
Savings	657,627		9.5	%	584,361		9.1	%
Certificates of deposit $250 thousand and under	667,297		9.6	%	895,056		13.8	%
Certificates of deposit over $250 thousand	137,602		2.0	%	183,200		2.8	%
Total deposits	$	6,930,912	100.0	%	$	6,455,783	100.0	%

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

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~~NOTE 8 – DERIVATIVES~~

~~Lakeland is a party~~Other short-term borrowings at September 30, 2021 and December 31, 2020 consisted of short-term securities sold under agreements to interest rate derivatives that are not designated as hedging instruments. Under a program, 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 associated with this program do not meet the strict hedge accounting requirements, changes in the fair valuerepurchase 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 $100.9$111.9 million and ~~$30.0~~$69.6 million, ~~respectively,~~respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of September 30, 2021, the Company had $121.4 million in ~~available for sale~~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 ~~on its interest rate swaps with financial institutions~~to meet that margin call.

FHLB Advances

The Company had one advance from the FHLB, which totaled $25.0 million at both September 30, ~~2020~~2021 and December 31, ~~2019.~~

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 ~~June 2016,~~the first quarter of 2020, the Company ~~entered into~~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 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 exchangecapital 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 ~~making fixed-rate payments over~~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 ~~life~~Company redeemed $5.0 million of subordinated notes in the second quarter of 2021.

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 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. DuringCompany’s restricted stock activity during the nine months ended September 30, ~~2020,~~2021:


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

Outstanding, September 30, 2021	26,846	$	13.13

In the first nine months of 2021, the Company ~~did not record any hedge ineffectiveness.~~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 ~~Company recognized $17,000 and $334,000 of accumulated other comprehensive income that~~restricted stock vests one year from the date it was ~~reclassified into interest~~granted. Compensation expense ~~for~~on this restricted stock is expected to be $220,000 over a one year period. In the first 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 ~~2019,~~$56,000 for the third quarter of 2021 and 2020, respectively.

~~Amounts reported in accumulated other comprehensive income~~ Share-based compensation expense on restricted stock for the nine months ended September 30, 2021 and 2020 was $264,000 and $165,000, respectively. As of September 30, 2021, there was unrecognized compensation cost of $66,000 related to ~~derivatives will~~unvested restricted stock that is expected to be reclassified to interest expense as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates that $260,000 will be reclassified as an increase to interest expense should the rate environment remain the same.recognized over a weighted average period of approximately 0.24 years.

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Restricted Stock Units

The following ~~table presents~~is a summary ~~information regarding~~of the Company’s RSU activity during the nine months ended September 30, 2021:


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2021	372,552	$	16.63
Granted	375,716	17.20
Vested	(140,133)	18.20
Forfeited	(7,282)	15.39
Outstanding, September 30, 2021	600,853	$	16.64

In the first nine months of 2021, the Company granted 375,716 RSUs under the Plan at a weighted average grant date fair value of $17.20 per share. These units vest within a range of two to three years. A portion of these ~~derivatives~~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 is expected to average approximately $2.2 million per year over a three-year period. In the first nine months of 2020, the Company granted 175,869 RSUs under the Plan at a weighted average grant date fair value of $15.37 per share. Compensation expense on these RSUs is expected to average approximately $901,000 per year over a three-year period.

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

Stock Options

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


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

Exercised	(2,764)	6.94


Outstanding, September 30, 2021	—	$	—	0.00	$	—
Options exercisable at September 30, 2021	—	$	—	0.00	$	—

The aggregate intrinsic value in ~~thousands):~~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.

September 30, 2020 Notional Amount Average
Maturity (Years) Weighted Average
Fixed Rate Weighted Average
Variable Rate Fair
Value
Classified in Other Assets:
Customer interest rate swaps 919,460 9.2 3.78 % 1 Mo. LIBOR + 1.99 95,243
Classified in Other Liabilities:
3rd Party interest rate swaps 919,460 9.2 3.78 % 1 Mo. LIBOR + 1.99 (95,243)
Interest rate swap (cash flow hedge) 30,000 0.8 1.10 % 3 Mo. LIBOR (206)

December 31, 2019 Notional
Amount Average
Maturity (Years) Weighted
Average
Fixed Rate Weighted Average
Variable Rate Fair
Value
Classified in Other Assets:
3rd Party interest rate swaps $ 85,796 9.0 3.51 % 1 Mo. LIBOR + 1.95 $ 947
Customer interest rate swaps 473,273 9.9 4.32 % 1 Mo. LIBOR + 1.93 25,905
Interest rate swap (cash flow hedge) 30,000 1.5 1.10 % 3 Mo. LIBOR 271
Classified in Other Liabilities:
Customer interest rate swaps $ 85,796 9.0 3.51 % 1 Mo. LIBOR + 1.95 $ (947)
3rd party interest rate swaps 473,273 9.9 4.32 % 1 Mo. LIBOR + 1.93 (25,905)
There were no stock option grants in the first nine months of 2021 or 2020. The 2,764 stock options exercised during the first nine months of 2021 resulted in $19,000 in cash receipts. 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 nine months of 2020. There was no unrecognized compensation expense related to unvested stock options as of September 30, 2021.

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~~NOTE 9~~Note 10 – ~~GOODWILL AND INTANGIBLE ASSETS~~Revenue Recognition

The Company ~~had goodwill~~primarily operates in 1 geographic region, Northern and Central New Jersey and contiguous areas. Therefore, all significant operating decisions are based upon analysis of ~~$156.3 million at both~~the Company as 1 operating segment or unit.

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The following table sets forth the components of noninterest income for the three and nine months ended September 30, ~~2020~~2021 and December 31, 2019. The Company recorded $19.8 million in goodwill from the Highlands merger in January 2019. 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 value2020:


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

Service charges on deposit accounts:
Debit card interchange income	$	1,585	$	1,472	$	4,603	$	3,910
Overdraft charges	647		533		1,785		1,935
ATM service charges	182		138		497		367
Demand deposit fees and charges	107		129		348		394
Savings service charges	15		16		44		57
Total	2,536		2,288		7,277		6,663
Commissions and fees:
Loan fees	376		510		1,367		1,063
Wire transfer charges	376		372		1,126		1,021
Investment services income	373		392		1,210		1,231
Merchant fees	270		184		729		598
Commissions from sales of checks	73		73		226		216
Safe deposit income	82		85		240		256
Other income	54		51		143		138
Total	1,604		1,667		5,041		4,523
Gains on sales of loans	550		1,437		1,865		2,562
Swap income	—		624		634		4,234
Other Income:
Title insurance income	43		46		87		126
Other income	99		200		262		370
Total	142		246		349		496
Revenue not from contracts with customers	637		511		1,331		1,787
Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265
Timing of Revenue Recognition:
Products and services transferred at a point in time	4,832		6,243		15,143		18,422
Products and services transferred over time	—		19		23		56
Revenue not from contracts with customers	637		511		1,331		1,787
Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265

Table of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has 1 reporting unit, Community Banking. At September 30, 2020, the Company evaluated whether it is more likely than not that the fair value of our 1 reporting unit is less than its carrying amount, by assessing relevant events and circumstances as a result of the impact of COVID-19 and concluded that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount.Contents

Note 11 - Other Operating Expenses

The ~~Company had core deposit intangibles~~following table presents the major components of ~~$3.5 million and $4.3 million at September 30, 2020 and December 31, 2019, respectively. The Company recorded core deposit intangibles of $3.7 million~~other operating expenses for the ~~Highlands acquisition in January 2019. The estimated future amortization expense for the remainder of 2020 and for each of the succeeding five years ended December 31 is as follows (in thousands):~~periods indicated:

For the Year Ended
2020 $ 250
2021 868
2022 711
2023 554
2024 425
2025 317


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Consulting and advisory board fees	927		938		2,281		2,760
ATM and debit card expense	658		615		1,873		1,738
Telecommunications expense	536		501		1,575		1,399
Marketing expense	395		381		1,140		840
Core deposit intangible amortization	211		250		658		776
Other real estate owned and other repossessed assets expense	—		(2)		—		53
Long-term debt prepayment penalties	—		—		—		356
Long-term debt extinguishment costs	831		—		831		—
Other operating expenses	2,937		2,931		8,930		9,337
Total other operating expenses	$	6,495	$	5,614	$	17,288	$	17,259

~~NOTE 10 – BORROWINGS~~

At September 30, 2020 and December 31, 2019, the Company had overnight and short-term borrowings from the Federal Home Loan Bank ("FHLB") totaling $40.0 million and $200.0 million, respectively. In addition, there were 0 overnight and short-term borrowings from correspondent banks at September 30, 2020 and these borrowings totaled $85.0 million at December 31, 2019.

Other short-term borrowings at September 30, 2020 and December 31, 2019 consisted of short-term securities sold under agreements to repurchase of $57.9 million and $43.7 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of September 30, 2020, the Company had $72.9 million in mortgage backed securities pledged for its securities sold under agreements to repurchase.

At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.

Advances from the FHLB totaled $135.1 million at September 30, 2020 compared to $165.8 million at December 31, 2019 and were collateralized by first mortgage loans. The advances have 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.

~~NOTE 11 – SHARE-BASED COMPENSATION~~

The Company's shareholders approved the 2018 Omnibus Equity Incentive Plan (the "Plan"), which 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. The Company previously granted such awards under the 2009 Equity Compensation Program; however, no further awards may be granted from the 2009 program.

~~Table of Contents~~

~~Restricted Stock~~

~~The following is a summary of the Company’s restricted stock activity during the nine months ended September 30, 2020:~~

Number of
Shares Weighted
Average
Price
Outstanding, January 1, 2020 13,110 $ 15.93
Granted 13,041 16.87
Vested (13,052) 15.96
Outstanding, September 30, 2020 13,099 $ 16.83

In the first 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 under the 2018 Omnibus Equity Incentive Program. 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 nine months of 2019, the Company granted 13,052 shares of restricted stock to non-employee directors at a grant date fair value of $15.96 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $208,000 over such period.

The Company recognized share-based compensation expense on its restricted stock of $165,000 and $160,000 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there was unrecognized compensation cost of $55,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.29 years.

~~Restricted Stock Units~~

~~The following is a summary of the Company’s RSU activity during the nine months ended September 30, 2020:~~

Number of
Shares Weighted
Average
Price
Outstanding, January 1, 2020 300,629 $ 18.13
Granted 175,869 15.37
Vested (92,432) 18.80
Forfeited (8,736) 18.03
Outstanding, September 30, 2020 375,330 $ 16.67

In the first nine months of 2020, the Company granted 175,869 RSUs under the 2018 Omnibus Equity Incentive Plan at a weighted average grant date fair value of $15.37 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 RSUs issued in the first nine months of 2020 is expected to average approximately $901,000 per year over a three-year period. In the first nine months of 2019, the Company granted 141,059 RSUs under the Company’s 2018 Omnibus Equity Incentive Plan at a weighted average grant date fair value of $16.62 per share. Compensation expense on these RSUs is expected to average approximately $781,000 per year over a three-year period.

The Company recognized share based compensation expense of $1.9 million and $1.7 million on RSUs for the nine months ended September 30, 2020 and 2019, respectively. Unrecognized compensation expense related to RSUs was approximately $3.1 million as of September 30, 2020, and that cost is expected to be recognized over a period of 1.46 years.

~~Table of Contents~~

~~Stock Options~~

~~A summary of the activity under the Company’s stock option plans as of September 30, 2020 is as follows:~~

Number of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term
(in years) Aggregate
Intrinsic
Value
Outstanding, January 1, 2020 31,706 $ 7.76 0.58 $ 305,120
Expired (28,940) 7.83
Outstanding, September 30, 2020 2,766 $ 6.94 1.32 $ 8,329
Options exercisable at September 30, 2020 2,766 $ 6.94 1.32 $ 8,329

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (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 0 stock option grants in the first nine months of 2020 or 2019. There were 0 stock options exercised during the first nine months of 2020 and 34,727 stock options were exercised during the first nine months of 2019. The aggregate intrinsic value of stock options exercised during the first nine months of 2019 was $255,000 and resulted in $307,000 in cash receipts. There was 0 unrecognized compensation expense related to unvested stock options as of September 30, 2020.

~~NOTE~~Note 12 – ~~COMPREHENSIVE INCOME~~Comprehensive Income

The components of other comprehensive income are as follows:


	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

For the Three Months Ended
September 30, 2020 September 30, 2019
(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 $ (649) $ 73 $ (576) $ 1,911 $ (431) $ 1,480
Unrealized losses on derivatives 51 (14) 37 (111) 33 (78)
Other comprehensive income, net $ (598) $ 59 $ (539) $ 1,800 $ (398) $ 1,402

For the Nine Months Ended
September 30, 2020 September 30, 2019
(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 $ 12,475 $ (3,255) $ 9,220 $ 15,872 $ (4,253) $ 11,619
Reclassification adjustment for net gains arising during the period (342) 88 (254) 0 0 0
Net unrealized gains 12,133 (3,167) 8,966 15,872 (4,253) 11,619
Unrealized losses on derivatives (477) 141 (336) (807) 236 (571)
Other comprehensive income, net $ 11,656 $ (3,026) $ 8,630 $ 15,065 $ (4,017) $ 11,048

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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 September 30, 2020								For the Three Months Ended September 30, 2019
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 (Losses) on Derivatives		Pension Items		Total		Unrealized Losses on Available for Sale Securities		Unrealized Gains (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	$	11,478	$	(56)	$	(5)	$	11,417	$	1,357	$	410	$	41	$	1,808	Beginning balance	$	5,380	$	—	$	(5)	$	(30)	$	5,345
Net current period other comprehensive income (loss)		(576)		37		0		(539)		1,480		(78)		0		1,402
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 income (loss)																		Net current period other comprehensive income (loss)	1,280		(116)		5		—		1,169
Ending balance	Ending balance	$	10,902	$	(19)	$	(5)	$	10,878	$	2,837	$	332	$	41	$	3,210	Ending balance	$	3,876	$	2,668	$	—	$	(30)	$	6,514


		For the Nine Months Ended September 30, 2020								For the Nine Months Ended September 30, 2019
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 Losses 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	$	1,936	$	317	$	(5)	$	2,248	$	(8,782)	$	903	$	41	$	(7,838)	Beginning balance	$	11,478	$	(56)	$	(5)	$	11,417
Net current period other comprehensive (loss) income																		Net current period other comprehensive (loss) income	(576)		37		—		(539)

Other comprehensive income (loss) before classifications		9,220		(336)		0		8,884		11,619		(571)		0		11,048
Amounts reclassified from accumulated other comprehensive income		(254)		0		0		(254)		0		0		0		0
Net current period other comprehensive income (loss)		8,966		(336)		0		8,630		11,619		(571)		0		11,048
Ending balance	Ending balance	$	10,902	$	(19)	$	(5)	$	10,878	$	2,837	$	332	$	41	$	3,210	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

~~NOTE 13 – 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 available for sale investment 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

~~Table of Contents~~


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

Company has U.S. Treasury Notes and certain equity securities 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).

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 nine months ended September 30, 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) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Fair Value
September 30, 2020
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies $ 10,955 $ 62,320 $ 0 $ 73,275
Mortgage-backed securities 0 476,827 0 476,827
Asset-backed securities 0 40,711 0 40,711
Obligations of states and political subdivisions 0 164,710 0 164,710
Debt securities 0 27,808 0 27,808
Total securities available for sale 10,955 772,376 0 783,331
Equity securities, at fair value 898 13,178 0 14,076
Derivative assets 0 95,243 0 95,243
Total Assets $ 11,853 $ 880,797 $ 0 $ 892,650
Liabilities:
Derivative liabilities $ 0 $ 95,449 $ 0 $ 95,449
Total Liabilities $ 0 $ 95,449 $ 0 $ 95,449
December 31, 2019
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies $ 12,580 $ 123,067 $ 0 $ 135,647
Mortgage-backed securities 0 551,064 0 551,064
Obligations of states and political subdivisions 0 60,021 0 60,021
Debt securities 0 9,168 0 9,168
Total securities available for sale 12,580 743,320 0 755,900
Equity securities, at fair value 1,735 14,738 0 16,473
Derivative assets 0 27,123 0 27,123
Total Assets $ 14,315 $ 785,181 $ 0 $ 799,496
Liabilities:
Derivative liabilities $ 0 $ 26,852 $ 0 $ 26,852
Total Liabilities $ 0 $ 26,852 $ 0 $ 26,852

~~Table of Contents~~

The following table sets forth the Company’s assets subject to fair value adjustments (impairment) 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) (Level 1) (Level 2) (Level 3) Total
Fair Value
September 30, 2020
Assets:
Impaired loans $ 0 $ 0 $ 4,224 $ 4,224
Loans held for sale 0 4,197 0 4,197
December 31, 2019
Assets:
Impaired loans $ 0 $ 0 $ 5,789 $ 5,789
Loans held for sale 0 1,743 0 1,743
Other real estate owned and other repossessed assets 0 0 563 563

Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or market value. Because most of Lakeland’s impaired loans are collateral dependent, fair value is generally measured based on the value of the collateral, less estimated costs to sell, securing these loans and is classified at a level 3 in the fair value hierarchy. Collateral may be real estate, accounts receivable, inventory, equipment and/or other business assets. The value of real estate is assessed based on appraisals by qualified third-party licensed appraisers. The appraisers may use the income approach to value the collateral using discount rates (with ranges of 5-11%) or capitalization rates (with ranges of 4-9%) to evaluate the property. The value of the equipment may be determined by an appraiser, if significant, inquiry through a recognized valuation resource, or by the value on the borrower’s financial statements. Field examiner reviews on business assets may be conducted based on the loan exposure and reliance on this type of collateral. Appraised and reported values may be adjusted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

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 market value. Fair value is generally determined by the value of purchase commitments.

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 recognized valuation resources.

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.

~~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 September~~ 30 ~~2020, and December 31, 2019, 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.

~~Table of Contents~~

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. Investment securities held to maturity includes $2.5 million in subordinated debt that are non-rated and do not have an active secondary market or information readily available on standard financial systems. As a result, the securities are classified as Level 3 securities. Management performs a credit analysis before investing in these securities.

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.

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.

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.

~~The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2020 and December 31, 2019:~~

(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)

September 30, 2020
Financial Assets:
Investment securities held to maturity $ 97,893 $ 101,205 $ 0 $ 98,705 $ 2,500
Federal Home Loan Bank and other membership bank stocks 14,235 14,235 0 14,235 0
Loans, net 5,778,349 5,784,132 0 0 5,784,132
Financial Liabilities:
Certificates of deposit 1,144,341 1,144,945 0 1,144,945 0
Other borrowings 135,111 138,863 0 138,863 0
Subordinated debentures 118,248 116,697 0 0 116,697
December 31, 2019
Financial Assets:
Investment securities held to maturity $ 123,975 $ 124,904 $ 0 $ 121,503 $ 3,401
Federal Home Loan Bank and other membership bank stocks 22,505 22,505 0 22,505 0
Loans, net 5,097,820 5,194,065 0 0 5,194,065
Financial Liabilities:
Certificates of deposit 870,804 871,418 0 871,418 0
Other borrowings 165,816 166,505 0 166,505 0
Subordinated debentures 118,220 117,992 0 0 117,992

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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 $60.5 million and $83.2 million in investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at September 30, 2021 and December 31, 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 nine months ended 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 $142,000 of accumulated other comprehensive loss that was reclassified into interest expense for the first nine months of 2021 and $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 and on August 1, 2021, the remaining $10.0 million matured.

Amounts reported in accumulated other comprehensive income related to derivatives were reclassified to interest expense as interest payments are made on the Company’s debt.

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


September 30, 2021	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
3rd Party interest rate swaps	$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	8,814
Customer interest rate swaps	688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	41,200

Classified in Other Liabilities:
Customer interest rate swaps	$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	(8,814)
3rd Party interest rate swaps	688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	(41,200)


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

Classified in Other Liabilities:
Customer interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	(503)
3rd party interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	(80,231)
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 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 nine months ended 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 no impairment of goodwill recognized during the three and nine months ended September 30, 2021 and 2020.

The Company had core deposit intangibles of $2.6 million and $3.3 million at September 30, 2021 and December 31, 2020, respectively. Amortization of core deposit intangible totaled $211,000 and $250,000 for the third quarters of 2021 and 2020, respectively, and $658,000 and $776,000 for the 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	$	210
2022	711
2023	554
2024	425
2025	317
2026	210

~~Item 2. Management’s Discussion~~Note 15 – Fair Value Measurement and ~~Analysis~~Fair Value of Financial ~~Condition and Results of Operations~~Instruments

~~This section should~~Fair Value Measurement

Fair value is defined as the price that would be ~~read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included~~received to sell an asset or paid to transfer a liability in the ~~Company’s Annual Report on Form 10-K/A~~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 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 ~~year ended December 31, 2019.~~asset or liability including yield curves, volatilities and prepayment speeds.

~~Statements Regarding Forward Looking Information~~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 ~~information disclosed in this document includes various forward-looking statements~~Company’s assets that are ~~made~~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 ~~reliance upon~~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 ~~safe harbor provisions~~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 ~~Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends~~agreements and the ~~allowance for loan losses),~~credit worthiness of the Company's future tax expense, corporate objectives, the anticipated impact of COVID-19 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 onlycounter party as of the measurement date ~~made,~~(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 nine months ended 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 ~~subject to numerous assumptions, risks and uncertainties, all~~classified in their entirety based on the lowest level of ~~which may change over time. Actual results could differ materially from such forward-looking statements.~~

~~In addition~~input that is significant to the ~~risk factors disclosed elsewhere in this document and~~fair value measurement:


(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
September 30, 2021
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	22,178	$	80,793	$	—	$	102,971
Mortgage-backed securities, residential	—		95,248		—		95,248
Collateralized mortgage obligations, residential	—		200,900		—		200,900
Mortgage-backed securities, multifamily	—		1,867		—		1,867
Collateralized mortgage obligations, multifamily	—		35,003		—		35,003
Asset-backed securities	—		54,007		—		54,007

Corporate bonds	—		39,385		—		39,385
Total securities available for sale	22,178		507,203		—		529,381
Equity securities, at fair value	—		16,422		—		16,422
Derivative assets	—		50,014		—		50,014
Total Assets	$	22,178	$	573,639	$	—	$	595,817
Liabilities:
Derivative liabilities	$	—	$	50,014	$	—	$	50,014
Total Liabilities	$	—	$	50,014	$	—	$	50,014
December 31, 2020
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	9,392	$	55,610	$	—	$	65,002
Mortgage-backed securities, residential	—		228,156		—		228,156
Collateralized mortgage obligations, residential	—		209,038		—		209,038
Mortgage-backed securities, multifamily	—		1,944		—		1,944
Collateralized mortgage obligations, multifamily	—		41,535		—		41,535
Asset-backed securities	—		40,690		—		40,690
Obligations of states and political subdivisions	—		233,710		—		233,710
Corporate bonds	—		35,671		—		35,671
Total securities available for sale	9,392		846,354		—		855,746
Equity securities, at fair value	—		14,694		—		14,694
Derivative assets	—		80,734		—		80,734
Total Assets	$	9,392	$	941,782	$	—	$	951,174
Liabilities:
Derivative liabilities	$	—	$	80,877	$	—	$	80,877
Total Liabilities	$	—	$	80,877	$	—	$	80,877

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Non-Recurring Fair Value Measurements

The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the ~~Company's most recently filed Annual Report~~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 ~~Form 10-K/A,~~other real estate owned is based on the ~~following factors, among others, could cause~~appraised value of the ~~Company’s actual results~~collateral using discount rates or capitalization rates similar to ~~differ materially~~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 ~~adversely from such forward-looking statements: changes~~December 31, 2020, the Company had no OREO or other repossessed assets.

Changes in the ~~financial services industry and~~assumptions or methodologies used to estimate fair values may materially affect the ~~U.S. and global capital markets; changes~~estimated amounts. Changes in economic conditions, locally or nationally, ~~regionally~~could impact the value of the estimated amounts of impaired loans, OREO and inother repossessed assets.

The following table summarized the Company’s ~~markets; public health crises (such as~~financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the ~~governmental, social and economic effects~~lowest level of input that is significant to the ~~novel coronavirus); the nature and timing~~fair value measurement:


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




December 31, 2020
Assets:
Individually evaluated loans	$	—	$	—	$	2,417	$	2,417

Fair Value of actions of the Federal Reserve Board and other regulators; the nature and timing of legislation and regulation affecting the financial services industry; government intervention in the U.S. financial system; changes in federal and state tax laws; 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; and customers’ acceptance of Lakeland’s products and services.Certain Financial Instruments

The above-listed risk factors are not necessarily exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. Any statements madeEstimated 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 ~~are~~there may not ~~historical facts should~~ be ~~considered~~reasonable comparability between institutions due to ~~be forward-looking statements. The Company is not obligated~~the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to ~~update and does not undertake to update any~~a high degree of ~~its forward-looking statements made herein.~~

~~Critical Accounting Policies, Judgments and Estimates~~subjectivity in estimating financial instrument fair values.

The ~~accounting~~estimation methodologies used, the estimated fair values and ~~reporting policies of~~recorded book balances at September 30, 2021 and December 31, 2020, are outlined below.

This summary, as well as the ~~Company and its subsidiaries conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The consolidated~~table below, excludes financial statements include the accounts of the Company, Lakeland and their 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.

~~The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of~~ assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and ~~disclosure~~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 ~~contingent assets~~demand, savings and ~~liabilities~~interest-bearing transaction accounts is the amount payable on demand at the ~~date~~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.

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 ~~financial statements. These estimates~~investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, 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 assumptionsregulatory or ~~estimation techniques utilized, as compared to those disclosed in the Company’s most recent Annual Report on Form 10-K/A.~~

~~Executive Summary~~legislative events.

The ~~coronavirus ("COVID-19") continues to have~~net loan portfolio has been valued using an exit price approach, which incorporates a ~~significant, negative effect on families and businesses in New Jersey and in the United States. The prolonged COVID-19 outbreak, or any other epidemic~~buildup discount rate calculation that harms the global economy, the U.S. economy or the markets in which we operate could adversely affect our operations. If conditions worsen, we may again experience temporary closures of our offices and/or suspension of certain services until it is safe to open and return to work. The ultimate effect of COVID-19 on the Company's business will depend on numerous factors and future developments that are highly uncertain and cannot be predicted with confidence. At this time, it is unknown how long the COVID-19 pandemic will last or when all restrictions on individuals and businesses will be lifted and businesses and their employees will be able to fully resume normal activities. Further, additional information may emerge regarding the severity of COVID-19 and additional actions may be taken by federal, state and local governments to contain COVID-19 or treat its impact. Changes in the behavior of customers, businesses and their employees asuses a result of the COVID-19 pandemic, including social distancing practices, even after formal restrictions have been lifted, are also unknown. As a result of the COVID-19 pandemic and the actions taken to contain it or reduce its impact, 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 managingswap rate adjusted for credit risk, ~~in the Company's commercial loan portfolio, including reviewing the industries~~servicing costs, a liquidity premium and a prepayment premium.

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~~that the Company believes are most likely to be impacted by emerging COVID-19 events. These and similar factors and events may have substantial negative effects~~For fixed maturity certificates of deposit, fair value is estimated based on the ~~business, financial condition,~~present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

The fair values of commitments to extend credit and ~~results~~standby letters of ~~operations~~credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the ~~Company~~agreements and ~~its customers.~~

The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the 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. An eligible business could apply for a PPP loan up to the lesser of (1) 2.5 times its average monthly payroll costs or (2) $10.0 million. PPP loans have (a) an interest rate of 1.00%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the datepresent creditworthiness of the ~~disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower's PPP~~counterparties. For fixed-rate loan is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

In June 2020, Congress passed the Paycheck Protection Program Flexibility Act ("PPP Flexibility") to ease provisions of PPP related to the time period permitted to use the proceeds of loans, the deferral period of principal and interest payments on loans not forgiven and an extension of the maturity date of loan and loan forgiveness on loans. Key changes include (a) extending from two to five years the minimum maturity of any remaining loan balance after an application for loan forgiveness (for those loans closed after the enactment of PPP Flexibility); (b) extending the “covered period” (i.e., when costs that are eligible for forgiveness must be paid or incurred) from eight weeks to 24 weeks (or December 31, 2020, whichever is earlier); (c) reducing from 75 percent to 60 percent the amount of loan proceeds that must be used for payroll costs although the remainder must continue to be allocated to interest on mortgages, rent, and utilities; (d) permitting an exemption from reductions in loan forgiveness amounts based on reductions in full-time equivalent employees if the borrower, in good faith, documents an inability to return to the same level of business activity due to standards for sanitation, social distancing, or other worker or customer safety requirements established by the Department of Health and Human Services ("HHS"), the Center for Disease Control ("CDC") or Occupational, Safety and Health Administration ("OSHA"); and (e) allowing deferral of payments until the amount of forgiveness is remitted by the SBA to the lender or, if the borrower has not applied for forgiveness, ten months after the expiration of the covered period. The provisions of PPP Flexibility became effective upon enactment and will apply to all loans made under the PPP. The SBA released guidance on PPP loan forgiveness, which presently includes three different application methods depending primarily on the size of the PPP loan, reductions in staffing or salaries, or a business’ inability to operate at pre-COVID levels due to compliance with certain federally imposed requirements related to COVID-19. To qualify for full forgiveness, businesses must document that at least 60% of the PPP loan amount was used towards payroll costs and that the remaining 40% was used for other eligible costs such as mortgage interest, rent payments and/or utilities. Forgiveness will be reduced by any Economic Injury Disaster Loan (“EIDL”) advance amount the business received.

Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (“Revised Statement”), dated April 17, 2020, includes criteria that enable financial institutions to exclude from TDR status loans that are modified in connection with COVID-19. Under these provisions, TDR status is not required for the term of a loan modification if (i) the loan modification is made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31, 2019 and (iii) the loan modification is entered into during the period between March 1, 2020, and the earlier of (a) 60 days after COVID-19 is no longer characterized as a National Emergency or (b) December 31, 2020. Furthermore, pursuant to the Revised Statement, for loan modifications that do not meet these criteria but are made in connection with COVID-19, such loans may be presumed not to be TDR if they are current at a time the loan modification program was implemented and the modifications are short-term (e.g., six months). If the criteria are not met under either Section 4013 or the Revised Statement, banks are required to follow their existing accounting policies to determine whether COVID-related modifications should be accounted for as a TDR. The Company has elected to suspend the classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement.

~~The CARES Act~~commitments, fair value also provided financial institutions with the option to defer adoption of the Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) until the earlier of the end of the pandemic or December 31, 2020. The Company has elected to defer adoption of ASU 2016-13 and its Current Expected Credit Loss methodology ("CECL").

Management has identified that the COVID-19 pandemic could adversely affect the liquidity of the Company. As such, management has taken specific steps to raise awareness of the risk and taken action 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.

~~Table of Contents~~

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.

As the COVID-19 pandemic has advanced, Lakeland has made it a priority to safeguard the health of our associates and customers, while assisting customers impacted by the economic burdens of COVID-19 and providing support to our communities. Lakeland initiated remote working plans and encouraged the use of our mobile and online banking alternatives as we adjusted our branch hours, decreased lobby usage and temporarily closed branches. To assist COVID-19 impacted borrowers, we offered temporary payment deferrals on commercial, mortgage and consumer loans and we have assisted customers with the origination of PPP loans to help strengthen local businesses and preserve jobs in our communities. Additionally, to further support our customers, the Company decided to participate in the Main Street Lending Program established by the Federal Reserve to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. Despite this challenging environment, our associates show tireless professionalism, compassion and dedication to serving our customers under these unprecedented conditions. We remain open for business, continuing to lend to qualified businesses for working capital and general business purposes. This constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995.

~~Financial Overview~~

For the third quarter of 2020, the Company reported net income of $14.4 million and earnings per diluted share of $0.28 compared to net income of $18.9 million and earnings per diluted share of $0.37 for the third quarter of 2019. For the third quarter of 2020, annualized return on average assets was 0.76%, annualized return on average common equity was 7.64% and annualized return on average tangible common equity was 9.71% compared to 1.17%, 10.61%, and 13.74%, respectively, for the third quarter of 2019.

For the nine months ended September 30, 2020 the Company reported net income of $38.7 million, compared to $52.0 million for the same period in 2019. For the nine months ended September 30, 2020, the Company reported earnings per diluted share of $0.76, compared to $1.02 earnings per diluted share reported for the first nine months of 2019. For the first nine months of 2020, annualized return on average assets was 0.73%, annualized return on average common equity was 6.95%, and annualized return on average tangible common equity was 8.86% compared to 1.11%, 10.07% and 13.11%, respectively, for the same period in 2019.

The third quarter and year-to-date results were adversely impacted by provisions for loan losses of $8.0 million and $26.2 million, respectively, compared to $536,000 and $1.0 million for the same periods last year. Of the increased provision in the first nine months of 2020, 75% was primarily due to the impact of COVID-19 on certain qualitative factors and loans placed on COVID-related payment deferment. The remainder of the provision is attributable to loan growth, a change in the loan portfolio composition and a change in loss rates.

Net interest margin for the third quarter of 2020 of 2.96% decreased 29 and 10 basis points, respectively, from the third quarter of 2019 and the second quarter of 2020. Net interest margin for the first nine months of 2020 of 3.09% compared to 3.35% for the same period in 2019. The decrease in net interest margin was due primarily to a decrease in the yield on interest-earning assets partially offset by a decrease in the cost of interest-bearing liabilities.

~~Total loans, net of deferred fees, grew $705.8 million, or 14%, to $5.84 billion during the first nine months of 2020. The increase in loans includes $325.1 million in PPP loans.~~

~~Total deposits increased $972.7 million, or 18%, from December 31, 2019 to September 30, 2020, to $6.27 billion.~~

~~Comparison of Operating Results for the Three Months Ended September 30, 2020 and 2019~~

~~Net Income~~

Net income was $14.4 million, or $0.28 per diluted share, for the third quarter of 2020 compared to net income of $18.9 million, or $0.37 per diluted share, for the third quarter of 2019. The reduction in net income compared to the third quarter of 2019 was due primarily to the increased provision for loan losses mentioned above.

~~Net Interest Income~~

~~Net interest income is~~considers the difference between current levels of interest ~~income on earning assets~~rates 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.

~~Table of Contents~~

Net interest income on a tax equivalent basis for the third quarter of 2020 was $52.2 million, compared to $48.8 million for the third quarter of 2019. The increase in net interest income compared to the third quarter of 2019 was due primarily to the growth of interest-earning assets partially offset by a decrease in the yield on interest earning assets. The net interest margin decreased to 2.96% in the third quarter of 2020 from 3.25% in the third quarter of 2019 primarily as a result of a decrease in the yield on interest-earning assets, particularly a reduction in the yield on loans due to decreases in the prime rate and LIBOR during 2019 and 2020, an increase in lower yielding federal funds sold and the origination of PPP loans during the second quarter of 2020, which earn an effective yield of 2.50% including amortization of fees and costs. The components of net interest income are discussed in greater detail below.

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 September 30, 2020 and September 30, 2019 are computed on a tax equivalent basis using a tax rate of 21%.

For the Three Months Ended September 30, 2020 For the Three Months Ended September 30, 2019
(dollars in thousands) Average
Balance Interest
Income/
Expense Average
Rates
Earned/
Paid Average
Balance Interest
Income/
Expense Average
Rates
Earned/
Paid
ASSETS
Interest-earning assets:
Loans (1) $ 5,775,093 $ 56,801 3.91 % $ 4,937,488 $ 58,563 4.71 %
Taxable investment securities and other 793,370 4,139 2.09 % 801,828 5,007 2.50 %
Tax-exempt securities 79,696 509 2.55 % 67,906 458 2.70 %
Federal funds sold (2) 361,780 92 0.10 % 140,423 695 1.98 %
Total interest-earning assets 7,009,939 61,541 3.49 % 5,947,645 64,723 4.32 %
Noninterest-earning assets:
Allowance for loan losses (60,882) (39,254)
Other assets 567,012 471,284
TOTAL ASSETS $ 7,516,069 $ 6,379,675
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts $ 548,662 $ 77 0.06 % $ 494,377 $ 80 0.06 %
Interest-bearing transaction accounts 3,086,260 3,422 0.44 % 2,678,424 8,363 1.24 %
Time deposits 1,176,181 3,513 1.19 % 964,159 4,824 2.00 %
Borrowings 327,939 2,287 2.73 % 361,881 2,677 2.89 %
Total interest-bearing liabilities 5,139,042 9,299 0.72 % 4,498,841 15,944 1.41 %
Noninterest-bearing liabilities:
Demand deposits 1,475,422 1,100,413
Other liabilities 150,506 74,695
Stockholders' equity 751,099 705,726
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 7,516,069 $ 6,379,675
Net interest income/spread 52,242 2.77 % 48,779 2.91 %
Tax equivalent basis adjustment 108 97
NET INTEREST INCOME $ 52,134 $ 48,682
Net interest margin (3) 2.96 % 3.25 %

~~(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.~~

~~Table of Contents~~

Interest income on a tax equivalent basis decreased $3.2 million, or 5% from $64.7 million in the third quarter of 2019 to $61.5 million in the third quarter of 2020, as a result of a reduction in the yield on interest-earning assets due to the same reasons discussed above. Average federal funds sold in the third quarter of 2020 increased $221.4 million compared to the third quarter of 2019, while the yield decreased 188 basis points to 0.10% for the third quarter of 2020. Average loans increased $837.6 million compared to the third quarter of 2019 while the yield on average loans decreased 80 basis points to 3.91% in the third quarter of 2020 from the third quarter of 2019. Total average taxable investment securities decreased $8.5 million to $793.4 million for the third quarter of 2020 from the third quarter of 2019, while average tax-exempt securities increased $11.8 million to $79.7 million for the same periods. The yield on average taxable investment securities decreased 41 basis points from the third quarter of 2019 to 2.09% for the third quarter of 2020, while the yield on average tax-exempt investment securities decreased 15 basis points to 2.55%.

Total interest expense of $9.3 million in the third quarter of 2020 was $6.6 million less than the $15.9 million reported for the same period in 2019. Total average interest-bearing liabilities increased $640.2 million compared to the third quarter of 2019 primarily as a result of organic growth in money market accounts due to increased marketing efforts and to a change in customer behavior toward more traditional banking alternatives in the current economy. The cost of average interest-bearing liabilities decreased from 1.41% in the third quarter of 2019 to 0.72% in the third quarter of 2020 largely driven by reductions in market interest rates. For the third quarter of 2020, the cost of interest-bearing transaction accounts, time deposits and borrowings decreased by 80 basis points, 81 basis points and 16 basis points, respectively, when compared to the same period in 2019.

~~Provision for Loan Losses~~

In determining the provision for loan losses, management considers national and local economic conditions; trends in the portfolio including orientation to specific loan types or industries; experience, ability and depth of lending management in relation to the complexity of the portfolio; adequacy and adherence to policies, procedures and practices; levels and trends in delinquencies, impaired loans and charge-offs and the results of independent third-party loan reviews.

In the third quarter of 2020, an $8.0 million provision for loan losses was recorded, compared to $536,000 provision for the same period last year. The increase in provision was due primarily to the impact of COVID-19 on certain qualitative factors and loans on payment deferment. The Company recorded charge-offs of $682,000 and recoveries of $85,000 in the third quarter of 2020 compared to charge-offs of $809,000 and recoveries of $266,000 in the third quarter of 2019. For more information regarding the determination of the provision, see “Risk Elements” below.

~~Noninterest Income~~

Noninterest income increased $73,000 to $6.8 million for the third quarter of 2020 compared to $6.7 million during the same period in 2019. Gains on sales of loans for the third quarter of 2020 increased $951,000 compared to the third quarter of 2019 due primarily to increased volume of sales of residential mortgages driven by lower interest rates, while commissions and fees for the third quarter of 2020 increased $122,000 due primarily to increases in mortgage application fees and commercial loan fees. Service charges on deposit accounts for the third quarter of 2020 decreased $563,000 compared to the third quarter of 2019 due primarily to changes in customer behavior resulting from the pandemic. Third quarter 2020 results also included losses on equity securities of $170,000 compared to gains of $72,000 during the same period in 2019.

~~Noninterest Expense~~

Noninterest expense in the third quarter of 2020 totaled $32.1 million compared to $29.6 million reported for the same quarter of 2019, an increase of $2.5 million. Salaries and employee benefits expense was $19.7 million for the third quarter of 2020, increasing $632,000, or 3%, from the same period last year, as a result of additions to staff to support continued growth and normal merit increases. Furniture and equipment expense increased $806,000 compared to the third quarter of 2019 due primarily to an increase in costs associated with the Company's digital strategy initiative. FDIC insurance expense totaled $625,000 for the third quarter of 2020 and increased $1.0 million compared to the same period in 2019. In the third quarter of 2019, $420,000 in previously recorded FDIC expense was reversed due to FDIC assessment credits and no third quarter 2019 accrual was made, resulting from the insurance fund reserve ratio exceeding the required level.

~~Table of Contents~~

The Company’s efficiency ratio, a non-GAAP financial measure, was 53.96% in the third quarter of 2020, compared to 52.77% 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 September 30,
(dollars in thousands) 2020 2019

Total noninterest expense $ 32,097 $ 29,563
Amortization of core deposit intangibles (250) (288)
Noninterest expense, as adjusted $ 31,847 $ 29,275
Net interest income $ 52,134 $ 48,682
Noninterest income 6,773 6,700
Total revenue 58,907 55,382
Tax-equivalent adjustment on municipal securities 108 97
Total revenue, as adjusted $ 59,015 $ 55,479
Efficiency ratio 53.96 % 52.77 %

~~Income Tax Expense~~

The effective tax rate in the third quarter of 2020 was 23.3% compared to 25.3% during the same period in 2019 primarily as a result of an increase in tax advantaged items as a percent of pretax income.

~~Comparison of Operating Results for the Nine Months Ended September 30, 2020 and 2019~~

~~Net Income~~

Net income was $38.7 million, or $0.76 per diluted share, for the first nine months of 2020 compared to net income of $52.0 million, or $1.02 per diluted share, for the first nine months of 2019. Net income decreased primarily as a result of the $25.2 million increase in provision for loan losses mentioned in the financial overview. Net interest income increased $6.1 million compared to the first nine months of 2019 resulting primarily from an increase in interest-earning assets and a decrease in the cost of interest-bearing liabilities, partially offset by a decrease in the yield on interest-earning assets.

~~Net Interest Income~~

Net interest income on a tax equivalent basis for the first nine months of 2020 was $152.8 million, compared to $146.8 million for the first nine months of 2019. The net interest margin of 3.09% in the first nine months of 2020 compared to 3.35% for the same period in 2019. The decrease in net interest margin resulted primarily from a 64 basis point decrease in the yield on interest-earning assets, partially offset by a 48 basis point decrease in the cost of interest-bearing liabilities. The components of net interest income are discussed in greater detail below.

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 nine months ended September 30, 2020 and September 30, 2019 are computed on a tax equivalent basis using a tax rate of 21%.

For the Nine Months Ended September 30, 2020 For the Nine Months Ended September 30, 2019
(dollars in thousands) Average
Balance Interest
Income/
Expense Average
Rates
Earned/
Paid Average
Balance Interest
Income/
Expense Average
Rates
Earned/
Paid
ASSETS
Interest-earning assets:
Loans (1) $ 5,519,621 $ 170,483 4.13 % $ 4,908,952 $ 175,324 4.78 %
Taxable investment securities and other 811,924 14,131 2.32 % 788,736 14,865 2.51 %
Tax-exempt securities 69,408 1,371 2.63 % 72,104 1,475 2.73 %
Federal funds sold (2) 198,528 287 0.19 % 83,127 1,297 2.08 %
Total interest-earning assets 6,599,481 186,272 3.77 % 5,852,919 192,961 4.41 %
Noninterest-earning assets:
Allowance for loan losses (51,236) (39,985)
Other assets 525,193 460,926
TOTAL ASSETS $ 7,073,438 $ 6,273,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts $ 523,653 $ 248 0.06 % $ 503,260 $ 253 0.07 %
Interest-bearing transaction accounts 2,942,307 14,204 0.64 % 2,599,004 23,742 1.22 %
Time deposits 1,048,115 11,517 1.47 % 938,751 13,531 1.92 %
Borrowings 373,870 7,462 2.62 % 396,897 8,639 2.87 %
Total interest-bearing liabilities 4,887,945 33,431 0.91 % 4,437,912 46,165 1.39 %
Noninterest-bearing liabilities:
Demand deposits 1,317,195 1,080,235
Other liabilities 124,980 66,175
Stockholders' equity 743,318 689,538
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 7,073,438 $ 6,273,860
Net interest income/spread 152,841 2.86 % 146,796 3.02 %
Tax equivalent basis adjustment 289 310
NET INTEREST INCOME $ 152,552 $ 146,486
Net interest margin (3) 3.09 % 3.35 %

~~(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.~~

Interest income on a tax equivalent basis decreased from $193.0 million in the first nine months of 2019 to $186.3 million in the first nine months of 2020, a decrease of $6.7 million, or 3%. The decrease in interest income was primarily due to the same reasons discussed in the quarterly analysis. Average federal funds sold increased $115.4 million in the first nine months of 2020 compared to the same period in 2019, while the yield on federal funds sold decreased 189 basis points compared to the first nine months of 2019. Average loans increased $610.7 million compared to the first nine months of 2019, while the yield on average loans at 4.13% in the first nine months of 2020 was 65 basis points lower than the same period in 2019. The yield on average taxable and tax-exempt investment securities decreased 19 basis points and 10 basis points, respectively.

Total interest expense of $33.4 million in the first nine months of 2020 was $12.7 million less than the $46.2 million reported for the same period in 2019. Total average interest-bearing liabilities increased $450.0 million, while the cost of average interest-bearing liabilities decreased from 1.39% in the first nine months of 2019 to 0.91% in the first nine months of 2020. 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 58 basis points and 45 basis points, respectively, while the cost of borrowings decreased 25 basis points compared to the first nine months of 2019.

~~Provision for Loan Losses~~

In the first nine months of 2020, a $26.2 million provision for loan losses was recorded, compared to $1.0 million for the same period last year. As previously noted, approximately 75% of the increase in the provision was due to the impact of COVID-19 on certain qualitative factors as well as the downgrade of loans for which deferral of payments was granted. The remainder of the provision is attributable to loan growth, a change in the loan portfolio composition and a change in losscommitted rates. The Company charged off $1.3 million and recovered $322,000 in the first nine months of 2020 compared to $1.7 million and $1.7 million, respectively, in the first nine months of 2019. For more information regarding the determination of the provision, see “Risk Elements” below.

~~Noninterest Income~~

Noninterest income of $20.3 million in the first nine months of 2020 increased by $1.5 million from $18.8 million in the first nine months of 2019 due primarily to a $2.6 million increase in swap income. Additionally, gains on sales of loans increased $1.3 million due to an increase in sales of residential mortgages. Noninterest income for the first nine months of 2020 included $342,000 in gains on sales of securities compared to none during the same period in 2019. Service charges on deposits decreased $1.5 million compared to the first nine months of 2019 due to the same reasons discussed in the quarterly comparison. Noninterest income for the first nine months of 2020 also included a $625,000 loss on equity securities compared to a gain of $525,000 during the same period in 2019.

~~Noninterest Expense~~

Noninterest expense in the first nine months of 2020 totaled $96.1 million, which was $830,000 greater than the $95.2 million reported for the first nine months of 2019. The first nine months of 2019 included $3.2 million in merger related expenses related to the acquisition of Highlands Bancorp. Salaries and employee benefits increased $2.5 million, while furniture and equipment expense increased $1.9 million from the same period last year, both due to the same reasons discussed in the quarterly comparison. Marketing expense decreased $590,000 compared to the first nine months of 2019 due to the timing of marketing campaigns impacted by the pandemic. The Company’s efficiency ratio, a non-GAAP financial measure, was 54.95% in the first nine months of 2020, compared to 55.05% 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:~~

Nine Months Ended September 30,
(dollars in thousands) 2020 2019
Total noninterest expense $ 96,063 $ 95,233
Amortization of core deposit intangibles (776) (893)
Merger-related expenses — (3,178)
Long-term debt prepayment fee (356) —
Noninterest expense, as adjusted $ 94,931 $ 91,162
Net interest income $ 152,552 $ 146,486
Noninterest income 20,265 18,812
Total revenue 172,817 165,298
Tax-equivalent adjustment on municipal securities 289 310
(Gains) losses on sales of investment securities (342) —
Total revenue, as adjusted $ 172,764 $ 165,608
Efficiency ratio 54.95 % 55.05 %

~~Income Tax Expense~~

~~The effective tax rate in the first nine months of 2020 was 23.5% compared to 24.7% during the same period last year due primarily to an increase in tax advantaged items as a percent of pretax income.~~

~~Financial Condition~~

The Company’s total assets increased $810.9 million from December 31, 2019, to $7.52 billion at September 30, 2020. Total loans, net of deferred fees, were $5.84 billion, an increase of $705.8 million, or 14%, from $5.14 billion at December 31, 2019. Total deposits were $6.27 billion, an increase of $972.7 million, or 18%, from December 31, 2019, while total borrowings decreased $261.5 million to $351.2 million at September 30, 2020.

~~Loans~~

Gross loans of $5.86 billion at September 30, 2020 increased $714.1 million from December 31, 2019, primarily in the commercial loans secured by real estate and paycheck protection program ("PPP") categories, which increased $459.7 million, and $325.1 million, respectively. For more information on the loan portfolio, see Note 6 in Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

~~Risk Elements~~

Non-performing assets, excluding PCI loans, increased from $21.7 million at December 31, 2019 to $33.1 million at September 30, 2020. The increase in non-performing assets primarily resulted from loans related to one loan relationship totaling $9.2 million moving into non-accrual status for reasons unrelated to COVID-19. Non-accrual loans in the commercial loans secured by real estate category increased $12.9 million, while the residential mortgage category decreased $733,000. The percentage of non-performing assets to total assets was 0.44% at September 30, 2020 compared to 0.32% at December 31, 2019. Non-accrual loans at September 30, 2020 included ~~six~~ loan relationships with a balance of $1 million or greater, totaling $18.4 million and eight loan relationships between $500,000 and $1.0 million, totaling $5.5 million. Loans past due ninety days or more and still accruing totaled $165,000 at September 30, 2020 compared to none at December 31, 2019.

Troubled debt restructurings 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. On September 30, 2020, the Company had $4.3 million in loans that were troubled debt restructurings and accruing interest income compared to $5.7 million at December 31, 2019. These loans are expected to be able to perform under the modified terms of the loan. On September 30, 2020, the Company had $1.3 million in troubled debt restructurings that were included in non-accrual loans compared to $1.6 million at December 31, 2019.

~~Table of Contents~~

Since the end of March 2020, the Company has been working with borrowers negatively impacted by the COVID-19 pandemic. At September 30, 2020, we have on deferral, approximately $149.0 million in commercial loans (includes commercial loans secured by real estate, commercial and industrial and other loans), $3.0 million in equipment finance loans and $3.0 million in residential mortgage and consumer loans, compared to $927.0 million, $40.0 million and $53.0 million, respectively, at June 30, 2020.

On September 30, 2020, the Company had $32.4 million in impaired loans (consisting primarily of non-accrual and restructured loans) compared to $22.1 million at year-end 2019. The Company also had purchased credit impaired loans from prior acquisitions with carrying values of $7.8 million at September 30, 2020. For more information on impaired loans see Note 6 in Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. The allowance for impaired loans is based primarily on the fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the ~~underlying collateral. Based on such evaluation, $223,000~~estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of ~~the allowance for loan losses has been allocated for impairment at September 30, 2020 compared~~commitments to ~~$352,000 at December 31, 2019. At September 30, 2020~~extend credit and December 31, 2019, the Company had $101.4 million and $47.7 million, respectively, in loans that were rated substandard that were not classified as non-performing or impaired. The increase in substandard loans that were not classified as non-performing or impaired relates to the COVID-19 pandemic and the resulting loans thatstandby letters of credit are ~~on deferral.~~

There were no loans at September 30, 2020, other than those designated non-performing, impaired 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 loan losses~~

As noted earlier in this discussion, pursuant to the CARES Act, the Company has delayed implementation of ASU 2016-13, the CECL accounting standard. Upon the Company's future adoption of CECL, the change from the incurred loss methodology to the CECL methodology will be recognized through an adjustment to retained earnings, with an effective retrospective implementation date of January 1, 2020.

The overall balance of the allowance for loan losses of $65.2 million at September 30, 2020 increased $25.2 million from December 31, 2019, an increase of 63%. The change in the allowance within loan segments during the two comparable periods is principally due to factors relating to COVID-19 to the extent identified by the Company and gives effect to changes in the Company's level of loan growth and related credit downgrades.deemed immaterial.

4335

Table of Contents

The following table ~~sets forth for~~presents the ~~periods presented, the historical relationships among the allowance for loan losses, the provision for loan losses, the amount of loans charged-off~~carrying values, fair values and ~~the amount of loan recoveries:~~

(dollars in thousands) For the Nine Months Ended September 30, 2020 For the Nine Months Ended September 30, 2019 For the Year Ended December 31, 2019
Balance at the beginning of the year $ 40,003 $ 37,688 $ 37,688
Loans charged off:
Commercial, secured by real estate (498) (501) (544)
Commercial, industrial and other (204) (610) (645)
Equipment finance (194) (380) (414)
Real estate - mortgage (116) (50) (50)
Home equity and consumer (294) (197) (283)
Total loans charged off (1,306) (1,738) (1,936)
Recoveries:
Commercial, secured by real estate 57 212 251
Commercial, industrial and other 74 1,076 1,100
Equipment finance 39 2 332
Real estate - mortgage 21 66 66
Real estate - construction 69 104 126
Home equity and consumer 62 201 246
Total recoveries 322 1,661 2,121
Net recoveries (charge-offs) (984) (77) 185
Provision for loan losses 26,223 1,044 2,130
Ending balance $ 65,242 $ 38,655 $ 40,003
Net charge-offs as a percentage of average loans outstanding 0.02 % — % — %
Allowance as a percentage of total loans outstanding 1.11 % 0.78 % 0.78 %
Allowance as a percentage of non-accrual loans 197.17 % 242.85 % 189.25 %

~~The determination of the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included~~placement in the consolidated financial statements is the responsibility of management and the Board of Directors. Management performs a formal quarterly evaluation of the allowance for loan losses. This quarterly process is performed by the Credit Administration Department and approved by the Chief Credit Officer. All supporting documentation with regard to the evaluation process is maintained by the Credit Administration Department. Each quarter, the evaluation along with the supporting documentation is reviewed by the finance department before approval by the Chief Credit Officer. The allowance evaluation is then presented to an Allowance for Loan Losses Committee, which gives final approval to the allowance evaluation before being presented to the Board of Directors for its approval.

~~The methodology employed for assessing the adequacy of the allowance consists of the following criteria:~~

•~~The establishment of specific reserve amounts for impaired loans, including PCI loans.~~

•The establishment of reserves for pools of homogeneous loans not subject to specific review, including impaired loans under $500,000, equipment finance, 1 - 4 family residential mortgages, and consumer loans.

The establishment of reserve amounts for pools of homogeneous loans are based upon the determination of historical loss rates, which are adjusted to reflect current conditions through the use of qualitative factors. The qualitative factors considered by the Company include an evaluation of the resultsfair value hierarchy of the Company’s independent loan review function, the Company's reporting capabilities, the adequacy and expertise of Lakeland’s lending staff, underwriting policies, loss histories, trends in the portfolio, delinquency trends, economic and business conditions and capitalization rates. Since many of Lakeland’s loans depend on the sufficiency of collateral as a secondary source of repayment, any adverse trends in the real estate market could affect the underlying values available to protect Lakeland from losses.

Additionally, management determines the loss emergence periods for each loan segment, which are used to define loss migration periods and establish appropriate ranges for qualitative adjustments for each loan segment. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss

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(typically via the first partial or full loan charge-off), and is determined based upon a study of our past loss experience by loan segment. All of the factors considered in the analysis of the adequacy of the allowance for loan losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

~~Non-performing loans of $33.1 million~~financial instruments not carried at September 30, 2020 increased $12.0 million from December 31, 2019. The allowance for loan losses as a percent of total loans was 1.11% at September 30, 2020 compared to 0.78% at December 31, 2019. Excluding the loans from prior acquisitions and PPP loans, the allowance as a percent of total loans would be 1.28%fair value as of September 30, ~~2020 compared to 0.88% at~~2021 and December 31, 2019. The increase in the percentage of the allowance for loan losses as a percent of total loans was primarily due to the $26.2 million provision recorded in the first nine months of 2020 primarily resulting from the impact of COVID-19. 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 loan losses to be adequate at September 30, 2020.2020:

~~Investment Securities~~

Investment securities totaled $881.2 million at September 30, 2020 and $879.9 million at December 31, 2019, increasing $1.3 million from year-end. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 5 in Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

~~Deposits~~

Total deposits increased from $5.29 billion at December 31, 2019 to $6.27 billion at September 30, 2020, an increase of $972.7 million, or 18%. Time deposits increased $273.5 million, due primarily to an increase in brokered deposits of $261.2 million, while savings and interest-bearing transaction accounts increased $348.5 million due primarily to an increase in money market deposit accounts resulting from increased marketing efforts and a change in customer behavior towards more traditional banking alternatives in the current economy. Noninterest-bearing deposits increased $350.7 million during the first nine months of 2020 due in part to deposits of PPP loan proceeds.

~~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 $61.7 million for the first nine months of 2020 compared to $61.3 million for the same period in 2019.~~

•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In the first nine months of 2020, Lakeland’s deposits increased $972.7 million compared to an increase of $181.0 million during the first nine months of 2019.

•Sales of securities. At September 30, 2020 the Company had $783.3 million in securities designated “available for sale.” Of these securities, $499.1 million were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

•~~Repayments on loans can also be a source of liquidity.~~

•Credit lines. As a member of the FHLB, Lakeland has the ability to borrow overnight based on the market value of collateral pledged. Lakeland had $40.0 million in overnight borrowings from the FHLB on September 30, 2020. Lakeland also has overnight federal funds lines available for it to borrow up to $215.0 million, of which none were outstanding at September 30, 2020. 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 September 30, 2020.

•Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.


(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)
September 30, 2021
Financial Assets:
Investment securities, held to maturity
U.S. Treasury and U.S. government agencies	$	18,820	$	19,279	$	—	$	19,279	$	—
Mortgage-backed securities, residential	343,866		342,001		—		342,001		—
Collateralized mortgage obligations, residential	8,488		8,775		—		8,775		—
Mortgage-backed securities, multifamily	2,724		2,771		—		2,771		—

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

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

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

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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. As noted in the Executive Summary, 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.

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 nine months ended September 30, 2020 follows.

Cash and cash equivalents totaling $345.9 million on September 30, 2020 increased $63.6 million from December 31, 2019. Operating activities provided $61.7 million in net cash. Investing activities used $688.2 million in net cash, primarily reflecting an increase in loans. Financing activities provided $690.0 million in net cash primarily reflecting the net increase in deposits of $972.9 million, partially offset by a $230.8 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. This constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995.

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of September 30, 2020. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.

(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 $ 22,194 $ 3,309 $ 5,405 $ 4,320 $ 9,160
Benefit plan commitments 5,017 397 818 755 3,047
Remaining contractual maturities of time deposits 1,144,341 912,653 223,994 7,694 —
Subordinated debentures 118,248 — — 5,284 112,964
Loan commitments 1,204,412 889,292 151,560 14,449 149,111
Other borrowings 135,111 30,331 79,780 25,000 —
Interest on other borrowings* 44,204 8,189 13,512 11,021 11,482
Standby letters of credit 14,626 14,065 481 80 —
Total $ 2,688,153 $ 1,858,236 $ 475,550 $ 68,603 $ 285,764

*Includes interest on other borrowings and subordinated debentures at a weighted rate of 3.33%.

~~Capital Resources~~

Total stockholders’ equity increased to $753.6 million on September 30, 2020 from $725.3 million on December 31, 2019, an increase of $28.3 million. Book value per common share increased to $14.93 on September 30, 2020 from $14.36 on December 31, 2019. Tangible book value per share increased from $11.18 per share on December 31, 2019 to $11.77 per share on September 30, 2020, an increase of 5%. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2019 to September 30, 2020 was primarily due to $38.7 million of net income and other comprehensive income of $8.6 million, which was partially offset by the payment of cash dividends on common stock of $19.1 million and purchase of treasury stock under the Company's stock buyback program of $1.5 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 September 30, 2020, the Company and Lakeland met all capital adequacy requirements to which they are subject.

~~As of September 30, 2020, the Company’s capital levels remained characterized as “well-capitalized.”~~

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~~The capital ratios for the Company and Lakeland 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
September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019
The Company 8.36 % 9.41 % 9.83 % 10.46 % 10.34 % 11.02 % 12.93 % 13.40 %
Lakeland Bank 9.05 % 10.16 % 11.19 % 11.89 % 11.19 % 11.89 % 12.33 % 12.67 %
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. Lakeland Bancorp 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.

~~Table of Contents~~

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) September 30, 2020 December 31, 2019
Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP $ 753,572 $ 725,263
Less:
Goodwill 156,277 156,277
Other identifiable intangible assets, net 3,538 4,314
Total tangible common stockholders’ equity at end of period - Non-GAAP $ 593,757 $ 564,672
Shares outstanding at end of period 50,468 50,498
Book value per share - GAAP $ 14.93 $ 14.36
Tangible book value per share - Non-GAAP $ 11.77 $ 11.18
Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP $ 593,757 $ 564,672
Total assets at end of period $ 7,522,184 $ 6,711,236
Less:
Goodwill 156,277 156,277
Other identifiable intangible assets, net 3,538 4,314
Total tangible assets at end of period - Non-GAAP $ 7,362,369 $ 6,550,645
Common equity to assets - GAAP 10.02 % 10.81 %
Tangible common equity to tangible assets - Non-GAAP 8.06 % 8.62 %

For the Three Months Ended September 30, For the Nine Months Ended September 30
(dollars in thousands) 2020 2019 2020 2019
Calculation of Return on Average Tangible Common Equity
Net income - GAAP $ 14,427 $ 18,874 $ 38,670 $ 51,957
Total average common stockholders’ equity $ 751,099 $ 705,726 $ 743,318 $ 689,538
Less:
Average goodwill 156,277 155,835 156,277 154,531
Average other identifiable intangible assets, net 3,689 4,761 3,944 5,022
Total average tangible common stockholders’ equity - Non-GAAP $ 591,133 $ 545,130 $ 583,097 $ 529,985
Return on average common stockholders’ equity - GAAP 7.64 % 10.61 % 6.95 % 10.07 %
Return on average tangible common stockholders’ equity - Non-GAAP 9.71 % 13.74 % 8.86 % 13.11 %

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~~Recent Accounting Pronouncements~~Note 16 – Business Combination

~~In March 2020,~~On July 11, 2021, the ~~Financial Accounting Standards Board ("FASB"~~Company entered into an Agreement and Plan of Merger (the "Merger Agreement") ~~issued Update 2020-04,~~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 ~~update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects~~aggregate 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 becauseapproximately 14.0 million shares of ~~reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics~~its common stock in the ~~Codification for contracts that are modified because~~merger. As of ~~reference rate reform and contemporaneous modifications of other contract terms related to~~July 11, 2021, the ~~replacement of the reference rate.~~ transaction is valued at approximately $244.4 million on a fully diluted basis.

The ~~ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter.~~ ~~The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be material.~~

In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and Topic 815, Derivatives and Hedging. The update clarifies the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting in accordance with Topic 321. In addition, the update clarifies scope considerations for forward contracts and purchased options on certain securities. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect the update to 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.

In August 2018, the FASB issued Update 2018-13, an update to Topic 820, Fair Value Measurement, to improve the effectiveness of fair value measurement disclosures. Among other provisions, the update removes requirements to disclose amounts of and reasons for transfers between Level 1 and Level 2 in the fair value hierarchy, and it modifies the disclosures regarding transfers in and out of Level 3 of the fair value hierarchy. The update requires a discussion regarding the change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019. Because the Company does not typically have Level 3 fair value measurements, the update did not have a material impact on the Company's financial statements.

In August 2018, the FASB issued Update 2018-15, an update to Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software, which aligns the requirements for capitalizing implementation costs in a cloud-computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. Implementation costs incurred by customers in a cloud computing arrangement are to be deferred and recognized over the term of the arrangement, if those costs would be capitalizedtransaction has been approved by the ~~customer in a software licensing arrangement under the internal-use software guidance.~~ ~~This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019. The adoption~~boards of ~~this update did not have a material impact on the Company’s financial statements.~~

In August 2018, the FASB issued Update 2018-14, an update to Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General, which changes the disclosure of accounting and reporting requirements related to single-employer defined benefit pension or other postretirement benefit plans. The amendments in the update remove disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. For calendar-year public companies, the changes will be effective for annual periods, including interim periods within those annual periods, in 2020. Because the Company has minimal pension plans that require calculation of projected benefit obligations or accumulated benefit obligations, the update did not have a material impact on the Company's financial statements.

In August 2017, the FASB issued Update 2017-05, an update to Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, intended to improve and simplify accounting rules around hedge accounting. Amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this update also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019. The adoption of this update did not have a material impact on the Company’s financial statements.

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In January 2017, the FASB issued Update 2017-04, an update to Topic 350, Intangibles - Goodwill and Other, to simplify the test for goodwill impairment. This amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. This update is effective for the Company’s financial statements for annual years beginning after December 15, 2019. The update was adopted by the Company as of January 1, 2020 with prospective application and did not impact the year-to-date September 30, 2020 results. The future impact of the update will depend upon the performancedirectors 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 ~~market conditions impacting the fair value~~approval of the shareholders of both the Company ~~going forward.~~

~~In June 2016,~~and 1st Constitution Bancorp, the ~~FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement~~approval or waiver by the Board of Credit Losses on Financial Instruments ("CECL"), further amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. Topic 326 pertains toGovernors of the measurement of credit losses on financial instruments. This update requires the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutionsFederal Reserve System and other organizations will now use forward-looking information to better inform their credit loss estimates. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019; however,customary closing conditions, the Company ~~has elected to defer implementation of~~anticipates completing the update as allowed as part of the CARES Act, which allows for an optional delay in implementation until President Trump declares the COVID-19 national emergency to be over or the end of 2020, whichever comes first. The Company elected to delay CECL because of the rapidly changing economic forecast and uncertainty surrounding the economic impact of COVID-19 at the time of the Company's election. The additional time has allowed the Company to better understand the impact of the pandemic and various U.S. government stimulus programs. Upon the Company's future adoption of CECL, the change from the incurred loss methodology to the CECL methodology will be recognized through an adjustment to retained earnings, with an effective retrospective implementation date of January 1, 2020. ~~Once final, the calculation will require approval by the Company's~~ ~~Allowance for Credit Losses Committee~~ ~~and governance in accordance with the Company’s internal controls over financial reporting.~~

When we adopt Topic 326, we anticipate using a modified retrospective approach. Our CECL methodology includes the following key factors and assumptions for all loan portfolio segments: a) the calculation of a baseline lifetime loss by applying a segment-specific historical average annual loss rate, calculated using an open pool method, applied over the remaining life of each instrument; b) a single set of economic forecast inputs for the reasonable and supportable period; c) an initial reasonable and supportable forecast period, which reflects management's expectations of losses based on forward-looking economic scenarios over that time; d) baseline lifetime loss rates adjusted for changes in macroeconomic conditions over the reasonable and supportable forecast period via a series of adjustment factors developed using a third-party developed and supported top-down statistical model suite that uses a set of relevant economic forecast inputs sourced from a leading global forecasting firm; e) a reversion period (after the reasonable and supportable forecast period) using a straight-line approach; f) a historical loss period which represents a full economic credit cycle (with the exception of equipment finance loans which will use a shorter time period due to circumstances unique to that segment); and g) expected prepayment rates estimated on more recent historical experience adjusted for refinance incentive, seasoning and burnout, as applicable. The Company expects that upon adoption of CECL, the allowance for loan losses and the reserve for unfunded commitments will increase, as a result of changing from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. ~~The future impact of CECL on the Company’s allowance for credit losses and provision expense subsequent to the initial adoption will depend on changes~~merger in the ~~loan portfolio, economic conditions and refinements to key assumptions including forecasting and qualitative factors.~~ Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we do not expect these allowances to be significant.

first quarter of 2022.

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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; 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; 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.

Executive Summary

COVID-19 continues to impact the Company's financial results and consumer and commercial behaviors in the markets 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. The Company was an active participant in the 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 granted payment deferrals to borrowers impacted by COVID-19 as provided for under the CARES Act. All COVID-related loan deferments have expired and 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.

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 third quarter of 2021, the Company reported net income of $22.3 million and earnings per diluted share of $0.43 compared to net income of $14.4 million and earnings per diluted share of $0.28 for the third quarter of 2020. For the third quarter of 2021, annualized return on average assets was 1.10%, annualized return on average common equity was 10.94% and annualized return on average tangible common equity was 13.63% compared to 0.76%, 7.64%, and 9.71%, respectively, for the third quarter of 2020.

For the nine months ended September 30, 2021 the Company reported net income of $72.9 million, compared to $38.7 million for the same period in 2020. For the nine months ended September 30, 2021, the Company reported earnings per diluted share of $1.42 compared to $0.76 earnings per diluted share reported for the first nine months of 2020. For the first nine months of 2021, annualized return on average assets was 1.24%, annualized return on average common equity was 12.39%, and annualized return on average tangible common equity was 15.53% compared to 0.73%, 6.95% and 8.86%, respectively, for the same period in 2020.

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The third quarter and year-to-date 2021 results were favorably impacted by benefits for credit losses of $2.7 million and $11.3 million, respectively, compared to provisions of $8.0 million and $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 third quarter of 2021 of 3.10% increased 14 basis points compared to the third quarter of 2020 and decreased 17 basis points compared to the second quarter of 2021. Net interest margin for the first nine months of 2021 was 3.19% as compared to 3.09% for the same period in 2020. The increase in net interest margin compared to the third quarter 2020 and year-to-date 2020 was due primarily to a decrease in the cost of interest-bearing liabilities, while the decrease in net interest margin compared to the linked quarter was due primarily to a $326.7 million increase in lower yielding average federal funds sold.

During the 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 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 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 $140.4 million to $5.88 billion during the first nine months of 2021. Total deposits increased $475.1 million, or 7%, during the first nine months of 2021, to $6.93 billion.

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

Net Income

Net income was $22.3 million or $0.43 per diluted share, for the third quarter of 2021 compared to net income of $14.4 million or $0.28 per diluted share, for the third quarter of 2020. The increase in net income compared to the third quarter of 2020 was due primarily to a benefit for credit losses 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 third quarter of 2021 was $59.5 million, compared to $52.2 million for the third quarter of 2020. The increase in net interest income compared to the 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 3.10% in the third quarter of 2021 from 2.96% in the 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 September 30, 2021 and September 30, 2020 are computed on a tax equivalent basis using a tax rate of 21%.


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

ASSETS
Interest-earning assets:
Loans (1)	$	5,943,698	$	59,957	4.00	%	$	5,775,093	$	56,801	3.91	%
Taxable investment securities and other	1,005,744		4,232		1.68	%	793,370		4,139		2.09	%
Tax-exempt securities	138,612		745		2.15	%	79,696		509		2.55	%
Federal funds sold (2)	523,205		161		0.12	%	361,780		92		0.10	%
Total interest-earning assets	7,611,259		65,095		3.40	%	7,009,939		61,541		3.49	%
Noninterest-earning assets:
Allowance for credit losses	(60,490)						(60,882)
Other assets	519,281						567,012
TOTAL ASSETS	$	8,070,050					$	7,516,069

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts	$	653,840	$	85	0.05	%	$	548,662	$	77	0.06	%
Interest-bearing transaction accounts	3,701,676		2,775		0.30	%	3,086,260		3,422		0.44	%
Time deposits	826,831		1,127		0.55	%	1,176,181		3,513		1.19	%
Borrowings	270,735		1,613		2.33	%	327,939		2,287		2.73	%
Total interest-bearing liabilities	5,453,082		5,600		0.41	%	5,139,042		9,299		0.72	%
Noninterest-bearing liabilities:
Demand deposits	1,702,788						1,475,422
Other liabilities	106,224						150,506
Stockholders' equity	807,956						751,099
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,070,050					$	7,516,069
Net interest income/spread			59,495		2.99	%			52,242		2.77	%
Tax equivalent basis adjustment			157						108
NET INTEREST INCOME			$	59,338					$	52,134
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 $3.6 million from $61.5 million in the third quarter of 2020 to $65.1 million in the third quarter of 2021. The impact of the nine basis point reduction in the yield on interest-earning assets was offset by growth in the volume of interest-earning assets. Average loans increased $168.6 million compared to the third quarter of 2020 while the yield on average loans increased nine basis points to 4.00% in the third quarter of 2021 from the third quarter of 2020. Total average taxable investment securities increased $212.4 million to $1.01 billion for the third quarter of 2021 from the third quarter of 2020, while average tax-exempt securities increased $58.9 million to $138.6 million for the same periods. The yield on average taxable investment securities decreased 41 basis points from the third quarter of 2020 to 1.68% for the third quarter of 2021, while the yield on average tax-exempt investment securities decreased 40 basis points to 2.15% due to declines in market interest rates during the period. Average federal funds sold in the third quarter of 2021 increased $161.4 million compared to the third quarter of 2020, while the yield increased two basis points to 0.12% for the third quarter of 2021.

Total interest expense of $5.6 million in the third quarter of 2021 was $3.7 million less than the $9.3 million reported for the same period in 2020. The cost of average interest-bearing liabilities decreased from 0.72% in the third quarter of 2020 to 0.41% in the 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 third quarter of 2021, lower costing savings and interest bearing transaction account average balances increased $105.2 million and $615.4 million, respectively, while the cost decreased by one basis point and 14 basis points, respectively, when compared to the same period in 2020. Higher cost average time deposits and borrowings balances decreased $349.4 million and $57.2 million, respectively, in the third quarter of 2021 when compared to the third quarter of 2020 while the cost decreased 64 points and 40 basis points, respectively. In 2020, the Company repaid a total of $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 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 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.

In the third quarter of 2021, a $2.7 million benefit for credit losses was recorded, compared to 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 $2.7 million, a benefit for the provision on off-balance-sheet exposures of $72,000 and a provision for credit losses on securities of $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 $996,000 and recoveries on loans of $1.3 million in the third quarter of 2021 compared to loan charge-offs of $682,000 and loan recoveries of $85,000 in the third quarter of 2020. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income decreased $1.3 million to $5.5 million for the third quarter of 2021 compared to $6.8 million during the same period in 2020 due primarily to a reduction in swap income and gains on sales of loans. There was no swap income during the third quarter of 2021 compared to income of $624,000 during the third quarter of 2020 due primarily to changes to the yield curve which makes new swap agreements less attractive. Gains on sales of loans decreased $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 changes in customer behavior related to the pandemic. Additionally, losses on equity securities totaled $58,000 for 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 third quarter of 2021 totaled $37.2 million compared to $32.1 million reported for the same quarter of 2020, an increase of $5.1 million. Compensation and employee benefit expense for the third quarter of 2021 increased $2.4 million, or 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 $624,000 and $284,000, respectively, compared to the third quarter of 2020 predominately driven by increases in costs associated with the Company's digital strategy initiative. FDIC insurance expense totaled $461,000 for the third quarter of 2021, a decrease of $164,000 compared to the same period in 2020 due primarily to a decrease in assessment rates resulting from 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 third quarter of 2021 were $881,000 greater than the same period in 2020 due primarily to $831,000 in unamortized debt issuance costs resulting from the extinguishment of $75 million of the Company's 5.125% fixed-to-floating rate subordinated notes due September 30, 2026.

The Company’s efficiency ratio, a non-GAAP financial measure, was 54.02% in the third quarter of 2021, compared to 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 September 30,
(dollars in thousands)	2021			2020

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

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

Net interest income	$	59,338		$	52,134
Noninterest income	5,469			6,773
Total revenue	64,807			58,907
Tax-equivalent adjustment on municipal securities	157			108

Total revenue, as adjusted	$	64,964		$	59,015
Efficiency ratio	54.02		%	53.96		%

Income Tax Expense

The effective tax rate in the third quarter of 2021 was 26.5% compared to 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 during the current period.

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

Net Income

Net income was $72.9 million, or $1.42 per diluted share, for the first nine months of 2021 compared to net income of $38.7 million, or $0.76 per diluted share, for the first nine months of 2020. Net income increased primarily as a result of the $11.3 million benefit for credit losses recorded in the first nine months of 2021 compared to the $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 nine months of 2021 was $176.3 million, compared to $152.8 million for the first 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 3.19% in the first nine months of 2021 compared to 3.09% for the same period in 2020. The increase in net interest margin resulted primarily from a 46 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 nine months ended September 30, 2021 and September 30, 2020 are computed on a tax equivalent basis using a tax rate of 21%.


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

ASSETS
Interest-earning assets:
Loans (1)	$	6,037,419	$	179,264	3.97	%	$	5,519,621	$	170,483	4.13	%
Taxable investment securities and other	942,389		12,242		1.73	%	811,924		14,131		2.32	%
Tax-exempt securities	129,434		2,318		2.39	%	69,408		1,371		2.63	%
Federal funds sold (2)	286,936		250		0.12	%	198,528		287		0.19	%
Total interest-earning assets	7,396,178		194,074		3.51	%	6,599,481		186,272		3.77	%
Noninterest-earning assets:
Allowance for credit losses	(66,641)						(51,236)
Other assets	524,814						525,193
TOTAL ASSETS	$	7,854,351					$	7,073,438

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts	$	632,950	$	247	0.05	%	$	523,653	$	248	0.06	%
Interest-bearing transaction accounts	3,529,586		8,447		0.32	%	2,942,307		14,204		0.64	%
Time deposits	916,476		4,655		0.68	%	1,048,115		11,517		1.47	%
Borrowings	237,856		4,432		2.46	%	373,870		7,462		2.62	%
Total interest-bearing liabilities	5,316,868		17,781		0.45	%	4,887,945		33,431		0.91	%
Noninterest-bearing liabilities:
Demand deposits	1,637,101						1,317,195
Other liabilities	113,740						124,980
Stockholders' equity	786,642						743,318
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,854,351					$	7,073,438
Net interest income/spread			176,293		3.06	%			152,841		2.86	%
Tax equivalent basis adjustment			487						289
NET INTEREST INCOME			$	175,806					$	152,552
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 $186.3 million in the first nine months of 2020 to $194.1 million in the first nine months of 2021, an increase of $7.8 million, or 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 loans increased $517.8 million compared to the first nine months of 2020, while the yield on average loans at 3.97% in the first nine months of 2021 was 16 basis points lower than the same period in 2020. Average taxable and tax-exempt investment securities increased $130.5 million and $60.0 million, respectively, for the first nine months of 2021 compared to the same period in 2020, while the yield on average taxable and tax-exempt investment securities decreased 59 basis points and 24 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 $17.8 million in the first nine months of 2021 was $15.6 million less than the $33.4 million reported for the same period in 2020. Total average interest-bearing liabilities increased $428.9 million, while the cost of average interest-bearing liabilities decreased from 0.91% in the first nine months of 2020 to 0.45% in the first 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 32 basis points and 79 basis points, respectively, while the cost of borrowings decreased 16 basis points compared to the first nine months of 2020.

Provision for Credit Losses

In the first nine months of 2021, an $11.3 million benefit for credit losses was recorded, compared to a $26.2 million provision for the same period last year. The benefit is comprised of a benefit for credit losses on loans of $10.8 million, a benefit for off-balance-sheet exposures of $707,000 and a provision for credit losses on securities of $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 $4.1 million and recovered $1.8 million in the first nine months of 2021 compared to $1.3 million and $322,000, respectively, in the first nine months of 2020. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income of $16.5 million in the first nine months of 2021 decreased by $3.8 million from $20.3 million in the first nine months of 2020 due primarily to a $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 increased $614,000 compared to the first nine months of 2020 due to the same reasons discussed in the quarterly comparison, while commissions and fees increased $459,000 due primarily to an increase in commercial loan fees. Losses on equity securities totaled $191,000 in the first nine months of 2021 compared to losses of $625,000 in the first nine months of 2020. Other income decreased $567,000 due primarily to a $400,000 write-down on a branch location held for sale. Additionally, the first nine months of 2020 included gains on investment securities transactions of $342,000 compared to $9,000 for the same period in 2021.

Noninterest Expense

Noninterest expense in the first nine months of 2021 totaled $105.2 million, which was $9.1 million greater than the $96.1 million reported for the first nine months of 2020. Compensation and employee benefit expense and premises and equipment expense increased $5.1 million and $2.4 million, respectively, compared to the first nine months of 2020 due to the same reasons discussed in the quarterly comparison. FDIC insurance expense in the first nine months of 2021 increased $420,000 due primarily to deposit growth and assessment credits recorded in the first 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 increased $29,000 in the first nine months of 2021 compared to the same period in 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 nine months ended September 30, 2020, the Company recorded $356,000 of long-term debt prepayment fees on the redemption of FHLB borrowings. The Company’s efficiency ratio, a non-GAAP financial measure, was 53.24% in the first nine months of 2021, compared to 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:


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

Total noninterest expense	$	105,207		$	96,063
Amortization of core deposit intangibles	(658)			(776)
Merger-related expenses	(1,072)			—
Long-term debt prepayment penalties	—			(356)
Long-term debt extinguishment costs	(831)			—
Noninterest expense, as adjusted	$	102,646		$	94,931

Net interest income	$	175,806		$	152,552
Noninterest income	16,497			20,265
Total revenue	192,303			172,817
Tax-equivalent adjustment on municipal securities	487			289
Gains on sales of investment securities	(9)			(342)
Total revenue, as adjusted	$	192,781		$	172,764
Efficiency ratio	53.24		%	54.95		%

Income Tax Expense

The effective tax rate in the first nine months of 2021 was 25.9% compared to 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 during the current period.

Financial Condition

The Company’s total assets increased $508.2 million from December 31, 2020, to $8.17 billion at September 30, 2021. Total loans, net of deferred fees, were $5.88 billion, a decrease of $140.4 million or 2% from $6.02 billion at December 31, 2020. Total deposits were $6.93 billion, an increase of $475.1 million, or 7%, from December 31, 2020, while total borrowings increased $11.2 million to $324.0 million at 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 information below for 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.

Total loans, net of deferred fees, totaled $5.88 billion at September 30, 2021 and decreased $140.4 million compared to December 31, 2020. Commercial, industrial and other loans decreased $244.9 million, of which $175.3 million was attributable to a net decrease in PPP loans. Non-owner occupied commercial loans decreased $98.3 million and consumer loans decreased $25.0 million compared to December 31, 2020. Partially offsetting these year-to-date 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; non-owner occupied commercial loans; consumer loans; and 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.

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 purchased credit deteriorated ("PCD") loans, decreased from $42.8 million at December 31, 2020 to $12.2 million at September 30, 2021. The Company sold approximately $21.7 million in non-performing loans during the first nine months of 2021 and recorded net charge-offs of $706,000 and recovered $755,000 in interest on the sales. Non-accrual loans in the non-owner occupied and owner occupied commercial loans secured by real estate categories decreased $11.8 million and $9.6 million, respectively. The percentage of non-performing assets to total assets was 0.15% at September 30, 2021 compared to 0.56% at December 31, 2020. Non-accrual loans at September 30, 2021 included two loan relationships with a balance of $1 million or greater, totaling $8.0 million and two loan relationships between $500,000 and $1.0 million, totaling $1.1 million. At 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 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 September 30, 2021, the Company had $3.4 million in loans that were 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 September 30, 2021 and December 31, 2020, the Company had $241,000 and $1.1 million, respectively, in 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 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 September 30, 2021, CARES Act and CAA modifications totaled $61.2 million compared to $40.0 million at December 31, 2020.

At September 30, 2021 and December 31, 2020, the Company had $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 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.

The overall balance of the allowance for credit losses on loans of $58.0 million at September 30, 2021 decreased $13.2 million from December 31, 2020, a decrease of 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)	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	$	71,124		$	40,003		$	40,003
Impact of adopting ASU 2016-13 (1)	—			—			6,656
Loans charged off:
Non-owner occupied commercial	$	(2,708)					$	(53)
Owner occupied commercial	(282)						(369)
Multifamily	(28)						—
Non-owner occupied residential	(223)						—
Total commercial, secured by real estate (1)	(3,241)			(498)			(422)
Commercial, industrial and other	(401)			(204)			(814)
Construction	(54)			—			(77)
Equipment finance	(242)			(194)			(284)
Residential Mortgage	(64)			(116)			(116)
Consumer	(126)			(294)			(340)
Total loans charged off	(4,128)			(1,306)			(2,053)
Recoveries:
Non-owner occupied commercial	$	462					$	29
Owner occupied commercial	301						21
Multifamily	—						—
Non-owner occupied residential	29						22
Total commercial, secured by real estate (1)	792			57			72
Commercial, industrial and other	439			74			207
Construction	71			69			100
Equipment finance	17			39			65
Residential Mortgage	177			21			21
Consumer	289			62			76
Total recoveries	1,785			322			541
Net charge-offs	(2,343)			(984)			(1,512)
(Benefit) provision for credit losses on loans	(10,828)			26,223			25,977
Allowance balance, end of year	$	57,953		$	65,242		$	71,124

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	0.99		%	1.11		%	1.18		%
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	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 $12.2 million at September 30, 2021 decreased $30.5 million from December 31, 2020. The allowance for credit losses as a percent of total loans was 0.99% at 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 $11.3 million benefit for credit losses recorded in the first 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 September 30, 2021.

Investment Securities

Investment securities totaled $1.22 billion at September 30, 2021, increasing $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 $6.93 billion at September 30, 2021, an increase of $475.1 million, or 7%. Savings and interest-bearing transaction accounts increased $534.1 million due primarily to an increase in money market and interest bearing checking accounts resulting from a change in customer behavior towards more traditional banking alternatives in the current economy as well as increased marketing efforts focused on money market accounts. Noninterest-bearing deposits increased $214.4 million during the first nine months of 2021 due primarily to organic growth. Time deposits decreased $273.4 million in the first 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

Lakeland funds loan demand and operation expenses from several sources:

•Net income. Cash provided by operating activities was $70.4 million for the first nine months of 2021 compared to $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 nine months of 2021, Lakeland’s deposits increased $475.1 million compared to an increase of $972.7 million during the first nine months of 2020.

•Sales of investment securities. At September 30, 2021 the Company had $529.4 million in securities designated “available for sale.” Of these securities, $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 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 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 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 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.

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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.

Cash and cash equivalents totaling $662.6 million on September 30, 2021 increased $392.5 million from December 31, 2020. Operating activities provided $70.4 million in net cash. Investing activities used $141.9 million in net cash, primarily reflecting an increase in investment securities. Financing activities provided $464.1 million in net cash primarily reflecting the net increase in deposits of $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 $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 September 30, 2021. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.


(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	$	19,252	$	2,956	$	5,081	$	3,792	$	7,423
Benefit plan commitments	4,621		397		804		745		2,675
Remaining contractual maturities of time deposits	804,899		672,362		113,923		18,614		—
Subordinated debentures	187,107		—		—		7,666		179,441
Loan commitments	1,150,456		830,717		160,884		27,342		131,513
Other borrowings	25,000		—		—		25,000		—
Interest on other borrowings (1)	56,615		5,895		11,790		10,975		27,955
Standby letters of credit	20,156		19,711		445		—		—
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 2.78%.

Capital Resources

Total stockholders’ equity increased to $814.1 million on September 30, 2021 from $763.8 million on December 31, 2020, an increase of $50.3 million. Book value per common share increased to $16.09 on 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 $12.95 per share on September 30, 2021, an increase of 8%. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2020 to September 30, 2021 was primarily due to $72.9 million of net income, partially offset by other comprehensive loss of $4.9 million and by the payment of cash dividends on common stock of $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 September 30, 2021, the Company and Lakeland met all capital adequacy requirements to which they are subject.

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

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

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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

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

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Calculation of Return on Average Tangible Common Equity
Net income - GAAP	$	22,289		$	14,427		$	72,871		$	38,670
Total average common stockholders’ equity	$	807,956		$	751,099		$	786,642		$	743,318
Less:
Average goodwill	156,277			156,277			156,277			156,277
Average other identifiable intangible assets, net	2,758			3,689			2,975			3,944
Total average tangible common stockholders’ equity - Non-GAAP	$	648,921		$	591,133		$	627,390		$	583,097
Return on average common stockholders’ equity - GAAP	10.94		%	7.64		%	12.39		%	6.95		%
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.

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 ~~$207.9~~$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
Rate Ramp	+200 bp		-100 bp
Asset/Liability Policy limit	(5.0)	%	(5.0)	%
September 30, 2021	1.6	%	1.0	%
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)	%
September 30, 2020		2.9	%	2.2	%	1.7	%	2.1	%
December 31, 2019		2.4	%	1.7	%	1.1	%	(3.3)	%
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	%

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 September 30, ~~2020~~2021 (the base case) was ~~$921.7 million.~~$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)	%
September 30, 2020		6.3	%	6.4	%	6.0	%	(10.1)	%
December 31, 2019		(4.8)	%	(2.8)	%	(0.9)	%	(1.2)	%
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)	%

The Company's net portfolio value in the -100 basis point scenario was -10.1% for the third quarter of 2020 compared to its policy limit of -10.0% resulting from the effects of the extremely low interest rate environment. Management has determined that no corrective action is necessary at this time and will continue to monitor this rate shock scenario. 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/A~~10-K for the year ended December 31, ~~2019.~~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.

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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 September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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/A~~10-K for the year ended December 31, ~~2019, except~~2020, as ~~described below.~~

The outbreak of the novel coronavirus ("COVID-19"), or other such epidemic, pandemic or outbreak of a highly contagious disease, occurring in the United States or in the geographies in which we conduct operations could materially adversely affect our business operations, financial condition, results of operations and cash flows.

The outbreak of COVID-19 or an outbreak of other highly infectious or contagious diseases, could materially adversely impact certain industries in which our customers operate and could materially impair their ability to fulfill their obligations to us. Further, the spread of the outbreak could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.

Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. The spread of highly infectious or contagious diseases could cause severe disruptions in the U.S. economy at large, and for small businesses in particular, which could disrupt our operations and if the global response to contain COVID-19 is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows. COVID-19 or an outbreak of other highly infectious or contagious diseases may result in a decrease in our customers’ businesses, a decrease in consumer confidence and business generally or a disruption in the services providedsupplemented by our vendors. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, declines in wealth management revenues, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy. Furthermore, COVID-19 could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable dueExhibit 99.1 to the effects of COVID-19 and the restrictions imposed to contain COVID-19 in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

~~Moreover, we rely~~Company's Current Report on many third parties in our business operations, including the appraisers of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those

counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

~~Further, during the period from April 2020 through August 2020, when the program ended, we processed more than 2,000 applications for PPP loans, which resulted in significant demands and pressures~~Form 8-K filed on our operations. In light of the speed at which the PPP was implemented, particularly due to the “first come first served” nature of the program, the loans originated under this program may present potential fraud risk, increasing the risk that loan forgiveness may not be obtained by the borrowers and that the guaranty may not be honored. In addition, there is risk that the borrowers may not qualify for the loan forgiveness feature due to the conduct of the borrower after the loan is originated. These factors may result in us having to hold a significant amount of these low-yield loans on our books for a significant period of time. We will continue to face increased operational demands and pressures as we monitor and service our book of PPP loans, process applications for loan forgiveness and pursue recourse under the SBA guarantees and against borrowers for PPP loan defaults. As a result of participation in the PPP, we may be subject to litigation and claims by borrowers under the PPP loans that we have made, as well as investigation and scrutiny by our regulators, Congress, the Small Business Administration, the U.S. Treasury Department and other government agencies. Regardless of whether these claims and investigations are founded or unfounded, if such claims and investigations are not resolved in a timely manner favorable to us, they may result in significant costs and liabilities (including increased legal and professional services costs) and/or adversely affect the market perception of us and our products and services.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 third quarter of ~~2020.~~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









July 1 to July 31, ~~2020~~2021	—	$	—	—	2,393,423
August 1 to August 31, ~~2020~~2021	—	—		—	2,393,423
September 1 to September 30, ~~2020~~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

5354

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)

5455

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: November ~~6, 2020~~8, 2021

5556


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

January 1, 2019	$	514,703	$	116,874	$	0	$	(7,838)	$	623,739
Cumulative adjustment for adoption of ASU 842	—		125		—		—		125
January 1, 2019, as adjusted	514,703		116,999		0		(7,838)		623,864
Net income	—		51,957		—		—		51,957
Other comprehensive income, net of tax	—		—		—		11,048		11,048

Stock based compensation	1,822		—		—		—		1,822
Issuance of stock for Highlands acquisition	43,417		—		—		—		43,417
Retirement of restricted stock	(654)		—		—		—		(654)
Exercise of stock options	307		—		—		—		307
Cash dividends on common stock of $0.37 per share	—		(18,557)		—		—		(18,557)
September 30, 2019	$	559,595	$	150,399	$	0	$	3,210	$	713,204

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


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

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

Cash dividends on common stock of $0.38 per share	—		(19,093)		—		—		(19,093)
September 30, 2020	$	561,817	$	182,329	$	(1,452)	$	10,878	$	753,572


(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

September 30, 2020
Commercial, secured by real estate	$	4,623	$	6,071	$	22,423	$	33,117	$	4,010,888	$	4,044,005	$	0
Commercial, industrial and other (including PPP)	4,892		630		966		6,488		744,690		751,178		0
Equipment finance	246		0		443		689		115,721		116,410		0
Real estate - residential mortgage	429		167		1,494		2,090		340,074		342,164		0
Real estate - construction	0		0		694		694		275,291		275,985		0
Home equity and consumer	970		187		1,220		2,377		315,141		317,518		165
	$	11,160	$	7,055	$	27,240	$	45,455	$	5,801,805	$	5,847,260	$	165
December 31, 2019
Commercial, secured by real estate	$	3,578	$	1,200	$	9,702	$	14,480	$	3,569,008	$	3,583,488	$	0
Commercial, industrial and other	353		71		1,064		1,488		429,502		430,990		0
Equipment finance	166		80		284		530		110,546		111,076		0
Real estate - residential mortgage	1,138		251		2,075		3,464		331,337		334,801		0
Real estate - construction	0		0		967		967		333,418		334,385		0
Home equity and consumer	1,573		287		1,533		3,393		334,059		337,452		0
	$	6,808	$	1,889	$	15,625	$	24,322	$	5,107,870	$	5,132,192	$	0


(in thousands)	Recorded Investment in Impaired Loans		Contractual Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
September 30, 2020
Loans without specific allowance:
Commercial, secured by real estate	$	24,396	$	25,015	$	—	$	20,863	$	119
Commercial, industrial and other	1,632		1,628		—		1,312		11
Equipment finance	0		0		—		0		0
Real estate - residential mortgage	1,503		1,640		—		1,570		0
Real estate - construction	694		694		—		926		10
Home equity and consumer	0		0		—		0		0
Loans with specific allowance:
Commercial, secured by real estate	3,183		3,434		207		3,248		110
Commercial, industrial and other	94		94		4		94		4
Equipment finance	15		15		6		16		0
Real estate - residential mortgage	337		525		2		582		12
Real estate - construction	0		0		0		0		0
Home equity and consumer	595		689		4		603		22
Total:
Commercial, secured by real estate	$	27,579	$	28,449	$	207	$	24,111	$	229
Commercial, industrial and other	1,726		1,722		4		1,406		15
Equipment finance	15		15		6		16		0
Real estate - residential mortgage	1,840		2,165		2		2,152		12
Real estate - construction	694		694		0		926		10
Home equity and consumer	595		689		4		603		22
	$	32,449	$	33,734	$	223	$	29,214	$	288


September 30, 2020	Commercial, Secured by Real Estate		Commercial, Industrial and Other (including PPP)		Real Estate - Construction		Total Commercial Loans
RISK RATING
1	$	0	$	325,510	$	0	$	325,510
2	0		16,344		0		16,344
3	72,698		26,492		0		99,190
4	955,104		91,708		18,901		1,065,713
5	1,954,831		205,623		221,750		2,382,204
5W - Watch	796,979		51,092		21,924		869,995
6 - Other assets especially mentioned	147,407		22,476		12,503		182,386
7 - Substandard	122,312		12,691		1,665		136,668
8 - Doubtful	0		0		0		0
9 - Loss	0		0		0		0
Total	$	4,049,331	$	751,936	$	276,743	$	5,078,010


December 31, 2019	Commercial, Secured by Real Estate		Commercial, Industrial and Other		Real Estate - Construction		Total Commercial Loans
RISK RATING
1	$	0	$	898	$	0	$	898
2	0		17,988		0		17,988
3	74,072		39,112		0		113,184
4	965,825		107,376		17,941		1,091,142
5	2,332,863		215,975		307,824		2,856,662
5W - Watch	100,347		30,192		6,959		137,498
6 - Other assets especially mentioned	55,438		11,328		0		66,766
7 - Substandard	61,048		9,065		2,445		72,558
8 - Doubtful	0		0		0		0
9 - Loss	0		0		0		0
Total	$	3,589,593	$	431,934	$	335,169	$	4,356,696


	Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
(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


Home equity and consumer	0	$	0	$	0	2	$	83	$	83
	0	$	0	$	0	2	$	83	$	83


	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(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



Home equity and consumer	0	$	0	$	0	2	$	83	$	83
	0	$	0	$	0	2	$	83	$	83


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2020	13,110	$	15.93
Granted	13,041	16.87
Vested	(13,052)	15.96

Outstanding, September 30, 2020	13,099	$	16.83


	For the Three Months Ended September 30,						For the Nine Months Ended September 30
(dollars in thousands)	2020			2019			2020			2019
Calculation of Return on Average Tangible Common Equity
Net income - GAAP	$	14,427		$	18,874		$	38,670		$	51,957
Total average common stockholders’ equity	$	751,099		$	705,726		$	743,318		$	689,538
Less:
Average goodwill	156,277			155,835			156,277			154,531
Average other identifiable intangible assets, net	3,689			4,761			3,944			5,022
Total average tangible common stockholders’ equity - Non-GAAP	$	591,133		$	545,130		$	583,097		$	529,985
Return on average common stockholders’ equity - GAAP	7.64		%	10.61		%	6.95		%	10.07		%
Return on average tangible common stockholders’ equity - Non-GAAP	9.71		%	13.74		%	8.86		%	13.11		%