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~~June 30, ~~2021~~2022
	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 ~~October 29, 2021,~~August 1, 2022, there were ~~50,606,365~~64,801,537 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~~June 30, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	3
	Consolidated Statements of Income for the Three and ~~Nine~~ Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3738

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5253

Item 4.	Controls and Procedures	5354

	Part II. Other Information

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5455

Item 3.	Defaults Upon Senior Securities	5455

Item 4.	Mine Safety Disclosures	5455

Item 5.	Other Information	5455

Item 6.	Exhibits	5556

Signatures		5657

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
(dollars in thousands)	(dollars in thousands)	(unaudited)				(dollars in thousands)	(unaudited)

Assets	Assets					Assets
Cash	Cash	$	641,861	$	262,327	Cash	$	195,701	$	199,158
Interest-bearing deposits due from banks	Interest-bearing deposits due from banks	20,774		7,763		Interest-bearing deposits due from banks	49,765		29,372
Total cash and cash equivalents	Total cash and cash equivalents	662,635		270,090		Total cash and cash equivalents	245,466		228,530
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)		693,562		90,766
Investment securities available for sale, at fair value (allowance for credit losses of $2,802 at June 30, 2022 and $83 at December 31, 2021)						Investment securities available for sale, at fair value (allowance for credit losses of $2,802 at June 30, 2022 and $83 at December 31, 2021)	1,139,414		769,956
Investment securities held to maturity (fair value of $808,663 at June 30, 2022 and $815,211 at December 31, 2021 and allowance for credit losses of $190 at June 30, 2022 and $181 at December 31, 2021)						Investment securities held to maturity (fair value of $808,663 at June 30, 2022 and $815,211 at December 31, 2021 and allowance for credit losses of $190 at June 30, 2022 and $181 at December 31, 2021)	941,558		824,956
Equity securities, at fair value	Equity securities, at fair value	16,422		14,694		Equity securities, at fair value	17,594		17,368
Federal Home Loan Bank and other membership bank stock, at cost	Federal Home Loan Bank and other membership bank stock, at cost	9,340		11,979		Federal Home Loan Bank and other membership bank stock, at cost	25,647		9,049
Loans held for sale	Loans held for sale	851		1,335		Loans held for sale	1,168		1,943
Loans, net of deferred fees	Loans, net of deferred fees	5,880,802		6,021,232		Loans, net of deferred fees	7,408,540		5,976,148
Less: Allowance for credit losses	Less: Allowance for credit losses	57,953		71,124		Less: Allowance for credit losses	68,836		58,047
Net loans		5,822,849		5,950,108
Total loans, net						Total loans, net	7,339,704		5,918,101
Premises and equipment, net	Premises and equipment, net	46,163		48,495		Premises and equipment, net	55,456		45,916
Operating lease right-of-use assets	Operating lease right-of-use assets	14,809		16,772		Operating lease right-of-use assets	26,244		15,222
Accrued interest receivable	Accrued interest receivable	18,182		19,339		Accrued interest receivable	26,339		19,209
Goodwill	Goodwill	156,277		156,277		Goodwill	271,829		156,277
Other identifiable intangible assets		2,631		3,288
Other intangible assets						Other intangible assets	10,250		2,420
Bank owned life insurance	Bank owned life insurance	117,073		115,115		Bank owned life insurance	156,496		117,356
Other assets	Other assets	82,304		110,293		Other assets	117,013		71,753
Total Assets	Total Assets	$	8,172,479	$	7,664,297	Total Assets	$	10,374,178	$	8,198,056
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Liabilities	Liabilities					Liabilities

Deposits	Deposits	6,930,912		6,455,783		Deposits	8,501,804		6,965,823
Federal funds purchased and securities sold under agreements to repurchase	Federal funds purchased and securities sold under agreements to repurchase	111,907		169,560		Federal funds purchased and securities sold under agreements to repurchase	432,206		106,453
Other borrowings	Other borrowings	25,000		25,000		Other borrowings	25,000		25,000
Subordinated debentures	Subordinated debentures	187,107		118,257		Subordinated debentures	194,027		179,043
Operating lease liabilities	Operating lease liabilities	16,105		18,183		Operating lease liabilities	27,639		16,523
Other liabilities	Other liabilities	87,320		113,730		Other liabilities	103,357		78,200
Total Liabilities	Total Liabilities	7,358,351		6,900,513		Total Liabilities	9,284,033		7,371,042
Stockholders' Equity	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		564,974		562,421
Common stock, no par value; authorized 100,000,000 shares; issued 64,924,576 shares and outstanding 64,793,541 shares at June 30, 2022 and issued 50,737,400 shares and outstanding 50,606,365 shares at December 31, 2021						Common stock, no par value; authorized 100,000,000 shares; issued 64,924,576 shares and outstanding 64,793,541 shares at June 30, 2022 and issued 50,737,400 shares and outstanding 50,606,365 shares at December 31, 2021	853,206		565,862
Retained earnings	Retained earnings	244,092		191,418		Retained earnings	286,063		259,340
Treasury shares, at cost, 131,035 shares at September 30, 2021 and December 31, 2020		(1,452)		(1,452)
Accumulated other comprehensive income		6,514		11,397
Treasury shares, at cost, 131,035 shares at June 30, 2022 and December 31, 2021						Treasury shares, at cost, 131,035 shares at June 30, 2022 and December 31, 2021	(1,452)		(1,452)
Accumulated other comprehensive (loss) income						Accumulated other comprehensive (loss) income	(47,672)		3,264
Total Stockholders' Equity	Total Stockholders' Equity	814,128		763,784		Total Stockholders' Equity	1,090,145		827,014
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	8,172,479	$	7,664,297	Total Liabilities and Stockholders' Equity	$	10,374,178	$	8,198,056

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

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

For the Three Months Ended 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.~~


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Interest Income
Loans and fees	$	76,973	$	60,529	$	144,782	$	119,307
Federal funds sold and interest-bearing deposits with banks	235		52		417		89
Taxable investment securities and other	8,285		4,029		14,994		8,010
Tax-exempt investment securities	1,442		631		2,744		1,243
Total Interest Income	86,935		65,241		162,937		128,649
Interest Expense
Deposits	4,829		4,238		8,868		9,362
Federal funds purchased and securities sold under agreements to repurchase	150		16		170		39
Other borrowings	1,654		1,247		3,209		2,780
Total Interest Expense	6,633		5,501		12,247		12,181
Net Interest Income	80,302		59,740		150,690		116,468
Provision for credit losses (benefit)	3,644		(5,959)		9,916		(8,601)
Net Interest Income after Provision for Credit Losses (benefit)	76,658		65,699		140,774		125,069
Noninterest Income
Service charges on deposit accounts	2,711		2,445		5,337		4,741
Commissions and fees	2,555		1,755		4,661		3,353
Income on bank owned life insurance	820		643		1,650		1,277
(Loss) gain on equity securities	(364)		11		(849)		(133)
Gains on sales of loans held for sale	715		607		2,141		1,315
Gains on investment securities transactions, net	—		9		—		9
Swap income	399		72		399		634
Other income (loss)	227		(273)		504		(168)
Total Noninterest Income	7,063		5,269		13,843		11,028
Noninterest Expense
Compensation and employee benefits	26,938		20,407		54,617		40,925
Premises and equipment	7,679		6,078		15,651		12,396
FDIC insurance expense	672		621		1,344		1,332
Data processing expense	1,891		1,299		3,561		2,554
Merger related expenses	—		—		4,585		—
Other expenses	7,888		5,692		15,269		10,793
Total Noninterest Expense	45,068		34,097		95,027		68,000
Income before provision for income taxes	38,653		36,871		59,590		68,097
Provision for income taxes	9,536		9,464		14,544		17,515
Net Income	$	29,117	$	27,407	$	45,046	$	50,582
Per Share of Common Stock
Basic earnings	$	0.44	$	0.53	$	0.69	$	0.99
Diluted earnings	$	0.44	$	0.53	$	0.69	$	0.98
Dividends paid	$	0.145	$	0.135	$	0.280	$	0.260

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 (Loss) (Unaudited)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net Income $ 22,289 $ 14,427 $ 72,871 $ 38,670
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities available for sale (1,504) (576) (7,526) 9,220
Reclassification for securities gains included in net income — — — (254)
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 (116) — (116) —
Unrealized gains (losses) on derivatives 5 37 (25) (336)
Other comprehensive income (loss) 1,169 (539) (4,883) 8,630
Total Comprehensive Income $ 23,458 $ 13,888 $ 67,988 $ 47,300


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021

Net income	$	29,117	$	27,407	$	45,046	$	50,582
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on securities available for sale	(19,688)		7,119		(50,653)		(6,016)
Reclassification for securities gains included in net income	—		(6)		—		(6)

Amortization of gain on debt securities reclassified to held to maturity	(148)		—		(283)		—
Unrealized losses on derivatives	—		(77)		—		(30)

Other comprehensive (loss) gain	(19,836)		7,036		(50,936)		(6,052)
Total comprehensive income (loss)	$	9,281	$	34,443	$	(5,890)	$	44,530

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

Table of Contents

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

(in thousands, except per share data) Common Stock Retained Earnings (1) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total
July 1, 2020 $ 561,257 $ 174,267 $ (1,452) $ 11,417 $ 745,489
Net income — 14,427 — — 14,427
Other comprehensive loss, net of tax — — — (539) (539)
Stock based compensation 585 — — — 585
Retirement of restricted stock (25) — — — (25)
Cash dividends on common stock of $0.125 per share — (6,365) — — (6,365)
September 30, 2020 $ 561,817 $ 182,329 $ (1,452) $ 10,878 $ 753,572
July 1, 2021 $ 563,980 $ 228,803 $ (1,452) $ 5,345 $ 796,676
Net income — 22,289 — — 22,289
Other comprehensive income, net of tax — — — 1,169 1,169
Stock based compensation 958 — — — 958
Retirement of restricted stock 36 — — — 36
Cash dividends on common stock of $0.135 per share — (7,000) — — (7,000)
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.~~


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

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


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


Stock-based compensation	990		—		—		—		990

Exercise of stock options	6		—		—		—		6
Cash dividends on common stock of $0.135 per share	—		(6,828)		—		—		(6,828)
June 30, 2021	$	563,980	$	228,803	$	(1,452)	$	5,345	$	796,676

April 1, 2022	$	852,110	$	266,460	$	(1,452)	$	(27,836)	$	1,089,282


Net income	—		29,117		—		—		29,117
Other comprehensive income, net of tax	—		—		—		(19,836)		(19,836)


Stock-based compensation	1,159		—		—		—		1,159
Retirement of restricted stock	(63)		—		—		—		(63)

Cash dividends on common stock of $0.145 per share	—		(9,514)		—		—		(9,514)
June 30, 2022	$	853,206	$	286,063	$	(1,452)	$	(47,672)	$	1,090,145

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

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

(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, 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.~~


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

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


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


Stock based compensation	2,196		—		—		—		2,196
Retirement of restricted stock	(656)		—		—		—		(656)
Exercise of stock options	19		—		—		—		19
Cash dividends on common stock of $0.26 per share	—		(13,197)		—		—		(13,197)
June 30, 2021	$	563,980	$	228,803	$	(1,452)	$	5,345	$	796,676

January 1, 2022	$	565,862	$	259,340	$	(1,452)	$	3,264	$	827,014


Net income	—		45,046		—		—		45,046
Other comprehensive loss, net of tax	—		—		—		(50,936)		(50,936)

Issuance of stock for 1st Constitution acquisition	285,742		—		—		—		285,742
Stock based compensation	2,598		—		—		—		2,598
Retirement of restricted stock	(996)		—		—		—		(996)

Cash dividends on common stock of $0.28 per share	—		(18,323)		—		—		(18,323)
June 30, 2022	$	853,206	$	286,063	$	(1,452)	$	(47,672)	$	1,090,145

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)


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net income	Net income	$	72,871	$	38,670	Net income	$	45,046	$	50,582
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	Net amortization of premiums, discounts and deferred loan fees and costs	(4,157)		209		Net amortization of premiums, discounts and deferred loan fees and costs	2,580		(3,101)
Depreciation and amortization	Depreciation and amortization	3,973		2,588		Depreciation and amortization	3,320		1,811
Amortization of intangible assets	Amortization of intangible assets	658		776		Amortization of intangible assets	1,189		447
Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	2,072		1,995		Amortization of operating lease right-of-use assets	2,058		1,368
(Benefit) provision for credit losses		(11,304)		26,223
Provision for credit losses (benefit)						Provision for credit losses (benefit)	9,916		(8,601)
Loans originated for sale	Loans originated for sale	(44,372)		(78,204)		Loans originated for sale	(41,914)		(32,063)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	46,721		78,312		Proceeds from sales of loans held for sale	49,450		33,897
Gains on investment securities transactions, net	Gains on investment securities transactions, net	(9)		(342)		Gains on investment securities transactions, net	—		(9)
Change in fair value of equity securities		191		625
Loss on equity securities						Loss on equity securities	849		133
Income on bank owned life insurance	Income on bank owned life insurance	(1,922)		(2,000)		Income on bank owned life insurance	(1,558)		(1,283)

Gains on proceeds from bank owned life insurance policies						Gains on proceeds from bank owned life insurance policies	(92)		—
Gains on sales of loans held for sale	Gains on sales of loans held for sale	(1,865)		(2,562)		Gains on sales of loans held for sale	(2,141)		(1,315)
Gains on other real estate and other repossessed assets	Gains on other real estate and other repossessed assets	(17)		(76)		Gains on other real estate and other repossessed assets	(12)		(8)
(Gains) losses on sales of premises and equipment		(41)		54
Loss on sales of premises and equipment						Loss on sales of premises and equipment	215		(4)
Impairment of property held for sale	Impairment of property held for sale	400		—		Impairment of property held for sale	100		400
Long-term debt prepayment fees		—		356
Long-term debt extinguishment costs		831		—

Stock-based compensation	Stock-based compensation	3,154		2,046		Stock-based compensation	2,598		2,196

Excess tax deficiencies		(93)		(128)
Decrease (increase) in other assets		30,945		(77,414)
(Decrease) increase in other liabilities		(27,653)		70,544
Excess tax benefits (deficiencies)						Excess tax benefits (deficiencies)	65		(93)
(Increase) decrease in other assets						(Increase) decrease in other assets	(18,209)		28,644
Increase (decrease) in other liabilities						Increase (decrease) in other liabilities	13,855		(26,867)
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	70,383		61,672		Net Cash Provided by Operating Activities	67,315		46,134
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:

Net cash acquired in acquisitions						Net cash acquired in acquisitions	326,236		—
Proceeds from repayments and maturities of available for sale securities	Proceeds from repayments and maturities of available for sale securities	149,651		633,574		Proceeds from repayments and maturities of available for sale securities	82,343		109,899
Proceeds from repayments and maturities of held to maturity securities	Proceeds from repayments and maturities of held to maturity securities	38,432		26,816		Proceeds from repayments and maturities of held to maturity securities	66,692		22,227
Proceeds from sales of equity securities		—		3,000

Proceeds from sales of available for sale securities	Proceeds from sales of available for sale securities	—		94,696		Proceeds from sales of available for sale securities	—		4,402
Purchase of available for sale securities	Purchase of available for sale securities	(329,351)		(746,035)		Purchase of available for sale securities	(308,075)		(259,654)
Purchase of held to maturity securities	Purchase of held to maturity securities	(148,684)		(1,160)		Purchase of held to maturity securities	(62,306)		(26,203)
Purchase of equity securities	Purchase of equity securities	(1,919)		(1,228)		Purchase of equity securities	(1,075)		(879)

Death benefit proceeds from bank owned life insurance policy						Death benefit proceeds from bank owned life insurance policy	134		—
Proceeds from redemptions of Federal Home Loan Bank stock	Proceeds from redemptions of Federal Home Loan Bank stock	13,524		97,127		Proceeds from redemptions of Federal Home Loan Bank stock	9,240		13,524
Purchases of Federal Home Loan Bank stock	Purchases of Federal Home Loan Bank stock	(10,885)		(88,857)		Purchases of Federal Home Loan Bank stock	(24,591)		(10,755)
Net decrease (increase) in loans		128,284		(702,010)
Net (increase) decrease in loans						Net (increase) decrease in loans	(329,049)		23,010
Proceeds from sales of loans previously held for investment	Proceeds from sales of loans previously held for investment	21,765		—		Proceeds from sales of loans previously held for investment	—		15,031
Proceeds from sales of other real estate and repossessed assets	Proceeds from sales of other real estate and repossessed assets	17		1,032		Proceeds from sales of other real estate and repossessed assets	12		8
Proceeds from dispositions and sales of premises and equipment	Proceeds from dispositions and sales of premises and equipment	676		49		Proceeds from dispositions and sales of premises and equipment	598		123
Purchases of premises and equipment	Purchases of premises and equipment	(3,422)		(5,155)		Purchases of premises and equipment	(2,664)		(2,630)
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(141,912)		(688,151)		Net Cash Used in Investing Activities	(242,505)		(111,897)

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

		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					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		—
Net (decrease) increase in deposits						Net (decrease) increase in deposits	(114,308)		259,277
Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase						Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	325,753		(69,370)

Redemption of subordinated debt	Redemption of subordinated debt	(80,831)		—		Redemption of subordinated debt	—		(5,000)
Exercise of stock options	Exercise of stock options	19		—		Exercise of stock options	—		19
Retirement of restricted stock	Retirement of restricted stock	(620)		(492)		Retirement of restricted stock	(996)		(656)
Dividends paid	Dividends paid	(20,197)		(19,093)		Dividends paid	(18,323)		(13,197)
Net Cash Provided by Financing Activities	Net Cash Provided by Financing Activities	464,074		690,036		Net Cash Provided by Financing Activities	192,126		171,073
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	392,545		63,557		Net increase in cash and cash equivalents	16,936		105,310
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	270,090		282,371		Cash and cash equivalents, beginning of period	228,530		270,090
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	662,635	$	345,928	Cash and cash equivalents, end of period	$	245,466	$	375,400


				For the Six Months Ended June 30,

(in thousands)							(in thousands)	2022		2021
Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:						Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	22,964		$	17,386	Cash paid during the period for income taxes	$	10,153	$	16,274
Cash paid during the period for interest	Cash paid during the period for interest	19,559			35,472		Cash paid during the period for interest	12,467		13,141
Transfer of available for sale debt securities to held to maturity securities at fair value	Transfer of available for sale debt securities to held to maturity securities at fair value	494,164			—		Transfer of available for sale debt securities to held to maturity securities at fair value	—		15,111
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

Right-of-use assets obtained in exchange for new lease liabilities							Right-of-use assets obtained in exchange for new lease liabilities	89		109
Acquisitions:							Acquisitions:
Non-cash assets acquired:							Non-cash assets acquired:
Federal Home Loan Bank stock							Federal Home Loan Bank stock	1,247		—
Investment securities available for sale							Investment securities available for sale	217,774		—
Investment securities held to maturity							Investment securities held to maturity	124,485		—
Loans held for sale							Loans held for sale	4,620		—
Loans							Loans	1,095,266		—
Fixed Assets							Fixed Assets	13,748		—
Operating lease right-of-use assets							Operating lease right-of-use assets	12,991		—
Goodwill and other intangible assets, net							Goodwill and other intangible assets, net	124,570		—
Bank owned life insurance							Bank owned life insurance	37,580		—
Other assets							Other assets	8,820		—
Total non-cash assets acquired							Total non-cash assets acquired	1,641,101		—
Liabilities assumed:							Liabilities assumed:
Deposits							Deposits	1,650,613		—
Subordinated debt							Subordinated debt	14,734		—
Operating lease liabilities							Operating lease liabilities	12,991		—
Other liabilities							Other liabilities	3,257		—
Total liabilities assumed							Total liabilities assumed	1,681,595		—
Common stock issued							Common stock issued	$	285,742	$	—

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 (unaudited)

Note 1 – Significant Accounting Policies

Basis of Presentation

This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank (“Lakeland”) and Lakeland’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021~~2022 do not necessarily indicate the results that the Company will achieve for all of ~~2021.~~2022.

Certain information and footnote disclosures required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

Note 2 – Acquisitions

On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp ("1st Constitution"), a bank holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition enabled the Company to establish a presence in Mercer, Middlesex and Monmouth Counties and broaden its presence in the other counties. Effective as of the close of business on January 6, 2022, 1st Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company issued 14,020,495 shares of its common stock in the merger. Outstanding 1st Constitution stock options were paid out in cash at the difference between $25.55 and an average strike price of $15.95 for a total cash payment of $559,000.

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. 1st Constitution's assets were recorded at their preliminary estimated fair values as of January 6, 2022 and 1st Constitution's 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. The calculation of goodwill is subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available. As the Company finalizes its analysis of these assets and liabilities, there may be adjustments to the recorded carrying values. The goodwill is not deductible for tax purposes.

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The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at the date of acquisition for 1st Constitution.


(in thousands)
Assets acquired:
Cash and cash equivalents	$	326,236
Investment securities available for sale	217,774
Investment securities held to maturity	124,485
Federal Home Loan Bank stock	1,247
Loans held for sale	4,620
Loans	1,095,266
Premises and equipment	13,748
Right-of-use assets, operating lease	12,991
Goodwill	115,552
Other intangible assets	9,018
Bank owned life insurance	37,580
Accrued interest receivable and other assets	8,820
Total assets acquired	1,967,337
Liabilities assumed:
Deposits	(1,650,613)

Subordinated debt	(14,734)
Operating lease liabilities	(12,991)
Other liabilities	(3,257)
Total liabilities assumed	(1,681,595)
Net assets acquired	$	285,742

Loans acquired in the 1st Constitution 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 1st Constitution were estimated using the discounted cash flow method 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 based on the relative risk of the cash flows, taking into account the loan type, liquidity risk, maturity of the loans, servicing costs, and a required return on capital; the monthly principal and interest cash flows were discounted to present value and summed to arrive at the calculated value of loans.

For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination, the Company prepared the interest rate loan fair value and credit fair value adjustments. Loans were grouped into pools based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The loans were valued at the sub-pool level and were pooled at the summary level based on loan type. Market rates for similar loans were obtained from various internal and external data sources and reviewed by management for reasonableness. The average of these market rates was used as the fair value interest rate that a market participant would utilize.

Loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated ("PCD") loans. The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) troubled debt restructured designation; (3) risk ratings of special mention, substandard or doubtful; and (4) delinquency status. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. Additionally for PCD loans, an allowance for loan losses was calculated using management's best estimate of projected losses over the remaining life of the loans, in accordance with ASC 326-20. This represents the portion of loan balances that has been deemed uncollectible based on the Company's expectation of future cash flows for the PCD loans. For loans that were put in collection status immediately, Management made a best estimate of the loan's fair value based on an analysis of the credit and our lien position. For all other loans, the fair value was determined using discounted cash flows as described above for non-PCD loans.

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The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired (in thousands):


Gross amortized cost basis at January 6, 2022	$	1,110,600
Interest rate fair value adjustment on all loans	3,057
Credit fair value adjustment on non-PCD loans	(6,314)
Fair value of acquired loans at January 6, 2022	1,107,343
Allowance for credit losses on PCD loans	(12,077)
Fair value of acquired loans, net, as of January 6, 2022	$	1,095,266

The following is a summary of the PCD loans acquired in the 1st Constitution acquisition as of the closing date.


(in thousands)	PCD Loans
Gross amortized cost basis at January 6, 2022	$	140,300
Interest component of expected cash flows (accretable difference)	(3,792)
Allowance for credit losses on PCD loans	(12,077)
Net PCD loans	$	124,431

The Company acquired 25 branches through the 1st Constitution merger, 8 of which were owned premises. The fair value of the properties acquired was derived by valuations prepared by an independent third party using the sales comparison approach to value the property as improved.

As part of the 1st Constitution acquisition, the Company added 17 lease obligations. The Company recorded a $13.0 million right of use asset and lease liability for these lease obligations.

The core deposit intangible totaled $9.0 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 represent the present value of contractual cash flows discounted at market rates for similar certificates of deposit.

Direct costs related to the acquisition were expensed as incurred. The Company incurred merger-related expenses of $4.6 million during the six months ended June 30, 2022, that have been separately stated in the Company's Consolidated Statements of Income. There were no merger-related expenses in the second quarter of 2022 or in the three and six months ended June 30, 2021.

Supplemental Pro Forma Financial Information

The following table presents financial information regarding the former 1st Constitution operations included in the Consolidated Statements of Income from the date of the acquisition (January 6, 2022) through June 30, 2022. In addition the table provides condensed pro forma financial information assuming that the 1st Constitution acquisition had been completed as of January 1, 2022 for the six months ended June 30, 2021 and 2022. The table has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results. The pro forma information does not reflect management's estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of 1st Constitution's operations. The pro forma information reflects adjustments related to certain purchase accounting fair value adjustments, amortization of core deposit and other intangibles, and related income tax effects.

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(in thousands, except per share data)	1st Constitution Actual from Acquisition to June 30, 2022		Pro forma Six Months Ended June 30, 2022		Pro forma Six Months Ended June 30, 2021
Net interest income	$	23,078	$	153,096	$	145,625
Provision (benefit) for credit losses	49		9,916		(6,601)
Noninterest income	6,002		13,541		18,841
Noninterest expense	14,851		93,475		90,398
Net income	10,720		48,925		59,686
Earnings per share:
Fully diluted	$	0.17	$	0.75	$	0.97

Note 23 – 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,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Net income available to common shareholders	Net income available to common shareholders	$	22,289	$	14,427	$	72,871	$	38,670	Net income available to common shareholders	$	29,117	$	27,407	$	45,046	$	50,582
Less: earnings allocated to participating securities	Less: earnings allocated to participating securities	303		131		839		342		Less: earnings allocated to participating securities	357		317		510		531
Net income allocated to common shareholders	Net income allocated to common shareholders	$	21,986	$	14,296	$	72,032	$	38,328	Net income allocated to common shareholders	$	28,760	$	27,090	$	44,536	$	50,051
Weighted average number of common shares outstanding - basic	Weighted average number of common shares outstanding - basic	50,637		50,526		50,616		50,544		Weighted average number of common shares outstanding - basic	64,828		50,636		64,397		50,606
Share-based plans	Share-based plans	238		94		220		101		Share-based plans	161		222		218		215
Weighted average number of common shares outstanding - diluted	Weighted average number of common shares outstanding - diluted	50,875		50,620		50,836		50,645		Weighted average number of common shares outstanding - diluted	64,989		50,858		64,615		50,821
Basic earnings per share	Basic earnings per share	$	0.43	$	0.28	$	1.42	$	0.76	Basic earnings per share	$	0.44	$	0.53	$	0.69	$	0.99
Diluted earnings per share	Diluted earnings per share	$	0.43	$	0.28	$	1.42	$	0.76	Diluted earnings per share	$	0.44	$	0.53	$	0.69	$	0.98

There were no antidilutive options to purchase common stock excluded from the computation for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

2021.

~~Table of Contents~~

Note 34 – 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											June 30, 2022
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	U.S. Treasury and U.S. government agencies	$	102,149	$	1,377	$	(555)	$	—	$	102,971	U.S. Treasury and U.S. government agencies	$	389,836	$	138	$	(19,923)	$	—	$	370,051
Mortgage-backed securities, residential	Mortgage-backed securities, residential	94,049		1,675		(476)		—		95,248		Mortgage-backed securities, residential	370,700		8		(30,371)		—		340,337
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	199,020		2,731		(851)		—		200,900		Collateralized mortgage obligations, residential	181,946		2		(9,641)		—		172,307
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	1,935		—		(68)		—		1,867		Mortgage-backed securities, multifamily	1,804		—		(299)		—		1,505
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	34,409		798		(204)		—		35,003		Collateralized mortgage obligations, multifamily	52,779		—		(3,159)		—		49,620
Asset-backed securities	Asset-backed securities	53,809		231		(33)		—		54,007		Asset-backed securities	61,587		1		(1,726)		—		59,862

Obligations of states and political subdivisions												Obligations of states and political subdivisions	23,930		—		(903)		(2)		23,025
Corporate bonds	Corporate bonds	38,500		946		(11)		(50)		39,385		Corporate bonds	127,006		99		(1,598)		(2,800)		122,707
Total	Total	$	523,871	$	7,758	$	(2,198)	$	(50)	$	529,381	Total	$	1,209,588	$	248	$	(67,620)	$	(2,802)	$	1,139,414

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

Table of Contents


	December 31, 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	$	202,961	$	1,215	$	(789)	$	—	$	203,387
Mortgage-backed securities, residential	238,456		1,250		(1,731)		—		237,975
Collateralized mortgage obligations, residential	191,086		1,693		(1,488)		—		191,291
Mortgage-backed securities, multifamily	1,816		—		(75)		—		1,741
Collateralized mortgage obligations, multifamily	32,254		511		(246)		—		32,519
Asset-backed securities	52,518		153		(87)		—		52,584

Corporate bonds	49,598		959		(15)		(83)		50,459
Total	$	768,689	$	5,781	$	(4,431)	$	(83)	$	769,956

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, 2021											June 30, 2022
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	U.S. government agencies	$	18,820	$	459	$	—	$	—	$	19,279	U.S. government agencies	$	16,418	$	13	$	(425)	$	—	$	16,006
Mortgage-backed securities, residential	Mortgage-backed securities, residential	343,866		1,005		(2,870)		—		342,001		Mortgage-backed securities, residential	363,071		23		(43,156)		—		319,938
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	8,488		287		—		—		8,775		Collateralized mortgage obligations, residential	13,773		—		(1,705)		—		12,068
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,724		47		—		—		2,771		Mortgage-backed securities, multifamily	5,139		—		(477)		—		4,662

Obligations of states and political subdivisions	Obligations of states and political subdivisions	316,847		198		(5,993)		(15)		311,037		Obligations of states and political subdivisions	540,347		17		(86,962)		(21)		453,381
Corporate bonds	Corporate bonds	3,000		33		—		(168)		2,865		Corporate bonds	3,000		—		(223)		(169)		2,608
Total	Total	$	693,745	$	2,029	$	(8,863)	$	(183)	$	686,728	Total	$	941,748	$	53	$	(132,948)	$	(190)	$	808,663


	December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	18,672	$	293	$	—	$	—	$	18,965
Mortgage-backed securities, residential	370,247		718		(5,989)		—		364,976
Collateralized mortgage obligations, residential	13,921		168		—		—		14,089
Mortgage-backed securities, multifamily	2,710		26		(2)		—		2,734

Obligations of states and political subdivisions	416,587		810		(5,800)		(21)		411,576
Corporate bonds	3,000		31		—		(160)		2,871
Total	$	825,137	$	2,046	$	(11,791)	$	(181)	$	815,211

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 was 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 (loss) on the consolidated balance sheets. Subsequent amortization will be recognized over the life of the securities. The Company recorded amortization, net of tax, of $148,000 and $283,000 during the three and six months ended June 30, 2022, respectively.

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December 31, 2020
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Losses Fair
Value
U.S. government agencies $ 25,565 $ 779 $ — $ — $ 26,344
Mortgage-backed securities, residential 39,276 1,469 (12) — 40,733
Collateralized mortgage obligations, residential 14,590 532 — — 15,122
Mortgage-backed securities, multifamily 705 54 — — 759
Obligations of states and political subdivisions 10,630 280 — — 10,910
$ 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~~June 30, ~~2021.~~2022. 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	$	17,514	$	17,638	$	16,734	$	16,817	Due in one year or less	$	24,606	$	24,384	$	72,185	$	71,921
Due after one year through five years	Due after one year through five years	17,898		18,370		40,804		41,219		Due after one year through five years	254,918		244,056		33,004		32,092
Due after five years through ten years	Due after five years through ten years	76,126		77,101		22,756		22,549		Due after five years through ten years	190,823		181,632		67,896		60,215
Due after ten years	Due after ten years	29,111		29,247		258,373		252,596		Due after ten years	70,425		65,711		386,680		307,767
		140,649		142,356		338,667		333,181			540,772		515,783		559,765		471,995
Mortgage-backed and asset-backed securities	Mortgage-backed and asset-backed securities	383,222		387,025		355,078		353,547		Mortgage-backed and asset-backed securities	668,816		623,631		381,983		336,668
Total securities		$	523,871	$	529,381	$	693,745	$	686,728
Total										Total	$	1,209,588	$	1,139,414	$	941,748	$	808,663

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 and the three months ended September 30, 2020,~~2022, there were no sales of available for sale securities. ~~There were proceeds from sales~~During the three and six months ended June 30, 2021, the Company sold $4.4 million of available for sale securities recording a gain of ~~$94.7 million for the nine months ended September 30, 2020 with gross gains on sales of securities of $569,000 and gross losses on sales of securities of $227,000.~~$9,000. 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 ~~$675.5 million~~$1.15 billion and ~~$578.0 million~~$1.04 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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, 2021		Less Than 12 Months				12 Months or Longer				Total
June 30, 2022																June 30, 2022	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	$	15,366	$	132	$	15,548	$	423	8		$	30,914	$	555	U.S. Treasury and U.S. government agencies	$	338,126	$	18,373	$	16,698	$	1,550	67	$	354,824	$	19,923
Mortgage-backed securities, residential	Mortgage-backed securities, residential	39,399		433		5,728		43		18		45,127		476		Mortgage-backed securities, residential	326,475		29,130		11,948		1,241		126	338,423		30,371
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	66,336		851		—		—		15		66,336		851		Collateralized mortgage obligations, residential	142,202		7,592		29,481		2,049		101	171,683		9,641
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	1,867		68		—		—		1		1,867		68		Mortgage-backed securities, multifamily	—		—		1,505		299		1	1,505		299
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	7,004		171		1,402		33		4		8,406		204		Collateralized mortgage obligations, multifamily	48,811		3,069		770		90		19	49,581		3,159
Asset-backed securities	Asset-backed securities	14,885		33		—		—		3		14,885		33		Asset-backed securities	49,524		1,442		7,297		284		16	56,821		1,726

Obligations of states and political subdivisions																Obligations of states and political subdivisions	22,695		903		—		—		50	22,695		903
Corporate bonds	Corporate bonds	2,957		—		982		11		1		3,939		11		Corporate bonds	100,989		1,440		2,842		158		43	103,831		1,598
Total	Total	$	147,814	$	1,688	$	23,660	$	510	$	50	$	171,474	$	2,198	Total	$	1,028,822	$	61,949	$	70,541	$	5,671	423	$	1,099,363	$	67,620
Held to Maturity	Held to Maturity															Held to Maturity

U.S. government agencies																U.S. government agencies	$	14,584	$	425	$	—	$	—	4	$	14,584	$	425
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	293,496	$	2,869	$	108	1		79		$	293,604	$	2,870	Mortgage-backed securities, residential	310,639		41,624		8,440		1,532		175	319,079		43,156

Collateralized mortgage obligations, residential																Collateralized mortgage obligations, residential	12,067		1,705		—		—		12	12,067		1,705
Mortgage-backed securities, multifamily																Mortgage-backed securities, multifamily	4,662		477		—		—		4	4,662		477

Obligations of states and political subdivisions	Obligations of states and political subdivisions	294,935		5,993		—		—		235		294,935		5,993		Obligations of states and political subdivisions	438,702		85,451		5,260		1,511		381	443,962		86,962

Corporate bonds																Corporate bonds	2,777		223		—		—		1	2,777		223
Total	Total	$	588,431	$	8,862	$	108	$	1	314		$	588,539	$	8,863	Total	$	783,431	$	129,905	$	13,700	$	3,043	577	$	797,131	$	132,948

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

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December 31, 2021	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	76,106	$	322	$	14,670	$	467	15	$	90,776	$	789
Mortgage-backed securities, residential	176,990		1,465		14,582		266		45	191,572		1,731
Collateralized mortgage obligations, residential	86,749		1,429		5,000		59		18	91,749		1,488
Mortgage-backed securities, multifamily	—		—		1,741		75		1	1,741		75
Collateralized mortgage obligations, multifamily	9,083		210		1,072		36		4	10,155		246
Asset-backed securities	14,688		87		—		—		3	14,688		87

Corporate bonds	15,325		(5)		980		20		8	16,305		15
Total	$	378,941	$	3,508	$	38,045	$	923	94	$	416,986	$	4,431
Held to Maturity

Mortgage-backed securities, residential	$	340,474	$	5,882	$	2,376	$	107	96	$	342,850	$	5,989


Collateralized mortgage obligations, multifamily	2,051		2		—		—		1	2,051		2
Obligations of states and political subdivisions	307,827		5,800		—		—		239	307,827		5,800

Total	$	650,352	$	11,684	$	2,376	$	107	336	$	652,728	$	11,791

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.

The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

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


September 30, 2021		AAA		AA		A		BBB		Not Rated		Total
June 30, 2022														June 30, 2022	AAA		AA		A		BBB		Not Rated		Total
(in thousands)	(in thousands)													(in thousands)
U.S. Treasury and U.S. government agencies		$	18,820	$	—	$	—	$	—	$	—	$	18,820
U.S. government agencies														U.S. government agencies	$	16,418	$	—	$	—	$	—	$	—	$	16,418
Mortgage-backed securities, residential	Mortgage-backed securities, residential	343,866		—		—		—		—		343,866		Mortgage-backed securities, residential	363,071		—		—		—		—		363,071
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	8,488		—		—		—		—		8,488		Collateralized mortgage obligations, residential	13,773		—		—		—		—		13,773
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,724		—		—		—		—		2,724		Mortgage-backed securities, multifamily	5,139		—		—		—		—		5,139

Obligations of states and political subdivisions	Obligations of states and political subdivisions	105,609		209,739		1,080		—		419		316,847		Obligations of states and political subdivisions	167,667		315,978		1,044		—		55,658		540,347
Corporate bonds	Corporate bonds	—		—		—		3,000		—		3,000		Corporate bonds	—		—		—		3,000		—		3,000
Total	Total	$	479,507	$	209,739	$	1,080	$	3,000	$	419	$	693,745	Total	$	566,068	$	315,978	$	1,044	$	3,000	$	55,658	$	941,748


December 31, 2020		AAA		AA		Total
December 31, 2021								December 31, 2021	AAA		AA		A		BBB		Not Rated		Total
(in thousands)	(in thousands)							(in thousands)
U.S. Treasury and U.S. government agencies		$	25,565	$	—	$	25,565
U.S. government agencies								U.S. government agencies	$	18,672	$	—	$	—	$	—	$	—	$	18,672
Mortgage-backed securities, residential	Mortgage-backed securities, residential	39,276		—		39,276		Mortgage-backed securities, residential	370,247		—		—		—		—		370,247
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	14,590		—		14,590		Collateralized mortgage obligations, residential	13,921		—		—		—		—		13,921
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	705		—		705		Mortgage-backed securities, multifamily	2,710		—		—		—		—		2,710

Obligations of states and political subdivisions	Obligations of states and political subdivisions	2,959		7,671		10,630		Obligations of states and political subdivisions	143,777		270,909		1,068		—		833		416,587

Corporate bonds								Corporate bonds	—		—		—		3,000		—		3,000
Total	Total	$	83,095	$	7,671	$	90,766	Total	$	549,327	$	270,909	$	1,068	$	3,000	$	833	$	825,137

Equity securities at fair value

The Company has an equity securities portfolio, which primarily consists of investments in Community Reinvestment funds. The fair value of the equity portfolio was ~~$16.4~~$17.6 million and ~~$14.7~~$17.4 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recorded no sales of equity securities ~~and recorded sales of~~or Community Reinvestment ~~funds totaling $3.0 million for the three and nine months ended September 30, 2020.~~funds. The Company recorded fair value losses on equity securities of ~~$58,000 and $170,000~~$364,000 for the ~~third~~second quarter of ~~2021~~2022 and ~~2020, respectively.~~fair value gains of $11,000 for the second quarter of 2021. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company recorded fair value losses on equity securities of ~~$191,000~~$849,000 and ~~$625,000,~~$133,000, respectively. Fair value gain or loss on equity securities are recorded in noninterest income.

As of ~~September~~June 30, ~~2021,~~2022, the Company's investments in Community Reinvestment funds include ~~$3.5~~$7.8 million that are primarily invested in community development loans that are guaranteed by the Small Business Administration (“SBA”). Because the funds are primarily guaranteed by the federal government, there are minimal changes in fair value between accounting periods. These funds can be redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of ~~September~~June 30, ~~2021,~~2022, the net amortized cost equaled the fair value of the investment. There are no unfunded commitments related to these investments.

The Community Reinvestment funds also ~~include $12.9~~included $9.8 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~~June 30, ~~2021.~~2022. 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 no unfunded commitments related to these investments.

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Note 45 – Loans

When the Company adopted Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13") for measuring credit losses, the loan portfolio segmentation was expanded to 9 portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. All disclosures as of and for the three and 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 sets forth the composition of the Company’s 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


(in thousands)	June 30, 2022		December 31, 2021
Non-owner occupied commercial	$	2,777,003	$	2,316,284
Owner occupied commercial	1,179,527		908,449
Multifamily	1,134,938		972,233
Non-owner occupied residential	221,339		177,097
Commercial, industrial and other	657,935		462,406
Construction	370,777		302,228
Equipment finance	134,136		123,212
Residential mortgage	622,417		438,710
Home equity and consumer	310,468		275,529
Total	$	7,408,540	$	5,976,148

Loans are ~~recognized~~recorded at amortized cost, which includes principal balance and net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled ~~$13.5~~$18.1 million at ~~September~~June 30, ~~2021~~2022 and ~~$16.0~~$13.9 million at December 31, ~~2020.~~2021. 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~~totaled $3.2 million at ~~September~~June 30, ~~2021~~2022 and ~~$10.0~~$5.8 million at December 31, ~~2020.~~2021.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled ~~$109.3~~$10.4 million and ~~$284.6~~$56.6 million, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of ~~$188,000~~$248,000 and ~~$650,000,~~$184,000, at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$2.29~~$2.56 billion and ~~$2.28~~$2.30 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB").

The Company transferred approximately ~~$21.7~~$10.1 million of commercial and residential mortgage loans from the loan portfolio to loans held for sale during the ~~nine~~three months ended ~~September~~June 30, 2021 and subsequently sold these loans. For the six months ended June 30, 2021, the Company transferred from the loan portfolio to loans held for sale and subsequently sold approximately $15.1 million of commercial and residential mortgage loans. Excluding ~~the~~these loan transfers, there were no other sales of loans from the held for investment portfolio during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021.

Credit Quality Indicators

Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.

Management categorizes loans and commitments into the following risk ratings:

Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral.

Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share. Any residential or consumer loan currently on deferment in accordance with the Coronavirus Aid, Relief and Economic Security ("CARES") Act or the interagency statement issued by bank regulatory agencies has been classified by management as watch or worse.

~~Table of Contents~~

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.

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Doubtful: "Doubtful" assets that exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.

Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.

The following table presents the risk category of loans by class of loan and vintage as of ~~September~~June 30, ~~2021:~~2022.


		Term Loans by Origination Year																		Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total		(in thousands)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial	Non-owner occupied commercial																		Non-owner occupied commercial
Pass	Pass	$	231,072	$	527,479	$	307,663	$	191,755	$	214,269	$	612,630	$	19,746	14	$	2,104,628	Pass	$	384,345	$	391,076	$	549,572	$	284,618	$	202,346	$	745,838	$	17,575	—	$	2,575,370
Watch	Watch	—		—		25,434		11,811		4,673		37,995		—		—	79,913		Watch	—		—		8,411		25,805		23,056		66,973		305		—	124,550
Special mention	Special mention	—		3,353		2,731		8,274		14,757		29,028		30		—	58,173		Special mention	—		—		955		14,320		5,678		29,048		—		—	50,001
Substandard	Substandard	98		894		336		2,657		8,112		45,826		—		—	57,923		Substandard	—		—		—		842		135		26,105		—		—	27,082
Total	Total	231,170		531,726		336,164		214,497		241,811		725,479		19,776		14	2,300,637		Total	384,345		391,076		558,938		325,585		231,215		867,964		17,880		—	2,777,003
Owner occupied commercial	Owner occupied commercial																		Owner occupied commercial
Pass	Pass	166,660		130,638		103,320		61,259		50,889		275,250		6,725		52	794,793		Pass	109,598		227,056		183,891		92,936		76,526		338,059		12,757		—	1,040,823
Watch	Watch	—		—		2,171		1,220		282		18,708		20		—	22,401		Watch	—		—		9,549		7,135		7,071		32,358		—		—	56,113
Special mention	Special mention	—		—		2,152		13,615		100		24,679		—		—	40,546		Special mention	599		—		—		7,547		3,131		17,285		—		—	28,562
Substandard	Substandard	5		—		18		2,647		1,311		22,423		—		—	26,404		Substandard	—		—		11,147		18,968		2,180		21,734		—		—	54,029
Total	Total	166,665		130,638		107,661		78,741		52,582		341,060		6,745		52	884,144		Total	110,197		227,056		204,587		126,586		88,908		409,436		12,757		—	1,179,527
Multifamily	Multifamily																		Multifamily
Pass	Pass	141,957		250,242		73,107		87,035		76,472		228,609		10,289		302	868,013		Pass	142,907		227,382		277,456		65,923		96,550		289,520		3,499		170	1,103,407
Watch	Watch	—		970		—		—		872		7,174		—		—	9,016		Watch	—		9		—		—		1,308		4,703		—		—	6,020
Special mention	Special mention	—		12,115		—		—		2,391		4,310		—		—	18,816		Special mention	162		—		2,445		3,904		—		14,234		—		—	20,745
Substandard	Substandard	—		—		5,484		1,325		—		5,049		200		—	12,058		Substandard	—		—		—		—		—		4,766		—		—	4,766
Total	Total	141,957		263,327		78,591		88,360		79,735		245,142		10,489		302	907,903		Total	143,069		227,391		279,901		69,827		97,858		313,223		3,499		170	1,134,938
Non-owner occupied residential	Non-owner occupied residential																		Non-owner occupied residential
Pass	Pass	20,108		18,924		17,058		17,834		18,647		54,147		7,593		579	154,890		Pass	20,118		30,678		22,358		22,310		16,810		74,016		7,787		367	194,444
Watch	Watch	—		—		—		—		916		5,412		—		—	6,328		Watch	—		—		2,536		4,136		3,384		7,584		75		—	17,715
Special mention	Special mention	—		—		1,023		841		474		286		515		—	3,139		Special mention	—		—		—		627		829		5,852		—		—	7,308
Substandard	Substandard	—		3,315		512		5,028		1,738		2,642		—		—	13,235		Substandard	—		—		—		—		—		1,822		50		—	1,872
Total	Total	20,108		22,239		18,593		23,703		21,775		62,487		8,108		579	177,592		Total	20,118		30,678		24,894		27,073		21,023		89,274		7,912		367	221,339

Commercial, industrial and other	Commercial, industrial and other																		Commercial, industrial and other
Pass	Pass	121,489		28,903		69,997		12,635		4,645		38,923		166,640		717	443,949		Pass	17,959		67,348		24,424		66,410		14,219		41,999		380,592		973	613,924
Watch	Watch	726		483		495		36		1,432		198		3,545		—	6,915		Watch	—		1,106		7,300		359		(1)		1,274		14,260		—	24,298
Special mention	Special mention	—		—		—		258		1,976		771		3,554		—	6,559		Special mention	—		—		—		2,862		46		2,577		1,238		—	6,723
Substandard	Substandard	—		7,184		47		1,678		502		1,307		5,183		—	15,901		Substandard	—		96		125		846		5,609		824		5,490		—	12,990
Total	Total	122,215		36,570		70,539		14,607		8,555		41,199		178,922		717	473,324		Total	17,959		68,550		31,849		70,477		19,873		46,674		401,580		973	657,935

Construction	Construction																		Construction
Pass	Pass	69,225		101,557		59,474		33,870		30,095		3,753		—		—	297,974		Pass	32,411		171,287		77,972		35,700		9,982		5,059		10,322		—	342,733
Watch	Watch	—		—		—		12,664		12,078		—		—		—	24,742		Watch	—		—		—		999		13,500		—		612		—	15,111
Special mention	Special mention	—		—		—		—		10,152		—		—		—	10,152		Special mention	250		—		2,227		—		—		—		—		—	2,477

Substandard																			Substandard	—		—		—		—		—		10,456		—		—	10,456
Total	Total	69,225		101,557		59,474		46,534		52,325		3,753		—		—	332,868		Total	32,661		171,287		80,199		36,699		23,482		15,515		10,934		—	370,777

Equipment finance	Equipment finance																		Equipment finance
Pass	Pass	37,254		33,204		31,374		12,228		4,304		1,107		—		—	119,471		Pass	36,420		42,348		25,403		21,294		6,838		1,732		—		—	134,035

Substandard	Substandard	156		—		—		57		25		—		—		—	238		Substandard	—		—		—		47		53		1		—		—	101
Total	Total	37,410		33,204		31,374		12,285		4,329		1,107		—		—	119,709		Total	36,420		42,348		25,403		21,341		6,891		1,733		—		—	134,136

Residential mortgage																			Residential mortgage
Pass																			Pass	160,644		172,440		113,014		35,930		21,742		116,327		—		—	620,097

Substandard																			Substandard	—		—		—		455		328		1,537		—		—	2,320
Total																			Total	160,644		172,440		113,014		36,385		22,070		117,864		—		—	622,417

1619

Table of Contents


		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total		(in thousands)	2022		2021		2020		2019		2018		Pre-2018		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	Consumer																			Consumer
Pass	Pass	24,133		12,093		6,199		5,276		3,445		27,531		197,703		220		276,600		Pass	27,484		32,985		9,498		4,608		3,780		25,172		205,305		—		308,832

Substandard	Substandard	42		—		—		—		1		318		266		377		1,004		Substandard	33		—		—		—		—		953		650		—		1,636
Total	Total	24,175		12,093		6,199		5,276		3,446		27,849		197,969		597		277,604		Total	27,517		32,985		9,498		4,608		3,780		26,125		205,955		—		310,468
Total loans	Total loans	$	931,377	$	1,247,921	$	737,451	$	510,502	$	474,504	$	1,554,777	$	422,009	$	2,261	$	5,880,802	Total loans	$	932,930	$	1,363,811	$	1,328,283	$	718,581	$	515,100	$	1,887,808	$	660,517	$	1,510	$	7,408,540

The following table presents the risk category of loans by class of loan and vintage as of December 31, ~~2020:~~2021.


		Term Loans by Origination Year																		Term Loans by Origination Year
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term	Total		(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial	Non-owner occupied commercial																		Non-owner occupied commercial
Pass	Pass	$	570,665	$	376,681	$	217,931	$	251,751	$	187,605	$	509,573	$	50,071	2,246	$	2,166,523	Pass	$	363,459	$	516,131	$	295,944	$	189,592	$	195,733	$	562,338	$	18,795	—	$	2,141,992
Watch	Watch	770		638		8,498		5,936		19,579		47,680		315		—	83,416		Watch	—		—		25,292		14,660		4,641		47,011		130		—	91,734
Special mention	Special mention	3,400		3,131		8,377		9,115		19,936		7,894		2,895		—	54,748		Special mention	—		458		—		5,749		14,639		6,602		—		—	27,448
Substandard	Substandard	—		—		2,809		15,903		14,844		60,703		—		—	94,259		Substandard	119		431		332		2,656		8,000		43,572		—		—	55,110
Total	Total	574,835		380,450		237,615		282,705		241,964		625,850		53,281		2,246	2,398,946		Total	363,578		517,020		321,568		212,657		223,013		659,523		18,925		—	2,316,284
Owner occupied commercial	Owner occupied commercial																		Owner occupied commercial
Pass	Pass	116,512		76,224		80,244		81,215		62,118		245,330		11,072		179	672,894		Pass	209,515		133,292		83,395		54,019		48,850		252,001		8,343		108	789,523
Watch	Watch	11,347		22,932		411		3,651		8,038		23,612		673		—	70,664		Watch	—		5,757		2,134		900		280		24,873		—		—	33,944
Special mention	Special mention	—		2,218		929		113		4,317		38,638		—		—	46,215		Special mention	—		9,694		21,837		12,632		95		17,851		—		—	62,109
Substandard	Substandard	434		16		3,038		641		5,770		27,376		44		—	37,319		Substandard	5		—		—		2,597		1,299		18,972		—		—	22,873
Total	Total	128,293		101,390		84,622		85,620		80,243		334,956		11,789		179	827,092		Total	209,520		148,743		107,366		70,148		50,524		313,697		8,343		108	908,449
Multifamily	Multifamily																		Multifamily
Pass	Pass	251,708		59,694		85,748		93,368		117,155		145,786		21,713		—	775,172		Pass	225,060		255,016		72,438		71,366		73,122		207,509		18,161		1,281	923,953
Watch	Watch	—		—		600		—		—		8,472		—		—	9,072		Watch	—		966		—		13,709		854		6,497		—		—	22,026
Special mention	Special mention	9,781		—		—		2,399		—		1,124		—		—	13,304		Special mention	—		2,470		—		—		8,944		2,948		—		—	14,362
Substandard	Substandard	—		5,481		—		—		9,512		684		—		—	15,677		Substandard	—		—		5,485		1,321		—		4,987		99		—	11,892
Total	Total	261,489		65,175		86,348		95,767		126,667		156,066		21,713		—	813,225		Total	225,060		258,452		77,923		86,396		82,920		221,941		18,260		1,281	972,233

Non-owner occupied residential	Non-owner occupied residential																		Non-owner occupied residential
Pass	Pass	23,506		24,378		27,752		24,344		21,488		53,200		8,180		171	183,019		Pass	28,476		18,527		16,928		15,695		18,048		51,194		7,288		—	156,156
Watch	Watch	—		300		—		1,174		—		5,757		—		—	7,231		Watch	—		—		—		—		651		5,057		—		—	5,708
Special mention	Special mention	—		496		1,199		392		293		656		655		—	3,691		Special mention	—		—		523		837		1,205		284		515		—	3,364
Substandard	Substandard	876		512		1,200		1,295		692		1,713		—		—	6,288		Substandard	—		3,062		510		4,797		988		2,512		—		—	11,869
Total	Total	24,382		25,686		30,151		27,205		22,473		61,326		8,835		171	200,229		Total	28,476		21,589		17,961		21,329		20,892		59,047		7,803		—	177,097

Commercial, industrial and other	Commercial, industrial and other																		Commercial, industrial and other
Pass	Pass	299,091		84,917		16,245		7,216		18,358		41,900		208,519		531	676,777		Pass	100,921		23,940		65,225		11,636		3,808		37,479		191,293		872	435,174
Watch	Watch	287		3,701		156		1,643		301		369		2,324		—	8,781		Watch	939		461		446		—		1,378		173		5,056		—	8,453
Special mention	Special mention	—		—		884		764		2,275		—		4,727		—	8,650		Special mention	—		—		—		—		1,896		443		1,365		—	3,704
Substandard	Substandard	7,177		50		3,559		1,547		1,497		729		9,422		—	23,981		Substandard	101		7,352		—		1,276		496		422		5,428		—	15,075
Total	Total	306,555		88,668		20,844		11,170		22,431		42,998		224,992		531	718,189		Total	101,961		31,753		65,671		12,912		7,578		38,517		203,142		872	462,406

Construction	Construction																		Construction
Pass	Pass	56,734		77,117		69,627		29,303		7,681		328		2,190		—	242,980		Pass	108,585		84,993		40,847		30,125		23,578		3,654		—		—	291,782
Watch		—		—		2,183		11,959		—		—		—		—	14,142

Special mention	Special mention	—		—		—		8,321		—		—		—		—	8,321		Special mention	—		—		—		—		10,446		—		—		—	10,446

Total																			Total	108,585		84,993		40,847		30,125		34,024		3,654		—		—	302,228

Equipment finance																			Equipment finance
Pass																			Pass	50,482		30,486		27,626		10,238		3,128		803		—		—	122,763

Substandard	Substandard	—		—		—		206		719		515		—		—	1,440		Substandard	—		—		216		177		56		—		—		—	449
Total	Total	56,734		77,117		71,810		49,789		8,400		843		2,190		—	266,883		Total	50,482		30,486		27,842		10,415		3,184		803		—		—	123,212

Residential mortgage																			Residential mortgage
Pass																			Pass	171,442		112,680		27,228		20,784		9,103		96,510		—		—	437,747

Substandard																			Substandard	12		—		—		123		694		134		—		—	963
Total																			Total	171,454		112,680		27,228		20,907		9,797		96,644		—		—	438,710

1720

Table of Contents


		Term Loans by Origination Year																			Term Loans by Origination Year
(in thousands)	(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total		(in thousands)	2021		2020		2019		2018		2017		Pre-2017		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	Consumer																			Consumer
Pass	Pass	15,999		9,844		7,490		5,333		4,632		31,861		224,549		166		299,874		Pass	35,283		10,476		5,358		4,561		3,260		24,888		190,481		34		274,341

Substandard	Substandard	33		57		31		2		—		2,208		263		130		2,724		Substandard	32		—		—		—		—		630		526		—		1,188
Total	Total	16,032		9,901		7,521		5,335		4,632		34,069		224,812		296		302,598		Total	35,315		10,476		5,358		4,561		3,260		25,518		191,007		34		275,529
Total loans	Total loans	$	1,537,184	$	834,164	$	594,181	$	585,062	$	522,144	$	1,397,462	$	547,612	$	3,423	$	6,021,232	Total loans	$	1,294,431	$	1,216,192	$	691,764	$	469,450	$	435,192	$	1,419,344	$	447,480	$	2,295	$	5,976,148

Past Due and ~~Non-accrual~~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 following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.


September 30, 2021				Past Due
June 30, 2022														June 30, 2022			Past Due
(in thousands)	(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans		(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	Non-owner occupied commercial	$	2,295,310	$	336	$	432	$	4,559	$	5,327	$	2,300,637	Non-owner occupied commercial	$	2,776,310	$	364	$	—	$	329	$	693	$	2,777,003
Owner occupied commercial	Owner occupied commercial	878,881		616		263		4,384		5,263		884,144		Owner occupied commercial	1,176,764		1,538		928		297		2,763		1,179,527
Multifamily	Multifamily	904,961		2,942		—		—		2,942		907,903		Multifamily	1,134,938		—		—		—		—		1,134,938
Non-owner occupied residential	Non-owner occupied residential	174,412		102		2,156		922		3,180		177,592		Non-owner occupied residential	220,207		294		230		608		1,132		221,339
Commercial, industrial and other	Commercial, industrial and other	471,628		595		—		1,101		1,696		473,324		Commercial, industrial and other	653,324		76		—		4,535		4,611		657,935
Construction	Construction	332,868		—		—		—		—		332,868		Construction	370,777		—		—		—		—		370,777
Equipment finance	Equipment finance	119,439		44		156		70		270		119,709		Equipment finance	133,686		347		49		54		450		134,136
Residential mortgage	Residential mortgage	406,091		807		—		123		930		407,021		Residential mortgage	618,384		2,604		—		1,429		4,033		622,417
Consumer	Consumer	276,610		563		54		377		994		277,604		Consumer	309,404		237		398		429		1,064		310,468
Total	Total	$	5,860,200	$	6,005	$	3,061	$	11,536	$	20,602	$	5,880,802	Total	$	7,393,794	$	5,460	$	1,605	$	7,681	$	14,746	$	7,408,540


December 31, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,312,557	$	—	$	718	$	3,009	$	3,727	$	2,316,284
Owner occupied commercial	905,751		20		—		2,678		2,698		908,449
Multifamily	972,233		—		—		—		—		972,233
Non-owner occupied residential	174,245		—		136		2,716		2,852		177,097
Commercial, industrial and other	461,659		154		—		593		747		462,406
Construction	302,228		—		—		—		—		302,228
Equipment finance	122,923		211		41		37		289		123,212
Residential mortgage	437,574		255		64		817		1,136		438,710
Consumer	274,426		705		135		263		1,103		275,529
Total	$	5,963,596	$	1,345	$	1,094	$	10,113	$	12,552	$	5,976,148

1821

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

The following tables present information on non-accrual loans at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


September 30, 2021
June 30, 2022										June 30, 2022
(in thousands)	(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		(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	Non-owner occupied commercial	$	4,748	$	—	$	—	$	4,284	Non-owner occupied commercial	$	324	$	—	$	—	$	—
Owner occupied commercial	Owner occupied commercial	4,656		—		—		4,221		Owner occupied commercial	12,587		—		—		12,084

Non-owner occupied residential	Non-owner occupied residential	922		—		—		523		Non-owner occupied residential	839		—		—		462
Commercial, industrial and other	Commercial, industrial and other	1,108		—		—		477		Commercial, industrial and other	4,882		—		—		288

Equipment finance	Equipment finance	238		—		—		—		Equipment finance	112		—		—		—
Residential mortgage	Residential mortgage	123		—		—		—		Residential mortgage	2,249		—		—		210
Consumer	Consumer	453		—		—		—		Consumer	1,168		—		—		—
Total	Total	$	12,248	$	—	$	—	$	9,505	Total	$	22,161	$	—	$	—	$	13,044


December 31, 2020
December 31, 2021										December 31, 2021
(in thousands)	(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		(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	Non-owner occupied commercial	$	16,537	$	—	$	—	$	14,719	Non-owner occupied commercial	$	3,009	$	—	$	—	$	2,624
Owner occupied commercial	Owner occupied commercial	14,271		—		—		12,371		Owner occupied commercial	2,810		—		—		2,398
Multifamily		626		—		—		—

Non-owner occupied residential	Non-owner occupied residential	2,217		—		—		1,580		Non-owner occupied residential	2,852		—		—		2,567
Commercial, industrial and other	Commercial, industrial and other	2,633		—		—		1,418		Commercial, industrial and other	6,763		—		—		1,122
Construction		1,440		—		—		1,234

Equipment finance	Equipment finance	327		—		—		—		Equipment finance	43		—		—		—
Residential mortgage	Residential mortgage	2,469		—		—		1,015		Residential mortgage	817		—		—		694
Consumer	Consumer	2,243		—		1		—		Consumer	687		—		1		—
Total	Total	$	42,763	$	—	$	1	$	32,337	Total	$	16,981	$	—	$	1	$	9,405

At ~~September~~June 30, ~~2021,~~2022, there were no loans that were past due more than 89 days and still accruing and at December 31, ~~2020,~~2021, 1 loan with a recorded investment of $1,000 was past due more than 89 days and still accruing. The Company had ~~no loans included in total non-accrual loans that were in the process of foreclosure at September 30, 2021~~$1.7 million and ~~$1.7 million~~$930,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at June 30, 2022 and December 31, ~~2020.~~2021, respectively.

Purchased Credit Deteriorated Loans

~~Table~~The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of ~~Contents~~the closing date, January 6, 2022.


(in thousands)	PCD Loans
Gross amortized cost basis	$	140,300
Interest component of expected cash flows (accretable difference)	(3,792)
Allowance for credit losses on PCD loans	(12,077)
Net PCD loans	$	124,431

At June 30, 2022, net PCD loans acquired from 1st Constitution totaled $104.7 million.

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.

Table of Contents

The CARES Act provided relief from TDR classification for certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020. Additionally, banking regulatory agencies issued interagency guidance that COVID-19 related short-term modifications (i.e., six months or less) granted to borrowers that were current as of the loan modification program implementation date do not need to be considered TDRs. The Consolidated Appropriations Act, 2021 (the "CAA"), which was signed into law on December 27, 2020, extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. The Company elected this provision of the CARES Act and excluded modified loans that met the required guidelines for relief from its TDR classification. At ~~September~~June 30, ~~2021,~~2022, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers began paying their pre-deferral loan payments in the first quarter of 2021. For most commercial loans, borrowers are paying their pre-deferral loan payments plus an additional monthly amount to catch up on the payments that were deferred. None of these modifications were considered TDRs.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, TDRs totaled ~~$3.7~~$4.1 million and ~~$5.0~~$3.5 million, respectively. Accruing TDRs totaled ~~$3.4~~$3.2 million and non-accrual TDRs totaled ~~$241,000~~$928,000 at ~~September~~June 30, ~~2021.~~2022. Accruing TDRs and non-accrual TDRs totaled ~~$3.9~~$3.3 million and ~~$1.1 million,~~$127,000, respectively, at December 31, ~~2020.~~2021. There ~~was 1 consumer loan totaling $116,000~~were no loans that ~~was~~were restructured during the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 ~~and~~ that met the definition of a ~~TDR, while no loans were restructured during the three and nine months ended September 30, 2020.~~TDR. There were no restructured loans that subsequently defaulted in the ~~nine~~six months ended ~~September~~June 30, ~~2021; however, 1 construction loan totaling $694,000 that was a TDR within the previous twelve months had subsequently defaulted in the nine months ended September 30, 2020.~~2022 and 2021.

Note 56 - Allowance for Credit Losses

The Company ~~adopted ASU 2016-13, which requires the measurement of~~measures expected credit losses for financial assets measured at amortized cost, including loans, investments and certain off-balance-sheet credit ~~exposures.~~exposures in accordance with ASU 2016-13. 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~~2021 for a description of the ~~adoption of ASU 2016-13 and the~~ Company's ~~allowance~~ methodology.~~The Company recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020. Prior year disclosures have not been restated.~~

Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At ~~September~~June 30, ~~2021,~~2022, loans totaling ~~$5.86~~$7.28 billion were evaluated collectively and the allowance on these balances totaled ~~$57.3~~$62.2 million and loans totaling $126.2 million were evaluated on an individual basis ~~totaled $16.6 million~~ with the specific allocations of the allowance for credit losses totaling ~~$666,000.~~$6.6 million. Loans evaluated on an individual basis include $105.0 million in PCD loans, which had a specific allowance for credit losses of $3.7 million. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

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,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Balance at beginning of the period	Balance at beginning of the period	$	60,389	$	57,839	$	71,124	$	40,003	Balance at beginning of the period	$	67,112	$	67,252	$	58,047	$	71,124

Initial allowance for credit losses on PCD loans										Initial allowance for credit losses on PCD loans	—		—		12,077		—
Charge-offs on PCD loans										Charge-offs on PCD loans	—		—		(7,634)		—
Charge-offs	Charge-offs	(996)		(682)		(4,128)		(1,306)		Charge-offs	(369)		(1,861)		(539)		(3,132)
Recoveries	Recoveries	1,266		85		1,785		322		Recoveries	510		312		672		519
Net recoveries (charge-offs)	Net recoveries (charge-offs)	270		(597)		(2,343)		(984)		Net recoveries (charge-offs)	141		(1,549)		(7,501)		(2,613)
(Benefit) provision for credit loss - loans		(2,706)		8,000		(10,828)		26,223
Provision (benefit) for credit loss - loans										Provision (benefit) for credit loss - loans	1,583		(5,314)		6,213		(8,122)
Balance at end of the period	Balance at end of the period	$	57,953	$	65,242	$	57,953	$	65,242	Balance at end of the period	$	68,836	$	60,389	$	68,836	$	60,389

The provision for credit losses on loans for the second quarter of 2022 was due to an increase in the baseline estimate due to increased loan balances while the provision for the six months ended June 30, 2022 was predominantly due to the provision for the 1st Constitution's acquired non-purchased credit deteriorated loans and the additional charge-offs on PCD loans. The benefit for credit losses for the three and ~~nine~~six months ended ~~September~~June 30, 2021, was largely due to an improvement in ~~economic conditions utilized~~macroeconomic factors. Charge-offs in the ~~calculation.~~six months ended June 30, 2022 include $7.6 million in charge-offs on 1st Constitution's acquired PCD loans. Non-performing loans totaling $5.0 million and $15.1 million were sold during the three and six months ended June 30, 2021, respectively, resulting in net charge-offs of $75,000 and $1.2 million, respectively.

2023

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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 on loans by portfolio segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	Balance at 6/30/2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021		(in thousands)	Balance at March 31, 2022		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at June 30, 2022
Non-owner occupied commercial	Non-owner occupied commercial	$	20,906	$	(465)	$	459	$	(387)	$	20,513	Non-owner occupied commercial	$	23,649	$	—	$	4	$	273	$	23,926
Owner occupied commercial	Owner occupied commercial	4,100		(204)		284		131		4,311		Owner occupied commercial	6,125		(4)		341		476		6,938
Multifamily	Multifamily	7,177		(28)		—		418		7,567		Multifamily	8,300		—		—		141		8,441
Non-owner occupied residential	Non-owner occupied residential	2,592		(11)		16		206		2,803		Non-owner occupied residential	2,908		—		—		(15)		2,893
Commercial, industrial and other	Commercial, industrial and other	10,489		(26)		290		(2,678)		8,075		Commercial, industrial and other	11,674		(305)		33		(1,313)		10,089
Construction	Construction	1,034		(54)		4		(118)		866		Construction	1,727		—		—		1,210		2,937
Equipment finance	Equipment finance	5,120		(138)		—		(142)		4,840		Equipment finance	2,459		(24)		64		(246)		2,253
Residential mortgage	Residential mortgage	3,885		(28)		1		348		4,206		Residential mortgage	5,686		—		—		893		6,579
Consumer	Consumer	5,086		(42)		212		(484)		4,772		Consumer	4,584		(36)		68		164		4,780
Total	Total	$	60,389	$	(996)	$	1,266	$	(2,706)	$	57,953	Total	$	67,112	$	(369)	$	510	$	1,583	$	68,836


(in thousands)	(in thousands)	Balance at 6/30/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2020		(in thousands)	Balance at March 31, 2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at June 30, 2021

Commercial, secured by real estate (1)		43,280		$	(329)	$	10	$	7,305	50,266
Non owner occupied commercial												Non owner occupied commercial	$	23,880	$	(1,650)	$	1	$	(1,325)	$	20,906
Owner occupied commercial												Owner occupied commercial	4,003		—		9		88		4,100
Multifamily												Multifamily	7,508		—		—		(331)		7,177
Non owner occupied residential												Non owner occupied residential	2,883		(3)		11		(299)		2,592
Commercial, industrial and other	Commercial, industrial and other	4,698		(204)		31		460		4,985		Commercial, industrial and other	12,139		(110)		105		(1,645)		10,489
Construction	Construction	3,119		—		21		(37)		3,103		Construction	1,129		—		42		(137)		1,034
Equipment finance	Equipment finance	2,971		(96)		1		8		2,884		Equipment finance	6,264		(10)		6		(1,140)		5,120
Residential mortgage	Residential mortgage	1,436		—		1		256		1,693		Residential mortgage	3,781		(36)		118		22		3,885
Consumer	Consumer	2,335		(53)		21		8		2,311		Consumer	5,665		(52)		20		(547)		5,086
Total	Total	$	57,839	$	(682)	$	85	$	8,000	$	65,242	Total	$	67,252	$	(1,861)	$	312	$	(5,314)	$	60,389


(in thousands)	(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 9/30/2021		(in thousands)	Balance at December 31, 2021		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at June 30, 2022
Non-owner occupied commercial	Non-owner occupied commercial	$	25,910	$	(2,708)	$	462	$	(3,151)	$	20,513	Non-owner occupied commercial	$	20,071	$	1,312	$	(4)	$	4	$	2,543	$	23,926
Owner occupied commercial	Owner occupied commercial	3,955		(282)		301		337		4,311		Owner occupied commercial	3,964		1,137		(38)		351		1,524		6,938
Multifamily	Multifamily	7,253		(28)		—		342		7,567		Multifamily	8,309		4		—		—		128		8,441
Non-owner occupied residential	Non-owner occupied residential	3,321		(223)		29		(324)		2,803		Non-owner occupied residential	2,380		175		—		14		324		2,893
Commercial, industrial and other	Commercial, industrial and other	13,665		(401)		439		(5,628)		8,075		Commercial, industrial and other	9,891		2,413		(1,128)		78		(1,165)		10,089
Construction	Construction	786		(54)		71		63		866		Construction	838		6,843		(6,807)		3		2,060		2,937
Equipment finance	Equipment finance	6,552		(242)		17		(1,487)		4,840		Equipment finance	3,663		—		(121)		79		(1,368)		2,253
Residential mortgage	Residential mortgage	3,623		(64)		177		470		4,206		Residential mortgage	3,914		179		—		48		2,438		6,579
Consumer	Consumer	6,059		(126)		289		(1,450)		4,772		Consumer	5,017		14		(75)		95		(271)		4,780
Total	Total	$	71,124	$	(4,128)	$	1,785	$	(10,828)	$	57,953	Total	$	58,047	$	12,077	$	(8,173)	$	672	$	6,213	$	68,836

2124

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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.~~


(in thousands)	Balance at December 31, 2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at June 30, 2021
Non owner occupied commercial	$	25,910	$	(2,243)	$	3	$	(2,764)	$	20,906
Owner occupied commercial	3,955		(78)		17		206		4,100
Multifamily	7,253		—		—		(76)		7,177
Non owner occupied residential	3,321		(212)		13		(530)		2,592
Commercial, industrial and other	13,665		(375)		149		(2,950)		10,489
Construction	786		—		67		181		1,034
Equipment finance	6,552		(104)		17		(1,345)		5,120
Residential mortgage	3,623		(36)		176		122		3,885
Consumer	6,059		(84)		77		(966)		5,086
Total	$	71,124	$	(3,132)	$	519	$	(8,122)	$	60,389

The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

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


June 30, 2022	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	$	431	$	2,725,169	$	51,403	$	2,777,003	$	854	$	23,072	$	23,926
Owner occupied commercial	15,327		1,132,686		31,514		1,179,527		1,290		5,648		6,938
Multifamily	—		1,131,475		3,463		1,134,938		5		8,436		8,441
Non-owner occupied residential	462		214,394		6,483		221,339		153		2,740		2,893
Commercial, industrial and other	4,979		642,601		10,355		657,935		4,160		5,929		10,089
Construction	—		370,777		—		370,777		—		2,937		2,937
Equipment finance	—		134,136		—		134,136		—		2,253		2,253
Residential mortgage	—		620,981		1,436		622,417		138		6,441		6,579
Consumer	—		310,111		357		310,468		3		4,777		4,780
Total loans	$	21,199	$	7,282,330	$	105,011	$	7,408,540	$	6,603	$	62,233	$	68,836


December 31, 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	$	3,063	$	2,313,047	$	174	2,316,284		$	—	$	20,071	$	20,071
Owner occupied commercial	6,678		901,638		133		908,449		69		3,895		3,964
Multifamily	—		972,233		—		972,233		—		8,309		8,309
Non-owner occupied residential	2,567		174,463		67		177,097		—		2,380		2,380
Commercial, industrial and other	6,537		455,306		563		462,406		4,182		5,709		9,891
Construction	—		302,228		—		302,228		—		838		838
Equipment finance	—		123,212		—		123,212		—		3,663		3,663
Residential mortgage	1,416		437,294		—		438,710		—		3,914		3,914
Consumer	—		275,529		—		275,529		—		5,017		5,017
Total loans	$	20,261	$	5,954,950	$	937	$	5,976,148	$	4,251	$	53,796	$	58,047

2225

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Allowance for Credit Losses - Securities

At ~~September~~June 30, ~~2021,~~2022, the balance of the allowance for credit loss on available for sale and held to maturity securities was ~~$50,000~~$2.8 million and ~~$183,000,~~$190,000, respectively. At December 31, ~~2020,~~2021, the Company reported an allowance for credit losses on available for sale securities of ~~$2,000~~$83,000 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.~~$181,000.

The allowance for credit losses on securities is summarized in the following tables:


Available for Sale	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Balance at beginning of the period	$	1,267	$	144	$	83	$	2




Provision for credit loss expense	1,535		(123)		2,719		19
Balance at end of the period	$	2,802	$	21	$	2,802	$	21


Held to Maturity	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Balance at beginning of the period	$	199	$	—	$	181	$	—




Provision for credit loss expense	(9)		137		9		137
Balance at end of the period	$	190	$	137	$	190	$	137

Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheets and totaled ~~$4.6~~$8.2 million at ~~September~~June 30, ~~2021~~2022 and ~~$3.3~~$5.3 million and December 31, ~~2020.~~2021. 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~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the balance of the allowance for credit losses for off-balance sheet exposures was ~~$1.8~~$3.3 million and ~~$2.6~~$2.3 million, respectively. The Company recorded a provision for credit losses on off-balance-sheet exposures in other operating expense of $535,000 for the second quarter of 2022 and a benefit for credit losses on off-balance-sheet exposures of ~~$72,000 and $707,000~~$659,000 for the ~~three and nine~~second quarter of 2021. For the six months ended ~~September~~June 30, ~~2021, respectively. In the third quarter of 2020,~~2022, the Company recorded noa provision for ~~unfunded lending commitments~~credit losses on off-balance-sheet exposures in other operating expense of $975,000 and a benefit for credit losses on off-balance-sheet exposures of $635,000 for the ~~nine months ended September 30, 2020, recorded~~ ~~$210,000 of provision for unfunded lending commitments~~same period in ~~other noninterest expense.~~2021.

Note 67 – Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2027. At ~~September~~June 30, ~~2021,~~2022, the Company had lease liabilities totaling ~~$16.1~~$27.6 million and right-of-use assets totaling ~~$14.8~~$26.2 million related to these leases. At December 31, ~~2020,~~2021, the Company had lease liabilities totaling ~~$18.2~~$16.5 million and right-of-use assets totaling ~~$16.8~~$15.2 million. The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the weighted average remaining lease term for operating leases was ~~9.54~~11.91 years and the weighted average discount rate used in the measurement of operating lease liabilities was ~~3.46%~~3.02%. At December 31, ~~2020,~~2021, the weighted average remaining lease term for operating leases was ~~9.69~~9.16 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.41%.

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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,
(in thousands) 2021 2020 2021 2020
Operating lease cost $ 769 $ 828 $ 2,427 $ 2,484
Variable lease cost 22 22 67 87
Sublease income $ (30) $ (31) (91) (92)
Net lease cost $ 761 $ 819 $ 2,403 $ 2,479

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	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Operating lease cost	$	1,242	$	829	$	2,468	$	1,658
Short-term lease cost	7		—		18		—
Variable lease cost	17		23		33		45
Sublease income	$	(32)	$	(30)	(64)		(61)
Net lease cost	$	1,234	$	822	$	2,455	$	1,642

The table below presents other information on the Company's operating ~~leases:~~leases for the six months ended June 30, 2022 and 2021:


		Nine Months Ended September 30,					Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
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	$	2,194	$	2,085	Operating cash flows from operating leases	$	1,985	$	1,446
Right-of-use asset obtained in exchange for new operating lease liabilities		109		741
Right-of-use assets obtained in exchange for new operating lease liabilities						Right-of-use assets obtained in exchange for new operating lease liabilities	89		109

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 or ~~September~~June 30, ~~2020.~~2021. At ~~September~~June 30, ~~2021,~~2022, the Company had no 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~~June 30, ~~2021~~2022 are as follows:


(in thousands)
Within one year	$	~~2,956~~4,833
After one year but within three years	~~5,081~~8,317
After three years but within five years	~~3,792~~5,508
After five years	~~7,423~~15,094
Total undiscounted cash flows	~~19,252~~33,752
Discount on cash flows	~~(3,147)~~(6,113)
Total operating lease ~~liability~~liabilities	$	~~16,105~~27,639

Note 78 - Deposits

The following table sets forth the details of total deposits:


(dollars in thousands)	(dollars in thousands)	September 30, 2021				December 31, 2020				(dollars in thousands)	June 30, 2022				December 31, 2021

Noninterest-bearing demand	Noninterest-bearing demand	$	1,724,646	24.9	%	$	1,510,224	23.4	%	Noninterest-bearing demand	$	2,330,550	27.4	%	$	1,732,452	24.9	%
Interest-bearing checking	Interest-bearing checking	2,231,162		32.2	%	2,057,052		31.9	%	Interest-bearing checking	2,620,349		30.8	%	2,219,658		31.9	%
Money market	Money market	1,512,578		21.8	%	1,225,890		19.0	%	Money market	1,639,001		19.3	%	1,577,385		22.6	%
Savings	Savings	657,627		9.5	%	584,361		9.1	%	Savings	1,147,862		13.5	%	677,101		9.7	%
Certificates of deposit $250 thousand and under	Certificates of deposit $250 thousand and under	667,297		9.6	%	895,056		13.8	%	Certificates of deposit $250 thousand and under	620,720		7.3	%	623,393		8.9	%
Certificates of deposit over $250 thousand	Certificates of deposit over $250 thousand	137,602		2.0	%	183,200		2.8	%	Certificates of deposit over $250 thousand	143,322		1.7	%	135,834		2.0	%
Total deposits	Total deposits	$	6,930,912	100.0	%	$	6,455,783	100.0	%	Total deposits	$	8,501,804	100.0	%	$	6,965,823	100.0	%

At ~~September~~June 30, 2022 and December 31, 2021, certificates of deposit ~~totaling $139.3 million were~~ obtained through brokers ~~while $236.7~~totaled $76.3 million ~~of certificates of deposit at December 31, 2020 were obtained through brokers.~~and $114.3 million, respectively. Brokered deposits are included in certificates of deposit $250,000 and under in the Consolidated Balance Sheets.

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Note 89 – Borrowings

Overnight and Short-Term Borrowings

At ~~September~~June 30, ~~2021,~~2022, the Company had no$330.0 million overnight and short-term borrowings from the FHLB ~~while these borrowings totaled $100.0 million~~and none at December 31, ~~2020.~~2021. In addition, ~~there were~~Lakeland had no overnight and short-term borrowings from correspondent banks at ~~either September~~June 30, ~~2021 or~~2022 and December 31, ~~2020.~~2021. At ~~September~~June 30, ~~2021,~~2022, Lakeland had overnight and short-term federal funds lines available to borrow up to ~~$215.0~~$250.0 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~~June 30, ~~2021~~2022 or December 31, ~~2020.~~

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2021.

Other short-term borrowings at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of short-term securities sold under agreements to repurchase of ~~$111.9~~$102.2 million and ~~$69.6~~$106.5 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of ~~September~~June 30, ~~2021,~~2022, the Company had ~~$121.4~~$110.4 million in agency and mortgage-backed securities pledged for its securities sold under agreements to repurchase.

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

FHLB Advances

The Company had one advance from the FHLB, which totaled $25.0 million at both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, with a weighted average interest rate of 0.77% and maturity in 2025. The advance was collateralized by first mortgage loans and has prepayment penalties. ~~In the first quarter of 2020, the Company repaid two advances totaling $10.0 million and recorded $356,000 in long-term debt prepayment fees.~~

Subordinated Debentures

On ~~September~~January 6, 2022, the Company acquired $18.0 million of fixed to floating subordinated notes in connection with the 1st Constitution acquisition with a fair value of $14.7 million. The notes were dated June 15, ~~2021, the~~2006 and pay interest at a rate of LIBOR plus a spread of 165 basis points which resets quarterly until maturity on June 15, 2036 or earlier redemption.

The Company completed an offering of $150.0 million of fixed to floating rate subordinated notes on September 15, 2021, 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~~benchmark rate, ~~(expected~~which is expected to be the three-month term Secured Overnight Financing Rate ("SOFR")) plus a spread of 220 basis points. The debt is included in Tier 2 capital for the Company. ~~Debt issuance costs totaled $1.8 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheets.~~

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

Note 910 – Share-Based Compensation

The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options, supplemental stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), other stock-based awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the Company and its subsidiaries.

Restricted Stock

The following is a summary of the Company’s restricted stock activity during the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding, January 1, 2021		23,910	$	14.77
Outstanding, January 1, 2022					Outstanding, January 1, 2022	16,035	$	13.72
Granted	Granted	16,028	13.72		Granted	17,722	19.74
Vested	Vested	(13,092)	16.87		Vested	(16,035)	13.72

Outstanding, September 30, 2021		26,846	$	13.13
Outstanding, June 30, 2022					Outstanding, June 30, 2022	17,722	$	19.74

In the first ~~nine~~six months of ~~2021,~~2022, the Company granted ~~16,028~~17,722 shares of restricted stock to non-employee directors at a grant date fair value of ~~$13.72~~$19.74 per share under the Plan. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be ~~$220,000~~$350,000 over a one year period. In the first ~~nine~~six months of ~~2020,~~2021, the Company granted ~~13,041~~16,035 shares of restricted stock to non-employee directors at a grant date fair value of ~~$16.87~~$13.72 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $220,000 over such period.

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The Company recognized share-based compensation expense on its restricted stock of $88,000 for both the second quarter of 2022 and ~~$56,000~~2021, respectively, and $175,000 and $176,000 for the ~~third quarter of 2021 and 2020, respectively. Share-based compensation expense on restricted stock for the nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020 was $264,000 and $165,000,~~2021, respectively. As of ~~September~~June 30, ~~2021,~~2022, there was unrecognized compensation cost of ~~$66,000~~$175,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately ~~0.24~~0.55 years.

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Restricted Stock Units

The following is a summary of the Company’s RSU activity during the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		Number of Shares	Weighted Average Price			Number of Shares	Weighted Average Price
Outstanding, January 1, 2021		372,552	$	16.63
Outstanding, January 1, 2022					Outstanding, January 1, 2022	591,342	$	16.64
Granted	Granted	375,716	17.20		Granted	313,754	18.00
Vested	Vested	(140,133)	18.20		Vested	(194,470)	16.67
Forfeited	Forfeited	(7,282)	15.39		Forfeited	(2,885)	17.64
Outstanding, September 30, 2021		600,853	$	16.64
Outstanding, June 30, 2022					Outstanding, June 30, 2022	707,741	$	17.24

In the first ~~nine~~six months of ~~2021,~~2022, the Company granted ~~375,716~~313,754 RSUs under the Plan at a weighted average grant date fair value of ~~$17.20~~$18.00 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~~RSU 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~~$1.9 million per year over a three-year period. In the first ~~nine~~six months of ~~2020,~~2021, the Company granted ~~175,869~~368,516 RSUs under the Plan at a weighted average grant date fair value of ~~$15.37~~$16.92 per share. Compensation expense on these RSUs is expected to average approximately ~~$901,000~~$2.1 million per year over a three-year period.

For the ~~third~~second quarter of ~~2021~~2022 and ~~2020,~~2021, 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~~$1.1 million and ~~$1.9~~$901,000, respectively, and $2.4 million ~~was recognized~~and $2.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Unrecognized compensation expense related to RSUs was approximately ~~$6.0~~$8.2 million as of ~~September~~June 30, ~~2021,~~2022, and that cost is expected to be recognized over a period of ~~1.30~~1.56 years.

Stock Options

~~A summary of the activity~~At June 30, 2022 and December 31, 2021, there were no stock options outstanding 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 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.

Plan. There were no stock option grants in the first ~~nine~~six months of ~~2021~~2022 or ~~2020. The~~2021. There were no stock options exercised during the second quarter of 2022 and the 2,764 stock options exercised during the first ~~nine~~six 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 1011 – 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.

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Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.

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

We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to income from bank owned life insurance, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment and mortgage servicing rights.

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The following table sets forth the components of noninterest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021

Service charges on deposit accounts:
Deposit-Related Fees and Charges										Deposit-Related Fees and Charges
Debit card interchange income	Debit card interchange income	$	1,585	$	1,472	$	4,603	$	3,910	Debit card interchange income	$	1,737	$	1,608	$	3,309	$	3,018
Overdraft charges	Overdraft charges	647		533		1,785		1,935		Overdraft charges	756		551		1,525		1,138
ATM service charges	ATM service charges	182		138		497		367		ATM service charges	208		172		379		315
Demand deposit fees and charges	Demand deposit fees and charges	107		129		348		394		Demand deposit fees and charges	(7)		100		87		241
Savings service charges	Savings service charges	15		16		44		57		Savings service charges	17		14		37		29
Total		2,536		2,288		7,277		6,663
Commissions and fees:
Total deposit-related fees and charges										Total deposit-related fees and charges	2,711		2,445		5,337		4,741
Commissions and fees										Commissions and fees
Loan fees	Loan fees	376		510		1,367		1,063		Loan fees	781		484		1,590		991
Wire transfer charges	Wire transfer charges	376		372		1,126		1,021		Wire transfer charges	525		375		982		750
Investment services income	Investment services income	373		392		1,210		1,231		Investment services income	700		474		1,105		837
Merchant fees	Merchant fees	270		184		729		598		Merchant fees	302		258		553		459
Commissions from sales of checks	Commissions from sales of checks	73		73		226		216		Commissions from sales of checks	91		75		175		153
Safe deposit income	Safe deposit income	82		85		240		256		Safe deposit income	99		79		153		158
Other income	Other income	54		51		143		138		Other income	50		42		87		89
Total		1,604		1,667		5,041		4,523
Total commissions and fees										Total commissions and fees	2,548		1,787		4,645		3,437
Gains on sales of loans	Gains on sales of loans	550		1,437		1,865		2,562		Gains on sales of loans	715		607		2,141		1,315
Swap income		—		624		634		4,234
Other Income:
Other income										Other income
Gains on customer swap transactions										Gains on customer swap transactions	399		72		399		634
Title insurance income	Title insurance income	43		46		87		126		Title insurance income	2		31		2		44
Other income	Other income	99		200		262		370		Other income	519		81		788		163
Total		142		246		349		496
Total other income										Total other income	920		184		1,189		841
Revenue not from contracts with customers	Revenue not from contracts with customers	637		511		1,331		1,787		Revenue not from contracts with customers	169		246		531		694
Total Noninterest Income	Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265	Total Noninterest Income	$	7,063	$	5,269	$	13,843	$	11,028
Timing of Revenue Recognition:	Timing of Revenue Recognition:									Timing of Revenue Recognition:
Products and services transferred at a point in time	Products and services transferred at a point in time	4,832		6,243		15,143		18,422		Products and services transferred at a point in time	6,894		5,019		13,312		10,311
Products and services transferred over time	Products and services transferred over time	—		19		23		56		Products and services transferred over time	—		4		—		23
Revenue not from contracts with customers	Revenue not from contracts with customers	637		511		1,331		1,787		Revenue not from contracts with customers	169		246		531		694
Total Noninterest Income	Total Noninterest Income	$	5,469	$	6,773	$	16,497	$	20,265	Total Noninterest Income	$	7,063	$	5,269	$	13,843	$	11,028

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Note 1112 - Other Operating Expenses

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months ended June 30,				For the Six Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Consulting and advisory board fees	Consulting and advisory board fees	927		938		2,281		2,760		Consulting and advisory board fees	927		831		1,981		1,354
ATM and debit card expense	ATM and debit card expense	658		615		1,873		1,738		ATM and debit card expense	709		611		1,366		1,215
Telecommunications expense	Telecommunications expense	536		501		1,575		1,399		Telecommunications expense	564		517		1,146		1,039
Marketing expense	Marketing expense	395		381		1,140		840		Marketing expense	760		427		1,157		745
Core deposit intangible amortization	Core deposit intangible amortization	211		250		658		776		Core deposit intangible amortization	593		221		1,189		447
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	Other operating expenses	2,937		2,931		8,930		9,337		Other operating expenses	4,335		3,085		8,430		5,993
Total other operating expenses	Total other operating expenses	$	6,495	$	5,614	$	17,288	$	17,259	Total other operating expenses	$	7,888	$	5,692	$	15,269	$	10,793

Note 1213 – 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

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	For the Three Months Ended
	June 30, 2022						June 30, 2021
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Unrealized (losses) gains on available for sale securities arising during the period:	$	(26,758)	$	7,070	$	(19,688)	$	9,738	$	(2,619)	$	7,119
Reclassification adjustment for securities gains arising during the period	—		—		—		(9)		3		(6)
Net unrealized (losses) gains	(26,758)		7,070		(19,688)		9,729		(2,616)		7,113

Amortization of gain on debt securities reclassified to held to maturity from available for sale	(203)		55		(148)		—		—		—
Unrealized gains on derivatives	—		—		—		68		(145)		(77)

Other comprehensive (loss) gains, net	$	(26,961)	$	7,125	$	(19,836)	$	9,797	$	(2,761)	$	7,036


	For the Six Months Ended
	June 30, 2022						June 30, 2021
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Unrealized losses on available for sale securities arising during the period:	$	(68,722)	$	18,069	$	(50,653)	$	(8,899)	$	2,883	$	(6,016)
Reclassification adjustment for securities gains arising during the period	—		—		—		(9)		3		(6)
Net unrealized losses	(68,722)		18,069		(50,653)		(8,908)		2,886		(6,022)

Amortization of gain on debt securities reclassified to held to maturity from available for sale	(379)		96		(283)		—		—		—
Unrealized gains on derivatives	—		—		—		135		(165)		(30)

Other comprehensive loss, net	$	(69,101)	$	18,165	$	(50,936)	$	(8,773)	$	2,721	$	(6,052)

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

For the Three 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 $ 5,380 $ — $ (5) $ (30) $ 5,345
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) 1,280 (116) 5 — 1,169
Ending balance $ 3,876 $ 2,668 $ — $ (30) $ 6,514

For the Three 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 $ 11,478 $ (56) $ (5) $ 11,417
Net current period other comprehensive (loss) income (576) 37 — (539)
Ending balance $ 10,902 $ (19) $ (5) $ 10,878

For the Nine Months Ended September 30, 2021
(in thousands) Unrealized Gains
(Losses) on
Available for Sale
Securities Amortization of Gain on Debt Securities Reclassified to Held to Maturity Unrealized
Gains (Losses)
on Derivatives Pension Items Total
Beginning balance $ 11,402 $ — $ 25 $ (30) $ 11,397
Net unrealized gain on securities reclassified from available for sale to held to maturity (2,784) 2,784 — — —
Net current period other comprehensive loss (4,742) (116) (25) — (4,883)
Ending balance $ 3,876 $ 2,668 $ — $ (30) $ 6,514

For the Nine Months Ended September 30, 2020
(in thousands) Unrealized Gains
(Losses) on
Available for Sale
Securities Unrealized
Gains (Losses)
on Derivatives Pension Items Total
Beginning balance $ 1,936 $ 317 $ (5) $ 2,248
Other comprehensive income (loss) before classifications 9,220 (336) — 8,884
Amounts reclassified from accumulated other comprehensive income (254) — — (254)
Net current period other comprehensive income (loss) 8,966 (336) — 8,630
Ending balance $ 10,902 $ (19) $ (5) $ 10,878


	For the Three Months Ended June 30, 2022
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(30,220)	$	2,384	$	(27,836)

Net current period other comprehensive loss	(19,688)		(148)		(19,836)


Ending balance	$	(49,908)	$	2,236	$	(47,672)

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	For the Three Months Ended June 30, 2021
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total
Beginning balance	$	(1,733)	$	72	$	(30)	$	(1,691)
Net current period other comprehensive income (loss)	7,119		(77)		—		7,042
Amounts reclassified from accumulated other comprehensive income	(6)		—		—		(6)
Net current period other comprehensive income (loss)	7,113		(77)		—		7,036
Ending balance	$	5,380	$	(5)	$	(30)	$	5,345


	For the Six Months Ended June 30, 2022
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	745	$	2,519	$	3,264

Net current period other comprehensive loss	(50,653)		(283)		(50,936)


Ending balance	$	(49,908)	$	2,236	$	(47,672)


	For the Six Months Ended June 30, 2021
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total
Beginning balance	$	11,402	$	25	$	(30)	$	11,397
Net current period other comprehensive loss	(6,016)		(30)		—		(6,046)
Amounts reclassified from accumulated other comprehensive income	(6)		—		—		(6)
Net current period other comprehensive loss	(6,022)		(30)		—		(6,052)
Ending balance	$	5,380	$	(5)	$	(30)	$	5,345

Note 1314 – 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~~$4.9 million and ~~$83.2~~$55.1 million in investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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~~was 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 iswas paying a third party an average of 1.10% in exchange for a payment at the 3 month ~~LIBOR.~~LIBOR rate. The effective portion of changes in the fair value of derivatives designated and that qualify

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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.

The Company reclassified $69,000 of accumulated other comprehensive loss into interest expense for the second quarter of 2021 and $134,000 first six months of 2021. 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
June 30, 2022										June 30, 2022	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:	Classified in Other Assets:									Classified in Other Assets:
3rd Party interest rate swaps		$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	8,814
Third Party interest rate swaps										Third Party interest rate swaps	$	790,426	7.3	3.53	%	1 Mo. LIBOR + 2.06	$	61,569
Customer interest rate swaps	Customer interest rate swaps	688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	41,200		Customer interest rate swaps	101,045		9.0	4.81	%	1 Mo. LIBOR + 1.69	2,249

Classified in Other Liabilities:	Classified in Other Liabilities:									Classified in Other Liabilities:
Customer interest rate swaps	Customer interest rate swaps	$	293,760	8.8	3.11	%	1 Mo. LIBOR + 2.26	$	(8,814)	Customer interest rate swaps	$	790,426	7.3	3.53	%	1 Mo. LIBOR + 2.06	$	(61,569)
3rd Party interest rate swaps		688,585		7.9	3.93	%	1 Mo. LIBOR + 1.93	(41,200)
Third Party interest rate swaps										Third Party interest rate swaps	101,045		9.0	4.81	%	1 Mo. LIBOR + 1.69	(2,249)


December 31, 2020		Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
December 31, 2021										December 31, 2021	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:	Classified in Other Assets:									Classified in Other Assets:
3rd Party interest rate swaps		$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	$	503
Third Party interest rate swaps										Third Party interest rate swaps	$	326,941	7.7	3.14	%	1 Mo. LIBOR + 2.32	$	9,847
Customer interest rate swaps	Customer interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	80,231		Customer interest rate swaps	607,688		8.2	3.97	%	1 Mo. LIBOR + 1.87	33,952

Classified in Other Liabilities:	Classified in Other Liabilities:									Classified in Other Liabilities:
Customer interest rate swaps	Customer interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	(503)		Customer interest rate swaps	$	326,941	7.7	3.14	%	1 Mo. LIBOR + 2.32	(9,847)
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)
Third party interest rate swaps										Third party interest rate swaps	607,688		8.2	3.97	%	1 Mo. LIBOR + 1.87	(33,952)

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Note 1415 – Goodwill and Other Intangible Assets

The Company had goodwill of $271.8 million at June 30, 2022 and $156.3 million at ~~both September 30, 2021 and~~ December 31, ~~2020.~~2021. The Company recorded $115.6 million in goodwill from the 1st Constitution merger in January 2022 as further described in Note 2 of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. 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~~six months ended ~~September~~June 30, ~~2021,~~2022, 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~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

The Company had core deposit intangibles of ~~$2.6~~$10.2 million and ~~$3.3~~$2.4 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company recorded core deposit intangible of $9.0 million in connection with the 1st Constitution acquisition. Amortization of core deposit intangible totaled ~~$211,000~~$593,000 and ~~$250,000~~$221,000 for the ~~third~~second quarters of ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$658,000~~$1.2 million and ~~$776,000~~$447,000 for the ~~first nine~~six months ofended June 30, 2022 and 2021, ~~and 2020,~~ respectively. The estimated future amortization expense for the remainder of ~~2021~~2022 and for each of the succeeding five years ended December 31 is as follows (in thousands):


For the Year Ended	For the Year Ended			For the Year Ended
2021		$	210
2022	2022	711		2022	$	1,162
2023	2023	554		2023	2,029
2024	2024	425		2024	1,737
2025	2025	317		2025	1,465
2026	2026	210		2026	1,193
2027				2027	955

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Note 1516 – Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The following describes the three levels of fair value hierarchy:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. Treasury Notes, and other U.S. Government Agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.

Level 2 – quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities and prepayment speeds.

Level 3 – unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity but upon particular valuation techniques.

The Company’s assets that are measured at fair value on a recurring basis are its investment securities available for sale, equity securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third-party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury Notes that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Company’s third-party pricing service. This review includes a comparison to non-binding third-party quotes.

The fair values of derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).

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Recurring Fair Value Measurements

The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and during ~~2020,~~2021, 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:


June 30, 2022										June 30, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)	(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value		(in thousands)
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:	Assets:									Assets:
Investment securities, available for sale	Investment securities, available for sale									Investment securities, available for sale
U.S. Treasury and government agencies	U.S. Treasury and government agencies	$	9,392	$	55,610	$	—	$	65,002	U.S. Treasury and government agencies	$	167,185	$	202,866	$	—	$	370,051
Mortgage-backed securities, residential	Mortgage-backed securities, residential	—		228,156		—		228,156		Mortgage-backed securities, residential	—		340,337		—		340,337
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	—		209,038		—		209,038		Collateralized mortgage obligations, residential	—		172,307		—		172,307
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	—		1,944		—		1,944		Mortgage-backed securities, multifamily	—		1,505		—		1,505
Collateralized mortgage obligations, multifamily	Collateralized mortgage obligations, multifamily	—		41,535		—		41,535		Collateralized mortgage obligations, multifamily	—		49,620		—		49,620
Asset-backed securities	Asset-backed securities	—		40,690		—		40,690		Asset-backed securities	—		59,862		—		59,862
Obligations of states and political subdivisions	Obligations of states and political subdivisions	—		233,710		—		233,710		Obligations of states and political subdivisions	—		23,025		—		23,025
Corporate bonds	Corporate bonds	—		35,671		—		35,671		Corporate bonds	—		122,707		—		122,707
Total securities available for sale		9,392		846,354		—		855,746
Total investment securities, available for sale										Total investment securities, available for sale	167,185		972,229		—		1,139,414
Equity securities, at fair value	Equity securities, at fair value	—		14,694		—		14,694		Equity securities, at fair value	—		17,594		—		17,594
Derivative assets	Derivative assets	—		80,734		—		80,734		Derivative assets	—		63,818		—		63,818
Total Assets	Total Assets	$	9,392	$	941,782	$	—	$	951,174	Total Assets	$	167,185	$	1,053,641	$	—	$	1,220,826
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	—	$	80,877	$	—	$	80,877	Derivative liabilities	$	—	$	63,818	$	—	$	63,818
Total Liabilities	Total Liabilities	$	—	$	80,877	$	—	$	80,877	Total Liabilities	$	—	$	63,818	$	—	$	63,818


December 31, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	104,861	$	98,526	$	—	$	203,387
Mortgage-backed securities, residential	—		237,975		—		237,975
Collateralized mortgage obligations, residential	—		191,291		—		191,291
Mortgage-backed securities, multifamily	—		1,741		—		1,741
Collateralized mortgage obligations, multifamily	—		32,519		—		32,519
Asset-backed securities	—		52,584		—		52,584

Corporate bonds	—		50,459		—		50,459
Total investment securities, available for sale	104,861		665,095		—		769,956
Equity securities, at fair value	—		17,368		—		17,368
Derivative assets	—		43,799		—		43,799
Total Assets	$	104,861	$	726,262	$	—	$	831,123
Liabilities:
Derivative liabilities	$	—	$	43,799	$	—	$	43,799
Total Liabilities	$	—	$	43,799	$	—	$	43,799

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Non-Recurring Fair Value Measurements

The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or fair ~~market~~ value. Fair value is generally determined by the value of purchase commitments.

Loans that do not have similar risk characteristics to the segments reported must be individually evaluated to determine an appropriate allowance. Management has identified criteria and procedures for identifying whether a loan should be individually evaluated for calculation of expected credit losses. If a loan is identified as meeting any of the criteria, it is deemed to have risk characteristics that are unique and will be separated from a pool. Those loans that are considered to have unique risk characteristics are then subjected to an individual allowance evaluation using either the fair value of the collateral, less estimated costs to sell, if collateral-dependent or the discounted cash flow method.

Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had no OREO or other repossessed assets.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of ~~impaired~~individually evaluated loans, OREO and other repossessed assets.

The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


(in thousands)	(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value		(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
September 30, 2021
June 30, 2022										June 30, 2022
Assets:	Assets:									Assets:
Individually evaluated loans	Individually evaluated loans	$	—	$	—	$	2,049	$	2,049	Individually evaluated loans	$	—	$	—	$	6,003	$	6,003

December 31, 2020
December 31, 2021										December 31, 2021
Assets:	Assets:									Assets:
Individually evaluated loans	Individually evaluated loans	$	—	$	—	$	2,417	$	2,417	Individually evaluated loans	$	—	$	—	$	7,113	$	7,113

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~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, are outlined below.

This summary, as well as the table below, excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include noninterest-bearing demand deposits, savings and interest-bearing transaction accounts and federal funds purchased and securities sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is the amount payable on demand at the reporting date. Carrying value is used because there is no stated maturity on these accounts, and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the following table are those financial instruments recorded at fair value on a recurring basis, as previously described.

The fair value of investment securities held to maturity is measured using information from the same third-party servicer used for investment securities available for sale using the same methodologies discussed above.

FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.

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

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For fixed maturity certificates of deposit, fair value is estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

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.

~~Table of Contents~~

The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


June 30, 2022												June 30, 2022	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)	(in thousands)	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)
September 30, 2021
Financial Assets:	Financial Assets:											Financial Assets:
Investment securities, held to maturity	Investment securities, held to maturity											Investment securities, held to maturity
U.S. Treasury and U.S. government agencies		$	18,820	$	19,279	$	—	$	19,279	$	—
U.S. government agencies												U.S. government agencies	$	16,418	$	16,006	$	—	$	16,006	$	—
Mortgage-backed securities, residential	Mortgage-backed securities, residential	343,866		342,001		—		342,001		—		Mortgage-backed securities, residential	363,071		319,938		—		319,938		—
Collateralized mortgage obligations, residential	Collateralized mortgage obligations, residential	8,488		8,775		—		8,775		—		Collateralized mortgage obligations, residential	13,773		12,068		—		12,068		—
Mortgage-backed securities, multifamily	Mortgage-backed securities, multifamily	2,724		2,771		—		2,771		—		Mortgage-backed securities, multifamily	5,139		4,662		—		4,662		—

Obligations of states and political subdivisions	Obligations of states and political subdivisions	316,832		311,037		—		310,578		459		Obligations of states and political subdivisions	540,326		453,381		—		453,381		—
Corporate bonds	Corporate bonds	2,832		2,865		—		2,865		—		Corporate bonds	2,831		2,608		—		2,608		—
Total investment securities held to maturity, net		$	693,562	$	686,728	$	—	$	686,269	$	459
Total investment securities, held to maturity												Total investment securities, held to maturity	$	941,558	$	808,663	$	—	$	808,663	$	—
Federal Home Loan Bank and other membership bank stocks	Federal Home Loan Bank and other membership bank stocks	9,340		9,340		—		9,340		—		Federal Home Loan Bank and other membership bank stocks	25,647		25,647		—		25,647		—
Loans, net	Loans, net	5,822,849		5,844,767		—		—		5,844,767		Loans, net	7,339,704		7,343,386		—		—		7,343,386
Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Certificates of deposit	Certificates of deposit	804,899		800,083		—		800,083		—		Certificates of deposit	764,042		739,857		—		739,857		—
Other borrowings	Other borrowings	25,000		24,902		—		24,902		—		Other borrowings	25,000		23,419		—		23,419		—
Subordinated debentures	Subordinated debentures	187,107		185,965		—		—		185,965		Subordinated debentures	194,027		168,691		—		—		168,691
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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~~Note 16 – Business Combination~~

On July 11, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with 1st Constitution Bancorp pursuant to which 1st Constitution Bancorp (parent company of 1st Constitution Bank) will merge with and into the Company and 1st Constitution Bank will merge with and into Lakeland Bank. The merger agreement provides that the shareholders of 1st Constitution Bancorp will receive for each outstanding share of 1st Constitution Bancorp common stock that they own at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company expects to issue an aggregate of approximately 14.0 million shares of its common stock in the merger. As of July 11, 2021, the transaction is valued at approximately $244.4 million on a fully diluted basis.

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


December 31, 2021	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies	$	18,672	$	18,965	$	—	$	18,965	$	—
Mortgage-backed securities, residential	370,247		364,976		—		364,976		—
Collateralized mortgage obligations, residential	13,921		14,089		—		14,089		—
Mortgage-backed securities, multifamily	2,710		2,734		—		2,734		—

Obligations of states and political subdivisions	416,566		411,576		—		410,744		832
Corporate bonds	2,840		2,871		—		2,871		—
Total investment securities, held to maturity	824,956		815,211		—		814,379		832
Federal Home Loan Bank and other membership bank stocks	9,049		9,049		—		9,049		—
Loans, net	5,918,101		5,900,876		—		—		5,900,876
Financial Liabilities:
Certificates of deposit	759,227		753,483		—		753,483		—
Other borrowings	25,000		24,604		—		24,604		—
Subordinated debentures	179,043		175,243		—		—		175,243

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.~~2021.

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. Accordingly, you should not put undue reliance on 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~~updated by ~~Exhibit 99.1 to~~ the Company's ~~Current Report~~subsequent Quarterly Reports on Form ~~8-K filed~~10-Q and Current Reports on ~~September 8, 2021,~~Form 8-K, 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;~~pandemic; 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; changes in federal and state tax laws; 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 11stst 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.

Table of Contents

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., 1st Constitution Investment Company of New Jersey, Inc. and 1st Constitution Real Estate Corporation. All intercompany balances and transactions have been eliminated.

~~Table of Contents~~

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,On January 6, 2022, 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 thatcompleted its ~~current level~~acquisition of ~~liquidity is sufficient to meet its current and future operational needs.~~

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

~~On July 11, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement")~~1st Constitution with 1st Constitution merging into Lakeland Bancorp ~~pursuant to which~~and 1st Constitution’s wholly-owned subsidiary, 1st Constitution ~~Bancorp (parent company~~Bank, merging into Lakeland Bank. The merger added $1.97 billion in total assets including $1.10 billion in total loans and $1.65 billion in total deposits. Goodwill totaled $115.6 million and core deposit intangibles were $9.0 million. The acquisition represents a significant addition to Lakeland’s New Jersey franchise and the consolidated organization totals over $10 billion in assets. Full systems integration was completed in February 2022. The Company’s financial statements reflect the impact of the merger from the date of acquisition, which should be considered when comparing periods. For additional information on the fair value of the acquired assets of 1st Constitution, ~~Bank) will merge with and into~~please see Note 2 of the ~~Company and 1st Constitution Bank will merge with and into Lakeland Bank. We are looking forward~~Notes 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~~Consolidated Financial Statements in ~~New Jersey~~ this ~~acquisition provides. The merger integration meetings are progressing and we remain~~Quarterly Report 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.Form 10-Q.

Financial Overview

For the ~~third~~second quarter of ~~2021,~~2022, the Company reported net income of ~~$22.3~~$29.1 million and earnings per diluted share of ~~$0.43~~$0.44 compared to net income of ~~$14.4~~$27.4 million and earnings per diluted share of ~~$0.28~~$0.53 for the ~~third~~second quarter of ~~2020.~~2021. For the ~~third~~second quarter of ~~2021,~~2022, annualized return on average assets was ~~1.10%~~1.15%, annualized return on average common equity was ~~10.94%~~10.71% and annualized return on average tangible common equity was ~~13.63%~~14.45% compared to ~~0.76%~~1.41%, ~~7.64%~~14.07%, and ~~9.71%~~17.67%, respectively, for the ~~third~~second quarter of ~~2020.~~2021.

For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, the Company reported net income of ~~$72.9~~$45.0 million, compared to ~~$38.7~~$50.6 million for the same period in ~~2020.~~2021. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company reported earnings per diluted share of ~~$1.42~~$0.69 compared to ~~$0.76~~$0.98 earnings per diluted share reported for the first ~~nine~~six months of ~~2020.~~2021. For the first ~~nine~~six months of ~~2021,~~2022, annualized return on average assets was ~~1.24%~~0.89%, annualized return on average common equity was ~~12.39%~~8.31%, and annualized return on average tangible common equity was ~~15.53%~~11.16% compared to ~~0.73%~~1.32%, ~~6.95%~~13.15% and ~~8.86%~~16.55%, respectively, for the same period in ~~2020.~~

~~Table of Contents~~

2021.

The ~~third~~second quarter and year-to-date ~~2021~~2022 results were ~~favorably~~negatively impacted by ~~benefits~~provision for credit losses of ~~$2.7~~$3.6 million and ~~$11.3~~$9.9 million, respectively, compared to ~~provisions~~a benefit of ~~$8.0~~$6.0 million and ~~$26.2~~$8.6 million for the same periods last year. The benefit for credit losses in 2021 was due primarily to an improvement in forecasted macroeconomic conditions, following the initial impacts of COVID-19 in 2020, a reduction in non-performing assets and continued strength in asset quality.

Net interest margin for the ~~third~~second quarter of ~~2021~~2022 of ~~3.10%~~3.38% increased ~~14 basis points compared to the third quarter of 2020 and decreased 17~~11 basis points compared to the second quarter of ~~2021.~~2021 and increased 36 basis points compared to the linked first quarter 2022. Net interest margin for the ~~first nine~~six months ~~of 2021~~ended June 30, 2022 was ~~3.19%~~3.20% as compared to ~~3.09%~~3.23% for the same period in ~~2020.~~2021. The increase in net interest margin compared to the ~~third~~second quarter ~~2020 and year-to-date 2020~~of 2021 was due primarily to an increase in the volume of interest-earning assets, an increase in yields on interest-earning assets and a decrease in the cost of interest-bearing liabilities, while the decrease in the net interest margin ~~compared to~~in the ~~linked quarter~~year-to-date periods 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 interestyields 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.interest-earning assets.

Total loans, net of deferred fees, ~~decreased $140.4 million~~increased $1.43 billion to ~~$5.88~~$7.41 billion during the first ~~nine~~six months of ~~2021.~~2022 and included loans totaling $1.10 billion acquired in the Company's acquisition of 1st Constitution. Total deposits increased ~~$475.1 million,~~$1.54 billion, or 7%22%, during the first ~~nine~~six months of ~~2021,~~2022, to ~~$6.93 billion.~~$8.50 billion and includes deposits of $1.65 billion acquired from 1st Constitution.

Table of Contents

Comparison of Operating Results for the Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Net Income

Net income was ~~$22.3~~$29.1 million or ~~$0.43~~$0.44 per diluted share, for the ~~third~~second quarter of ~~2021~~2022 compared to net income of ~~$14.4~~$27.4 million or ~~$0.28~~$0.53 per diluted share, for the ~~third~~second quarter of ~~2020.~~2021. The increase in net income compared to the ~~third~~second quarter of ~~2020~~2021 was due primarily to an increase of $20.6 million in net interest income, partially offset by an increase in noninterest expense of $11.0 million and a ~~benefit~~provision for credit losses ~~and an increase~~of $3.6 million, which compared to a negative provision of $6.0 million recorded in ~~net interest income.~~the second quarter of 2021.

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~~second quarter of ~~2021~~2022 was ~~$59.5~~$80.7 million, compared to ~~$52.2~~$59.9 million for the ~~third~~second quarter of ~~2020.~~2021. The net interest margin increased 11 basis points to 3.38% in the second quarter of 2022 from 3.27% in the second quarter of 2021. The increase in net interest income compared to the ~~third~~second quarter of ~~2020~~2021 was due primarily to ~~a reduction in~~growth of loans and investment securities and higher loan prepayment fees and non-accrual interest recoveries during 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~~second 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.2022.

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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~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 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							For the Three Months Ended June 30, 2022						For the Three Months Ended June 30, 2021
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS
Assets														Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	5,943,698	$	59,957	4.00	%	$	5,775,093	$	56,801	3.91	%	Loans (1)	$	7,229,175	$	76,973	4.22	%	$	6,080,408	$	60,529	3.99	%
Taxable investment securities and other	Taxable investment securities and other	1,005,744		4,232		1.68	%	793,370		4,139		2.09	%	Taxable investment securities and other	1,827,450		8,284		1.81	%	938,632		4,029		1.72	%
Tax-exempt securities	Tax-exempt securities	138,612		745		2.15	%	79,696		509		2.55	%	Tax-exempt securities	360,749		1,825		2.02	%	127,454		798		2.50	%
Federal funds sold (2)	Federal funds sold (2)	523,205		161		0.12	%	361,780		92		0.10	%	Federal funds sold (2)	171,022		235		0.55	%	196,458		52		0.11	%
Total interest-earning assets	Total interest-earning assets	7,611,259		65,095		3.40	%	7,009,939		61,541		3.49	%	Total interest-earning assets	9,588,396		87,317		3.61	%	7,342,952		65,408		3.57	%
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for credit losses	Allowance for credit losses	(60,490)						(60,882)						Allowance for credit losses	(68,199)						(67,358)
Other assets	Other assets	519,281						567,012						Other assets	671,943						508,791
TOTAL ASSETS		$	8,070,050					$	7,516,069
Total Assets														Total Assets	$	10,192,140					$	7,784,385

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities and Stockholders’ Equity														Liabilities and Stockholders’ Equity
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings accounts	Savings accounts	$	653,840	$	85	0.05	%	$	548,662	$	77	0.06	%	Savings accounts	$	1,153,591	$	507	0.18	%	$	639,540	$	84	0.05	%
Interest-bearing transaction accounts	Interest-bearing transaction accounts	3,701,676		2,775		0.30	%	3,086,260		3,422		0.44	%	Interest-bearing transaction accounts	4,369,067		3,542		0.33	%	3,495,610		2,805		0.32	%
Time deposits	Time deposits	826,831		1,127		0.55	%	1,176,181		3,513		1.19	%	Time deposits	803,421		780		0.39	%	880,079		1,349		0.61	%
Borrowings		270,735		1,613		2.33	%	327,939		2,287		2.73	%
Federal funds purchased														Federal funds purchased	27,451		125		1.81	%	330		—		0.45	%
Securities sold under agreements to repurchase														Securities sold under agreements to repurchase	102,791		25		0.10	%	84,995		16		0.08	%
Long-term borrowings														Long-term borrowings	218,958		1,654		2.99	%	140,162		1,247		3.52	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,453,082		5,600		0.41	%	5,139,042		9,299		0.72	%	Total interest-bearing liabilities	6,675,279		6,633		0.40	%	5,240,716		5,501		0.42	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	1,702,788						1,475,422						Demand deposits	2,310,702						1,660,825
Other liabilities	Other liabilities	106,224						150,506						Other liabilities	115,546						101,545
Stockholders' equity	Stockholders' equity	807,956						751,099						Stockholders' equity	1,090,613						781,299
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	8,070,050					$	7,516,069
Total Liabilities and Stockholders’ Equity														Total Liabilities and Stockholders’ Equity	$	10,192,140					$	7,784,385
Net interest income/spread	Net interest income/spread			59,495		2.99	%			52,242		2.77	%	Net interest income/spread			80,684		3.22	%			59,907		3.15	%
Tax equivalent basis adjustment	Tax equivalent basis adjustment			157						108				Tax equivalent basis adjustment			382						167
NET INTEREST INCOME				$	59,338					$	52,134
Net Interest Income														Net Interest Income			$	80,302					$	59,740
Net interest margin (3)	Net interest margin (3)					3.10	%					2.96	%	Net interest margin (3)					3.38	%					3.27	%

(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~~$21.9 million ~~from $61.5~~to $87.3 million in the ~~third~~second quarter of ~~2020 to $65.1~~2022 from $65.4 million in the ~~third~~second 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~~$1.15 billion to $7.23 billion in the second quarter of 2022 compared to $6.08 billion in the ~~third~~second quarter of ~~2020 while~~2021, due to the acquisition of 1st Constitution. The yield earned on ~~average~~ loans increased ~~nine~~by 23 basis points to ~~4.00%~~4.22% in the ~~third~~second quarter of 2022 from the second quarter of 2021 ~~from~~due primarily to the ~~third quarter of 2020.~~increase in market rates. Total average taxable investment securities increased ~~$212.4~~$888.8 million to ~~$1.01~~$1.83 billion for the ~~third~~second quarter of ~~2021~~2022 from the ~~third~~second quarter of ~~2020,~~2021, while average tax-exempt securities increased ~~$58.9~~$233.3 million to ~~$138.6~~$360.7 million for the same ~~periods.~~periods, due to the acquisition of 1st Constitution and purchases of investment securities. The yield on average taxable investment securities ~~decreased 41~~increased nine basis points from the ~~third~~second quarter of ~~2020~~2021 to ~~1.68%~~1.81% for the ~~third~~second quarter of ~~2021,~~2022, while the yield on average tax-exempt investment securities decreased 4048 basis points to ~~2.15%~~2.02% due to declines in market ~~interest rates~~conditions during the ~~period.~~period and an increase in bond anticipation note purchases at lower rates. Average federal funds sold in the ~~third~~second quarter of ~~2021 increased $161.4~~2022 decreased $25.4 million compared to the ~~third~~second quarter of ~~2020,~~2021, while the yield increased ~~two~~44 basis points to ~~0.12%~~0.55% for the ~~third~~second quarter of ~~2021.~~2022 as short-term market rates have risen in 2022.

Total interest expense of ~~$5.6~~$6.6 million in the ~~third~~second quarter of ~~2021 was $3.7~~2022 increased by $1.1 million ~~less than~~from the ~~$9.3~~$5.5 million reported for the same period in ~~2020.~~2021. The cost of average interest-bearing liabilities decreased from ~~0.72%~~0.42% in the ~~third quarter of 2020 to 0.41% in the third~~second quarter of 2021 ~~and was~~to 0.40% in the second quarter of 2022, largely driven by ~~reductions~~the reduction in ~~market interest rates~~the cost of long-term borrowings on the Company's subordinated notes and ~~a change in mix~~lower interest-bearing deposit costs. Total interest-bearing deposits increased by $1.31 billion from the second quarter of 2021 to $6.33 billion, while the cost of interest-bearing ~~liabilities.~~deposits decreased three basis points. For the second quarter of 2022, lower cost savings and interest bearing transaction account average balances increased $514.1 million and $873.5 million, respectively, when compared to the same period in 2021, while higher cost average time deposits decreased $76.7 million. Additionally, in September 2021 the Company issued $150.0 million Fixed-to-Floating Rate Subordinated Notes at a fixed rate of 2.875% and redeemed $75.0 million of its outstanding 5.125% Fixed-to-Floating Rate Subordinated Notes, which contributed to a decrease in the average cost of long-term borrowings of 53 basis points, to 2.99% in the second quarter of 2022 from 3.52% in the second quarter of 2021. Partially offsetting the impact of the decline in the cost of funds was a growth in average interest-bearing liabilities of ~~$314.0 million~~$1.43 billion 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~~second quarter of ~~2021,~~2022, a ~~$2.7~~$3.6 million ~~benefit~~provision for credit losses was recorded, compared to ~~an $8.0~~a $6.0 million ~~provision~~benefit for credit losses for the same period last year. The ~~benefit~~provision is comprised of a ~~benefit~~provision for credit losses on loans of ~~$2.7~~$1.6 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.~~$1.5 million and a provision on off-balance-sheet exposures of $535,000. The ~~benefit~~increase in the provision for credit losses on loans was related to a deterioration of macroeconomic factors. The provision for credit losses on securities during the second quarter of 2022 was primarily due ~~primarily~~ to ~~an improvement~~increased unrealized losses on lower credit rated securities within our portfolio resulting from a rise in ~~forecasted macroeconomic conditions, a decrease in nonperforming assets and continued strength in asset quality of loans.~~market interest rates. The Company recorded loan charge-offs of ~~$996,000~~$369,000 and recoveries on loans of ~~$1.3 million~~$510,000 in the ~~third~~second quarter of ~~2021~~2022 compared to loan charge-offs of ~~$682,000~~$1.9 million and loan recoveries of ~~$85,000~~$312,000 in the ~~third~~second quarter of ~~2020.~~2021. For more information, ~~regarding~~see Note 6 in Notes to the ~~determination of the provision, see “Risk Elements” below.~~Consolidated Statements in this Form 10-Q.

Noninterest Income

Noninterest income ~~decreased $1.3~~increased $1.8 million to ~~$5.5~~$7.1 million for the ~~third~~second quarter of ~~2021~~2022 compared to ~~$6.8~~$5.3 million during the same period in ~~2020~~2021. Commissions and fees increased $800,000 from the second quarter of 2021 due primarily to ~~a reduction~~increases in ~~swap~~wire transfer charges and financial services income. Other income ~~and gains on sales of loans. There was no swap income during~~increased $500,000 from the ~~third~~second quarter of 2021 ~~compared~~ to ~~income of $624,000 during~~ the ~~third~~second quarter of ~~2020~~2022 due ~~primarily~~ to ~~changes to the yield curve which makes new swap agreements less attractive. Gains~~reductions in write-downs on ~~sales of~~premises and equipment as well as recoveries on loans ~~decreased $887,000 driven primarily by a reduction in volume and the Company retaining more originated residential mortgages.~~charged off from prior acquisitions. Service charges on deposit accounts ~~for~~increased $266,000 compared to the ~~third~~second quarter of 2021 ~~increased $248,000 compared to the third quarter of 2020~~ due primarily to ~~changes~~increases in ~~customer behavior related to the pandemic. Additionally, losses~~debit card interchange income. Losses on equity securities totaled ~~$58,000 for~~$364,000 in the ~~third quarter of 2021~~three months ended June 30, 2022 compared to ~~losses~~gains of ~~$170,000 during~~$11,000 in the same period of 2021, due to the increase in ~~2020.~~long-term market rates which decreased the fair value of the securities underlying the CRA funds. The Company recorded swap income in the second quarter of 2022 and 2021 of $399,000 and $72,000, respectively, because changes in the yield curve increased the demand for swap transactions.

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Noninterest Expense

Noninterest expense in the ~~third~~second quarter of ~~2021~~2022 totaled ~~$37.2~~$45.1 million compared to ~~$32.1~~$34.1 million ~~reported~~ for the same quarter of ~~2020,~~2021, an increase of ~~$5.1~~$11.0 million. Compensation and employee ~~benefit~~benefits increased $6.5 million to $26.9 million in the second quarter of 2022 due primarily to increase in compensation and employee benefits resulting primarily from additions to our staff from the 1st Constitution merger and normal merit increases. The Company recorded premises and equipment expense ~~for~~of $7.7 million in the ~~third~~second quarter of 2022 and $6.1 million in the second quarter of 2021, ~~increased $2.4~~an increase of $1.6 million ~~or 13%, when compared~~due primarily to increases in occupancy expense related to the ~~same quarter~~1st Constitution branches. Data processing expense increased $592,000 due to increases related to the expansion of ~~2020~~our franchise as a result of ~~staff additions~~the 1st Constitution merger. Core deposit intangible amortization was $593,000 and ~~normal merit increases. Premises~~$221,000, for the second quarter of 2022 and ~~equipment and data processing~~2021, respectively, increasing due to the core deposit intangible recorded on the 1st Constitution acquisition. Other operating expenses, excluding core deposit amortization expense, increased ~~$624,000 and $284,000, respectively, compared to~~$1.8 million in the ~~third~~second 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~~2022 compared to the same period in ~~2020~~2021 due primarily to ~~a decrease in assessment rates resulting from an improvement in the Company's capital~~increased consulting fees, appraisal fees, marketing 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.insurance expense.

The Company’s efficiency ratio, a non-GAAP financial measure, was ~~54.02%~~50.69% in the ~~third~~second quarter of ~~2021,~~2022, compared to ~~53.96%~~51.98% 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 %


	For the Three Months Ended June 30,
(dollars in thousands)	2022			2021

Total noninterest expense	$	45,068		$	34,097
Less:
Amortization of core deposit intangibles	593			221



Noninterest expense, as adjusted	$	44,475		$	33,876

Net interest income	$	80,302		$	59,740
Noninterest income	7,063			5,269
Total revenue	87,365			65,009
Tax-equivalent adjustment on municipal securities	382			167
Less:
Gains on sales of investment securities	—			9
Total revenue, as adjusted	$	87,747		$	65,167
Efficiency ratio	50.69		%	51.98		%

Income Tax Expense

The effective tax rate in the ~~third~~second quarter of ~~2021~~2022 was ~~26.5%~~24.7% compared to ~~23.3%~~25.7% during the same period in ~~2020~~2021 primarily as a result of tax advantaged items ~~declining~~increasing as a percentage of pretax ~~income due to the increase in pretax income during the current period.~~income.

Comparison of Operating Results for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Net Income

Net income was ~~$72.9~~$45.0 million, or ~~$1.42~~$0.69 per diluted share, for the first ~~nine~~six months of ~~2021~~2022 compared to net income of ~~$38.7~~$50.6 million, or ~~$0.76~~$0.98 per diluted share, for the first ~~nine~~six months of ~~2020.~~2021. Net income ~~increased~~decreased primarily as a result of ~~the $11.3~~increases of $27.0 million ~~benefit~~in noninterest expense and $18.5 million in provision for credit losses, ~~recorded~~partially offset by a $34.2 million increase 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.

Net interest income on a tax equivalent basis for the first ~~nine~~six months of ~~2021~~2022 was ~~$176.3~~$151.4 million, compared to ~~$152.8~~$116.8 million for the first ~~nine~~six months of ~~2020.~~2021. The increase in net interest income was due primarily to an increase in the volume of interest-earning assets and loan yields, as well as a reduction in the cost of interest-bearing ~~deposits as well as growth in the volume of interest-earning assets.~~deposits. The net interest margin of ~~3.19%~~3.20% in the first ~~nine~~six months of ~~2021 compared to 3.09%~~2022 decreased from 3.23% for the same period in ~~2020. The increase in net interest margin resulted~~2021, primarily ~~from~~due to a ~~46 basis point~~ decrease in the ~~cost of interest-bearing liabilities.~~yield on investment securities. 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~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021 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							For the Six Months Ended June 30, 2022						For the Six Months Ended June 30, 2021
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS	ASSETS													ASSETS
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1)	Loans (1)	$	6,037,419	$	179,264	3.97	%	$	5,519,621	$	170,483	4.13	%	Loans (1)	$	7,125,893	$	144,782	4.05	%	$	6,085,057	$	119,307	3.95	%
Taxable investment securities and other	Taxable investment securities and other	942,389		12,242		1.73	%	811,924		14,131		2.32	%	Taxable investment securities and other	1,751,429		14,994		1.71	%	910,187		8,010		1.76	%
Tax-exempt securities	Tax-exempt securities	129,434		2,318		2.39	%	69,408		1,371		2.63	%	Tax-exempt securities	352,926		3,473		1.97	%	124,769		1,573		2.52	%
Federal funds sold (2)	Federal funds sold (2)	286,936		250		0.12	%	198,528		287		0.19	%	Federal funds sold (2)	316,327		417		0.27	%	166,843		89		0.11	%
Total interest-earning assets	Total interest-earning assets	7,396,178		194,074		3.51	%	6,599,481		186,272		3.77	%	Total interest-earning assets	9,546,575		163,666		3.42	%	7,286,856		128,979		3.57	%
Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Allowance for credit losses	Allowance for credit losses	(66,641)						(51,236)						Allowance for credit losses	(69,111)						(69,767)
Other assets	Other assets	524,814						525,193						Other assets	687,973						527,625
TOTAL ASSETS	TOTAL ASSETS	$	7,854,351					$	7,073,438					TOTAL ASSETS	$	10,165,437					$	7,744,714

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY													LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings accounts	Savings accounts	$	632,950	$	247	0.05	%	$	523,653	$	248	0.06	%	Savings accounts	$	1,142,536	$	990	0.17	%	$	622,331	$	162	0.05	%
Interest-bearing transaction accounts	Interest-bearing transaction accounts	3,529,586		8,447		0.32	%	2,942,307		14,204		0.64	%	Interest-bearing transaction accounts	4,384,215		6,208		0.28	%	3,442,116		5,672		0.33	%
Time deposits	Time deposits	916,476		4,655		0.68	%	1,048,115		11,517		1.47	%	Time deposits	841,214		1,670		0.40	%	962,042		3,528		0.73	%
Borrowings		237,856		4,432		2.46	%	373,870		7,462		2.62	%
Federal funds purchased														Federal funds purchased	13,801		125		1.81	%	4,586		8		0.36	%
Securities sold under agreements to repurchase														Securities sold under agreements to repurchase	103,707		45		0.09	%	74,855		31		0.08	%
Long -term borrowings														Long -term borrowings	218,474		3,209		2.00	%	141,703		2,780		2.54	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,316,868		17,781		0.45	%	4,887,945		33,431		0.91	%	Total interest-bearing liabilities	6,703,947		12,247		0.37	%	5,247,633		12,181		0.47	%
Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	1,637,101						1,317,195						Demand deposits	2,252,693						1,603,714
Other liabilities	Other liabilities	113,740						124,980						Other liabilities	115,549						117,559
Stockholders' equity	Stockholders' equity	786,642						743,318						Stockholders' equity	1,093,248						775,808
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,854,351					$	7,073,438					TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,165,437					$	7,744,714
Net interest income/spread	Net interest income/spread			176,293		3.06	%			152,841		2.86	%	Net interest income/spread			151,419		3.05	%			116,798		3.10	%
Tax equivalent basis adjustment	Tax equivalent basis adjustment			487						289				Tax equivalent basis adjustment			729						330
NET INTEREST INCOME	NET INTEREST INCOME			$	175,806					$	152,552			NET INTEREST INCOME			$	150,690					$	116,468
Net interest margin (3)	Net interest margin (3)					3.19	%					3.09	%	Net interest margin (3)					3.20	%					3.23	%

(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~~On a tax equivalent basis, interest income increased $34.7 million, or 27%, from ~~$186.3~~$129.0 million in the first ~~nine~~six months of ~~2020~~2021 to ~~$194.1~~$163.7 million in the first ~~nine~~six months of ~~2021, an increase of $7.8 million, or 4%.~~2022. The increase in interest income was primarily due to growth in the volume of interest-earning assets and yields on loans, partially offset by a ~~decline~~decrease in the ~~yield~~rate earned on ~~interest-earning assets.~~investment securities. Average loans increased ~~$517.8 million~~$1.04 billion compared to the first ~~nine~~six months of ~~2020, while~~2021, due to the acquisition of 1st Constitution. The yield on average loans ~~at 3.97%~~of 4.05% in the first ~~nine~~six months of ~~2021~~2022 was 1610 basis points ~~lower~~higher than the same period in ~~2020.~~2021. Average taxable and tax-exempt investment securities increased ~~$130.5~~$841.2 million and ~~$60.0~~$228.2 million, respectively, for the first ~~nine~~six months of ~~2021~~2022 compared to the same period in ~~2020, while~~2021 due to the acquisition of 1st Constitution. The yield on average taxable and tax-exempt investment securities decreased 59five basis points and 2455 basis points, ~~respectively.~~respectively, due to market conditions. Average federal funds sold increased ~~$88.4~~$149.5 million in the first ~~nine~~six months of ~~2021~~2022 compared to the same period in ~~2020,~~2021, while the yield on federal funds sold ~~decreased seven~~increased 16 basis points.

Total interest expense of ~~$17.8~~$12.2 million in the first ~~nine~~six months of ~~2021~~2022 was ~~$15.6 million~~$66,000 less than the ~~$33.4 million~~interest expense reported for the same period in ~~2020.~~2021. Total average interest-bearing liabilities increased ~~$428.9 million,~~$1.46 billion, while the cost of average interest-bearing liabilities decreased from ~~0.91%~~0.47% in the first ~~nine~~six months of ~~2020~~2021 to ~~0.45%~~0.37% in the first ~~nine~~six months of ~~2021.~~2022. The increase in the balance ~~and reduction~~was due to the acquisition of deposits from 1st Constitution. Rates paid decreased in ~~cost~~almost all categories of interest-bearing ~~liabilities was due primarily to the same reasons discussed in the quarterly analysis.~~liabilities. The cost of long-term borrowings, time deposits and interest-bearing transaction accounts ~~and time deposits~~ decreased by 3254 basis points, 33 basis points and 79five basis points, respectively, while the cost of overnight borrowings ~~decreased 16~~increased 145 basis points compared to the first ~~nine~~six months of ~~2020.~~2021.

Provision for Credit Losses

In the first ~~nine~~six months of ~~2021, an $11.3~~2022, a $9.9 million ~~benefit~~provision for credit losses was recorded, compared to a ~~$26.2~~$8.6 million ~~provision~~benefit for the same period last year. As of June 30, 2022, the provision was comprised of a provision for credit losses on loans of $6.2 million, a provision for credit losses on securities of $2.7 million and a provision for off-balance-sheet exposures of $975,000. In addition, the Company recorded an initial allowance for credit losses of $12.1 million on purchased credit deteriorated loans acquired from 1st Constitution. The benefit isfor credit losses on loans in the six months ended June 30, 2021 was comprised of a benefit for credit losses on loans of ~~$10.8~~$8.1 million, ~~a benefit for off-balance-sheet exposures of $707,000 and~~ a provision for credit losses on securities of ~~$231,000.~~$156,000 and a benefit for off-balance-sheet exposures of $635,000. The ~~benefit~~increase in the provision recorded for loans and off-balance-sheet exposures in 2022 was due primarily to deterioration of the macroeconomic factors used in calculating the provision. The provision for credit losses on ~~loans~~securities during the six months of 2022 was primarily due to increased unrealized losses on lower credit rated securities within the investment portfolio. The increase in unrealized losses in 2022 was primarily due to the ~~same reasons discussed~~rise in market interest rates, which caused decreases in the ~~quarterly comparison.~~fair values of investment securities available for sale. The Company charged off ~~$4.1~~$7.6 million of purchased credit deteriorated loans acquired from 1st Constitution in first six months of 2022. In addition, charge-offs totaled $539,000 and ~~recovered $1.8 million~~recoveries totaled $672,000 in the first ~~nine~~six months of ~~2021~~2022 compared to ~~$1.3~~$3.1 million and ~~$322,000,~~$519,000, respectively, in the first ~~nine~~six months of ~~2020.~~2021. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income of ~~$16.5~~$13.8 million in the first ~~nine~~six months of ~~2021 decreased~~2022 increased by ~~$3.8~~$2.8 million from ~~$20.3~~$11.0 million in the first ~~nine~~six months of ~~2020~~2021 due primarily to ~~a $3.6 million decrease~~increases in ~~swap income resulting from the same reason discussed in the quarterly comparison. Gains~~service charges on ~~sales of loans decreased $697,000 driven primarily by a reduction in volume~~deposit accounts, commissions and ~~the Company retaining more originated residential mortgages.~~fees and other income. Service charges on deposit accounts increased ~~$614,000~~$596,000 compared to the first ~~nine~~six months of ~~2020~~2021 due to ~~the same reasons discussed~~an increase in ~~the quarterly comparison,~~debit card income, while commissions and fees increased ~~$459,000~~$1.3 million due primarily to increases in wire transfer charges and financial services income. Gains on sales of loans increased $826,000 driven primarily by an increase in ~~commercial loan fees.~~sale volume of residential mortgages. Losses on equity securities totaled ~~$191,000~~$849,000 and $133,000 in the first ~~nine~~six months of 2022 and 2021, ~~compared to losses of $625,000 in the first nine months of 2020.~~respectively. Other income ~~decreased $567,000~~increased $672,000 in 2022 due primarily to ~~a $400,000 write-down~~reductions in write-downs on ~~a branch location held for sale. Additionally, the first nine months of 2020 included gains~~premises and recoveries on ~~investment securities transactions of $342,000 compared to $9,000 for the same period in 2021.~~loans charged off from prior acquisitions.

Noninterest Expense

Noninterest expense in the first ~~nine~~six months of ~~2021~~2022 totaled ~~$105.2~~$95.0 million, ~~which was $9.1~~increasing $27.0 million ~~greater than~~from the ~~$96.1~~$68.0 million reported for the first ~~nine~~six months of ~~2020.~~2021. Compensation and employee benefit expense and premises and equipment expense increased ~~$5.1~~$13.7 million and ~~$2.4~~$3.3 million, respectively, compared to the first ~~nine~~six months of ~~2020~~2021 due to the ~~same reasons discussed~~increases in staff and premises from the ~~quarterly comparison.~~1st Constitution acquisition. FDIC insurance expense inremained flat at $1.3 million for the first ~~nine~~six months of ~~2021 increased $420,000 due primarily to deposit growth~~2022 and ~~assessment credits recorded in the~~2021. The first ~~nine~~six months of ~~2020. The first nine months of 2021~~2022 included ~~$1.1~~$4.6 million in merger related costs for the ~~upcoming merger with~~completed acquisition of 1st Constitution Bancorp. Other operating expenses increased ~~$29,000~~$4.5 million in the first ~~nine~~six months of ~~2021~~2022 compared to the same period in ~~2020. Within~~2021. Included in the increase in other operating expenses are increases in core deposit intangible amortization, consulting, and marketing ~~telecommunications~~ expense, which increased $742,000, $627,000 and ~~ATM and debit card expense increased $300,000, $176,000 and $135,000,~~$412,000, respectively, ~~while consulting decreased $479,000~~ compared to the first ~~nine~~six 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.2021. The Company’s efficiency ratio, a non-GAAP financial measure, was ~~53.24%~~54.01% in the first ~~nine~~six months of ~~2021,~~2022, compared to ~~54.95%~~52.85% for the same period ~~last year.~~in 2021. 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,							Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			(dollars in thousands)	2022			2021

Total noninterest expense	Total noninterest expense	$	105,207		$	96,063		Total noninterest expense	$	95,027		$	68,000
Less:								Less:
Amortization of core deposit intangibles	Amortization of core deposit intangibles	(658)			(776)			Amortization of core deposit intangibles	1,189			447
Merger-related expenses	Merger-related expenses	(1,072)			—			Merger-related expenses	4,585			—
Long-term debt prepayment penalties		—			(356)
Long-term debt extinguishment costs		(831)			—

Noninterest expense, as adjusted	Noninterest expense, as adjusted	$	102,646		$	94,931		Noninterest expense, as adjusted	$	89,253		$	67,553

Net interest income	Net interest income	$	175,806		$	152,552		Net interest income	$	150,690		$	116,468
Noninterest income	Noninterest income	16,497			20,265			Noninterest income	13,843			11,028
Total revenue	Total revenue	192,303			172,817			Total revenue	164,533			127,496
Tax-equivalent adjustment on municipal securities	Tax-equivalent adjustment on municipal securities	487			289			Tax-equivalent adjustment on municipal securities	729			330
Less:								Less:
Gains on sales of investment securities	Gains on sales of investment securities	(9)			(342)			Gains on sales of investment securities	—			9
Total revenue, as adjusted	Total revenue, as adjusted	$	192,781		$	172,764		Total revenue, as adjusted	$	165,262		$	127,817
Efficiency ratio	Efficiency ratio	53.24		%	54.95		%	Efficiency ratio	54.01		%	52.85		%

Income Tax Expense

The effective tax rate in the first ~~nine~~six months of ~~2021~~2022 was ~~25.9%~~24.4% compared to ~~23.5%~~25.7% 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~~$2.18 billion from December 31, ~~2020,~~2021, to ~~$8.17~~$10.37 billion at ~~September~~June 30, ~~2021.~~2022. Total loans, net of deferred fees, were ~~$5.88~~$7.41 billion, ~~a decrease~~an increase of ~~$140.4 million~~$1.43 billion, or 2%24% from ~~$6.02~~$5.98 billion at December 31, ~~2020.~~2021. Total deposits were ~~$6.93~~$8.50 billion, an increase of ~~$475.1 million,~~$1.54 billion, or 7%22%, from December 31, ~~2020,~~2021, while total borrowings increased ~~$11.2~~$340.7 million to ~~$324.0~~$651.2 million at ~~September~~June 30, ~~2021.~~2022.

With the completion of the 1st Constitution merger in January 2022, the Company recorded the assets acquired and the liabilities assumed in the acquisition at their estimated fair values as of the acquisition date. Total assets, total loans and total deposits acquired were $1.97 billion, $1.10 billion and $1.65 billion, respectively.

Loans

~~Emergency economic relief to individuals and businesses impacted by~~Lakeland primarily serves New Jersey, the ~~COVID-19 pandemic was provided by the form of the CARES Act, which was signed into law on March 27, 2020,~~Hudson Valley region in New York and the ~~CAA, which was signed into law~~surrounding areas. Its equipment finance division serves a broader market with a primary focus 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.

Northeast United States. Total loans, net of deferred fees, totaled ~~$5.88~~$7.41 billion at ~~September~~June 30, ~~2021 and decreased $140.4 million~~2022, an increase of $1.43 billion as compared to December 31, ~~2020. Commercial, industrial~~2021 and ~~other~~included $1.10 billion of loans ~~decreased $244.9~~acquired from 1st Constitution. Excluding the impact of the 1st Constitution acquisition, loans increased $337.1 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.or 6%. For more information on the loan portfolio, see Note 45 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

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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")~~non-accrual PCD loans, ~~decreased~~increased $5.2 million from ~~$42.8~~$17.0 million at December 31, ~~2020~~2021 to ~~$12.2~~$22.2 million at ~~September~~June 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 owner2022. Owner occupied commercial non-accrual loans ~~secured~~increased $9.8 million due to one loan, while residential non-accrual loans increased by ~~real estate~~$1.4 million. Other non-accrual loan categories decreased ~~$11.8~~by a total of $6.6 million ~~and $9.6 million, respectively.~~as the Company exited three larger loan relationships. The percentage of non-performing assets to total assets was ~~0.15%~~0.21% at ~~September~~June 30, ~~2021~~2022 compared to ~~0.56%~~0.21% at December 31, ~~2020.~~2021. Non-accrual loans at ~~September~~June 30, ~~2021~~2022 included ~~two~~three loan relationships with a balance of $1 million or greater, totaling ~~$8.0~~$15.9 million and two loan relationships between $500,000 and $1.0 million, totaling ~~$1.1~~$1.8 million. At ~~September~~June 30, ~~2021,~~2022, there were no loans that were past due more than 89 days and still accruing and at December 31, ~~2020,~~2021, 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 orOn June 30, 2022 and 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~~$3.2 million and $3.3 million, respectively, in loans that were TDRs and accruing interest ~~income compared to $3.9 million at December 31, 2020.~~income. These loans are expected to be able to perform under the modified terms of the loan. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$241,000~~$928,000 and ~~$1.1 million,~~$127,000, 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~~June 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~~2022 and December 31, ~~2020,~~2021, the Company had ~~$115.2~~$93.4 million and ~~$139.4~~$102.3 million, respectively, of loans that were rated substandard that were not classified as non-performing. There were no loans at ~~September~~June 30, ~~2021,~~2022, 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~~ accounts for the allowance for credit losses using Accounting Standards Update ("ASU") 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU ~~2016-13,~~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~~$68.8 million at ~~September~~June 30, ~~2021 decreased $13.2~~2022 increased $10.8 million from December 31, ~~2020, a decrease~~2021, an increase 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~~day one PCD 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~~$12.1 million for the ~~periods presented, the historical relationships among the allowance for credit losses~~1st Constitution acquisition offset by charge-offs of 1st Constitution's PCD loans of $7.6 million. The Company also recorded a provision on 1st Constitution's non-PCD loans ~~the (benefit) provision for credit losses on loans, the amount~~ of ~~loans charged-off and the amount of loan recoveries:~~$4.6 million.

(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.~~


	As of and for the Six Months Ended June 30,						As of and for the Year Ended
(dollars in thousands)	2022			2021			December 31, 2021

Allowance for credit losses on loans to total loans outstanding	0.93		%	1.01		%	0.97		%
Allowance for credit losses on loans	$	68,836		$	60,389		$	58,047
Total loans outstanding	7,408,540			5,988,832			5,976,148

Non-accrual loans to total loans outstanding	0.30		%	0.38		%	0.28		%
Non-accrual loans	$	22,161		$	22,615		$	16,981
Total loans outstanding	7,408,540			5,988,832			5,976,148

Allowance for credit losses on loans to non-accrual loans	310.62		%	267.03		%	341.83		%
Allowance for credit losses on loans	$	68,836		$	60,389		$	58,047
Non-accrual loans	22,161			22,615			16,981

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	As of and for the Six Months Ended June 30,						As of and for the Year Ended
(dollars in thousands)	2022			2021			December 31, 2021
Net charge-offs (recoveries) during the period to average loans outstanding:
Non-owner occupied commercial	—		%	0.19		%	0.10		%
Net charge-offs during the period	$	—		$	2,240		$	2,246
Average amount outstanding	2,712,198			2,383,810			2,347,575

Owner occupied commercial	(0.06)		%	0.01		%	—		%
Net (recoveries) charge-offs during the period	$	(313)		$	61		$	(20)
Average amount outstanding	1,073,824			856,349			870,727

Multifamily	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	—		$	28
Average amount outstanding	1,078,635			854,362			889,456

Non owner occupied residential	(0.01)		%	0.20		%	0.03		%
Net (recoveries) charge-offs during the period	$	(14)		$	199		$	58
Average amount outstanding	212,046			195,012			188,166

Commercial, industrial and other	0.32		%	0.06		%	(0.08)		%
Net charge-offs during the period	$	1,050		$	226		$	(487)
Average amount outstanding	661,502			702,664			593,979

Construction	3.36		%	(0.04)		%	(0.01)		%
Net charge-offs (recoveries) during the period	$	6,804		$	(67)		$	(21)
Average amount outstanding	404,977			299,711			312,107

Equipment finance	0.07		%	0.15		%	0.24		%
Net charge-offs during the period	$	42		$	87		$	285
Average amount outstanding	125,730			119,152			120,252

Residential mortgage	(0.02)		%	(0.07)		%	(0.02)		%
Net recoveries during the period	$	(48)		$	(140)		$	(64)
Average amount outstanding	557,759			385,622			398,141

Consumer	(0.01)		%	—		%	0.05		%
Net (recoveries) charge-offs during the period	$	(20)		$	7		$	137
Net (recoveries) charge-offs during the period	295,708			287,349			281,896

Total loans	0.21		%	0.09		%	0.04		%
Net charge-offs during the period	$	7,501		$	2,613		$	2,162
Average amount outstanding	7,122,379			6,084,031			6,002,299

Non-accrual loans of ~~$12.2~~$22.2 million at ~~September~~June 30, ~~2021 decreased $30.5~~2022 increased $5.2 million from December 31, ~~2020.~~2021. The allowance for credit losses as a percent of total loans was ~~0.99%~~0.93% at ~~September~~June 30, ~~2021~~2022 compared to ~~1.18%~~0.97% at December 31, ~~2020.~~2021. 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~~an 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~~June 30, 2022.

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Net recoveries as a percentage of average loans outstanding was 0.01% in the second quarter of 2022 compared to net charge-offs as a percentage of average loans outstanding of 0.10% for the second quarter of 2021. Net charge-offs as a percentage of average loans outstanding was 0.21% and 0.09% for the six months ended June 30, 2022 and 2021, respectively, with the change predominately related to 1st Constitution PCD loans charged off in the first quarter of 2022.

Investment Securities

Investment securities ~~totaled $1.22~~increased $486.1 million in the six months ended June 30, 2022, including $342.3 million acquired from 1st Constitution, to $2.08 billion at ~~September~~June 30, ~~2021, increasing $276.4 million~~2022 compared to ~~$946.5 million~~$1.59 billion at December 31, ~~2020. During the third quarter of~~ 2021, as 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.deployed excess cash. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 34 in Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Deposits

Total deposits increased from ~~$6.46~~$6.97 billion at December 31, ~~2020~~2021 to ~~$6.93~~$8.50 billion at ~~September~~June 30, ~~2021,~~2022, an increase of ~~$475.1~~$1.54 billion, or 22%, including $1.65 billion assumed in the 1st Constitution merger. Excluding the impact of the 1st Constitution acquisition, deposits decreased $114.6 million or 7%2%. Savings and interest-bearing transaction accounts increased ~~$534.1~~$933.1 million due primarily to an increase in ~~money market and~~ interest bearing checking and savings accounts resulting primarily 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.~~addition of 1st Constitution deposits. Noninterest-bearing deposits increased ~~$214.4~~$598.1 million, including $510.9 million from 1st Constitution, during the ~~first nine~~six months ~~of 2021 due primarily~~ended June 30, 2022 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.$2.33 billion.

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 ~~$70.4~~$67.3 million for the first ~~nine~~six months of ~~2021~~2022 compared to ~~$61.7~~$46.1 million for the same period in ~~2020.~~2021.

•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In the first ~~nine~~six months of ~~2021,~~2022, Lakeland’s deposits increased ~~$475.1 million compared to an increase~~$1.54 billion, including the impact of ~~$972.7 million during~~ the ~~first nine months of 2020.~~1st Constitution acquisition.

•Sales of investment securities. At ~~September~~June 30, ~~2021~~2022 the Company had ~~$529.4 million~~$1.14 billion in securities designated “available for sale.” Of these securities, ~~$312.0~~$607.3 million were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

•~~Repayments~~Principal 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$330.0 million of overnight borrowings from the FHLB on ~~September~~June 30, ~~2021.~~2022. Lakeland also has overnight federal funds lines available for it to borrow up to ~~$215.0~~$250.0 million, of which none were outstanding at ~~September~~June 30, ~~2021.~~2022. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the ~~market~~fair value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of ~~September~~June 30, ~~2021.~~2022.

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

~~Table of Contents~~

Management and the Board monitor the Company’s liquidity through the Asset/Liability Committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines. Management is closely monitoring changes in liquidity needs, including those that may result from the COVID-19 pandemic. The Company has increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While we are unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.

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~~six months ended ~~September~~June 30, ~~2021~~2022 follows.

Table of Contents

Cash and cash equivalents totaling ~~$662.6~~$245.5 million on ~~September~~June 30, ~~2021~~2022 increased ~~$392.5~~$16.9 million from December 31, ~~2020.~~2021. Operating activities provided ~~$70.4~~$67.3 million in net cash. Investing activities used ~~$141.9~~$242.5 million in net cash, primarily ~~reflecting an increase~~due to securities purchases of $370.4 million and loan funding of $329.0 million, partially offset by net cash acquired in ~~investment securities.~~the 1st Constitution acquisition of $326.2 million. Financing activities provided ~~$464.1~~$192.1 million in net cash primarily ~~reflecting the net~~due to an increase ~~in deposits~~ of ~~$475.2~~$325.8 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.~~repurchase, partially offset by a net decrease in deposits of $114.3 million and dividends paid of $18.3 million. 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~~June 30, ~~2021.~~2022. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.


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

Minimum annual rentals on noncancellable operating leases	Minimum annual rentals on noncancellable operating leases	$	19,252	$	2,956	$	5,081	$	3,792	$	7,423	Minimum annual rentals on noncancellable operating leases	$	33,752	$	4,833	$	8,317	$	5,508	$	15,094
Benefit plan commitments	Benefit plan commitments	4,621		397		804		745		2,675		Benefit plan commitments	4,323		422		761		745		2,395
Remaining contractual maturities of time deposits	Remaining contractual maturities of time deposits	804,899		672,362		113,923		18,614		—		Remaining contractual maturities of time deposits	764,042		622,930		117,417		23,695		—
Subordinated debentures	Subordinated debentures	187,107		—		—		7,666		179,441		Subordinated debentures	194,027		—		—		—		194,027
Loan commitments	Loan commitments	1,150,456		830,717		160,884		27,342		131,513		Loan commitments	1,684,999		1,200,413		219,120		12,353		253,113
Other borrowings	Other borrowings	25,000		—		—		25,000		—		Other borrowings	25,000		—		—		25,000		—
Interest on other borrowings (1)	Interest on other borrowings (1)	56,615		5,895		11,790		10,975		27,955		Interest on other borrowings (1)	59,075		6,022		11,991		11,659		29,403
Standby letters of credit	Standby letters of credit	20,156		19,711		445		—		—		Standby letters of credit	20,218		20,027		191		—		—
Total	Total	$	2,268,106	$	1,532,038	$	292,927	$	94,134	$	349,007	Total	$	2,785,436	$	1,854,647	$	357,797	$	78,960	$	494,032

(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of ~~2.78%~~2.75%.

Capital Resources

Total stockholders’ equity increased to ~~$814.1 million~~$1.09 billion on ~~September~~June 30, ~~2021~~2022 from ~~$763.8~~$827.0 million on December 31, ~~2020,~~2021, an increase of ~~$50.3~~$263.1 million. Book value per common share increased to ~~$16.09~~$16.82 on ~~September~~June 30, ~~2021~~2022 from ~~$15.13~~$16.34 on December 31, ~~2020.~~2021. Tangible book value per share ~~increased~~decreased from ~~$11.97~~$13.21 per share on December 31, ~~2020~~2021 to ~~$12.95~~$12.47 per share on ~~September~~June 30, ~~2021,~~2022, a decrease of 6%, resulting primarily from an increase in goodwill and the number of ~~8%.~~shares outstanding from the 1st Constitution merger. Please see “Non-GAAP Financial Measures” below. ~~The~~In addition to the equity acquired in the 1st Constitution merger of $285.7 million, the increase in stockholders’ equity from December 31, ~~2020~~2021 to ~~September~~June 30, ~~2021~~2022 was ~~primarily~~ due in part to ~~$72.9~~$45.0 million of net income, ~~partially~~ offset by an other comprehensive loss of ~~$4.9~~$50.9 million and by the payment of cash dividends on common stock of ~~$20.2~~$18.3 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~~June 30, ~~2021,~~2022, the Company and Lakeland met all capital adequacy requirements to which they are subject.

As of ~~September~~June 30, ~~2021,~~2022, 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:


	Tier 1 Capital to Total Average Assets Ratio				Common Equity Tier 1 to Risk-Weighted Assets Ratio				Tier 1 Capital to Risk- Weighted Assets Ratio				Total Capital to Risk- Weighted Assets Ratio
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
The Company	9.05	%	8.51	%	10.57	%	10.67	%	11.12	%	11.15	%	13.74	%	14.48	%
Lakeland Bank	10.03	%	9.70	%	12.31	%	12.71	%	12.31	%	12.71	%	13.16	%	13.67	%
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%

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

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) was signed into law during the second quarter of 2018. The Act, among other matters, amends the Federal Deposit Insurance Act to require federal banking agencies to develop a specified Community Bank Leverage Ratio (the ratio of a bank's equity capital to its average total consolidated assets) for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be deemed to comply with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from the Basel Calculation. Under the final rule, banks with less than $10 billion in assets may elect the community bank leverage ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance sheet exposures, and 5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above 8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the generally applicable capital rule. The Company and Lakeland Bank elected not to use the Community Bank Leverage Ratio framework.

Non-GAAP Financial Measures

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

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

~~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, 2021			December 31, 2020
(dollars in thousands, except share and per share amounts)								(dollars in thousands, except share and per share amounts)	June 30, 2022			December 31, 2021
Calculation of Tangible Book Value per Common Share	Calculation of Tangible Book Value per Common Share							Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP	Total common stockholders’ equity at end of period - GAAP	$	814,128		$	763,784		Total common stockholders’ equity at end of period - GAAP	$	1,090,145		$	827,014
Less:	Less:							Less:
Goodwill	Goodwill	156,277			156,277			Goodwill	271,829			156,277
Other identifiable intangible assets, net	Other identifiable intangible assets, net	2,631			3,288			Other identifiable intangible assets, net	10,250			2,420
Total tangible common stockholders’ equity at end of period - Non-GAAP	Total tangible common stockholders’ equity at end of period - Non-GAAP	$	655,220		$	604,219		Total tangible common stockholders’ equity at end of period - Non-GAAP	$	808,066		$	668,317
Shares outstanding at end of period	Shares outstanding at end of period	50,602			50,480			Shares outstanding at end of period	64,794			50,606
Book value per share - GAAP	Book value per share - GAAP	$	16.09		$	15.13		Book value per share - GAAP	$	16.82		$	16.34��
Tangible book value per share - Non-GAAP	Tangible book value per share - Non-GAAP	$	12.95		$	11.97		Tangible book value per share - Non-GAAP	$	12.47		$	13.21
Calculation of Tangible Common Equity to Tangible Assets	Calculation of Tangible Common Equity to Tangible Assets							Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP	Total tangible common stockholders’ equity at end of period - Non-GAAP	$	655,220		$	604,219		Total tangible common stockholders’ equity at end of period - Non-GAAP	$	808,066		$	668,317

Total assets at end of period	Total assets at end of period	$	8,172,479		$	7,664,297		Total assets at end of period	$	10,374,178		$	8,198,056
Less:	Less:							Less:
Goodwill	Goodwill	156,277			156,277			Goodwill	271,829			156,277
Other identifiable intangible assets, net	Other identifiable intangible assets, net	2,631			3,288			Other identifiable intangible assets, net	10,250			2,420
Total tangible assets at end of period - Non-GAAP	Total tangible assets at end of period - Non-GAAP	$	8,013,571		$	7,504,732		Total tangible assets at end of period - Non-GAAP	$	10,092,099		$	8,039,359
Common equity to assets - GAAP	Common equity to assets - GAAP	9.96		%	9.97		%	Common equity to assets - GAAP	10.51		%	10.09		%
Tangible common equity to tangible assets - Non-GAAP	Tangible common equity to tangible assets - Non-GAAP	8.18		%	8.05		%	Tangible common equity to tangible assets - Non-GAAP	8.01		%	8.31		%


		For the Three Months Ended September 30,						For the Nine Months Ended September 30,							For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2021			2020			2021			2020			(dollars in thousands)	2022			2021			2022			2021
Calculation of Return on Average Tangible Common Equity	Calculation of Return on Average Tangible Common Equity													Calculation of Return on Average Tangible Common Equity
Net income - GAAP	Net income - GAAP	$	22,289		$	14,427		$	72,871		$	38,670		Net income - GAAP	$	29,117		$	27,407		$	45,046		$	50,582
Total average common stockholders’ equity	Total average common stockholders’ equity	$	807,956		$	751,099		$	786,642		$	743,318		Total average common stockholders’ equity	$	1,090,613		$	781,299		$	1,093,249		$	775,808
Less:	Less:													Less:
Average goodwill	Average goodwill	156,277			156,277			156,277			156,277			Average goodwill	271,829			156,277			268,637			156,277
Average other identifiable intangible assets, net	Average other identifiable intangible assets, net	2,758			3,689			2,975			3,944			Average other identifiable intangible assets, net	10,569			2,979			10,709			3,085
Total average tangible common stockholders’ equity - Non-GAAP	Total average tangible common stockholders’ equity - Non-GAAP	$	648,921		$	591,133		$	627,390		$	583,097		Total average tangible common stockholders’ equity - Non-GAAP	$	808,215		$	622,043		$	813,903		$	616,446
Return on average common stockholders’ equity - GAAP	Return on average common stockholders’ equity - GAAP	10.94		%	7.64		%	12.39		%	6.95		%	Return on average common stockholders’ equity - GAAP	10.71		%	14.07		%	8.31		%	13.15		%
Return on average tangible common stockholders’ equity - Non-GAAP	Return on average tangible common stockholders’ equity - Non-GAAP	13.63		%	9.71		%	15.53		%	8.86		%	Return on average tangible common stockholders’ equity - Non-GAAP	14.45		%	17.67		%	11.16		%	16.55		%

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Recent Accounting Pronouncements

In ~~March 2020,~~June 2022, the Financial Accounting Standards Board ("FASB") issued Update 2022-03, "Fair Value Measurement (Topic 820)" ("ASU 2022-03"). The guidance clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibits the sale of an equity security, amends a related illustrative example, and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect ASU 2022-03 to have a material impact on the Company's financial statements.

In March 2022, FASB issued Update 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures" ("ASU 2022-02"). The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company is currently assessing the impact of ASU 2022-02 on its disclosures and control structure; however, the Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In October 2021, FASB issued Update 2021-08, an update to Topic 805, Business Combinations. The update provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this ASU apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations - Overall. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2022. The Company does not expect the ASU to have a material impact on the Company's financial statements.

In March 2020, FASB issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be material.

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

In December 2019, FASB issued Update 2019-12, an update to Topic 740, Income Taxes, as part of an initiative to reduce complexity in accounting standards for income taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update ~~will be~~is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The ~~Company does~~update did not ~~expect the update to~~ have a material impact on the Company's financial statements.

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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 ~~$212.7~~$316.5 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 %

~~Table of Contents~~


	Changes in Interest Rates
Rate Ramp	+200 bp
Asset/Liability Policy limit	(5.0)	%
June 30, 2022	(1.0)	%
December 31, 2021	(0.9)	%

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	+400bp		+300 bp		+200 bp		+100 bp
Asset/Liability policy limit	Asset/Liability policy limit	(15.0)	%	(10.0)	%	(5.0)	%	(5.0)	%	Asset/Liability policy limit	(25.0)	%	(20.0)	%	(15.0)	%	(10.0)	%
September 30, 2021		5.7	%	3.8	%	1.9	%	—	%
December 31, 2020		0.5	%	0.4	%	0.6	%	1.5	%
June 30, 2022										June 30, 2022	(3.1)	%	(2.3)	%	(1.6)	%	(0.6)	%
December 31, 2021										December 31, 2021	(1.2)	%	(0.9)	%	(0.7)	%	(0.5)	%

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~~June 30, ~~2021~~2022 (the base case) was ~~$1.24~~$2.10 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	+400bp		+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	(35.0)	%	(25.0)	%	(20.0)	%	(10.0)	%	(10.0)	%
September 30, 2021		(2.2)	%	(0.7)	%	0.9	%	(9.8)	%
December 31, 2020		0.3	%	1.5	%	2.8	%	(10.1)	%
June 30, 2022										June 30, 2022	(11.4)	%	(8.4)	%	(5.3)	%	(2.2)	%	0.1	%
December 31, 2021										December 31, 2021	(14.8)	%	(10.9)	%	(7.0)	%	(2.7)	%	(7.0)	%

The information set forth in the above tables and the net interest income estimate set forth above are based on significant estimates and assumptions, and constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. For more information regarding the Company’s market risk and assumptions used in the Company’s simulation models, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Table of Contents

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

Item 4. Controls and Procedures

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

(b)Changes in internal controls over financial reporting. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table of Contents~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.

Item 1A. Risk Factors

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


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

The following table presents information regarding shares of our common stock repurchased during the ~~third~~second quarter of ~~2021.~~2022.


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





April 1 to April 30, 2022	—	$	—	—	2,393,423
May 1 to May 31, 2022	—	—		—	2,393,423
June 1 to June 30, 2022	—	—		—	2,393,423



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

(1)On October 24, 2019, the Company announced that its Board of Directors authorized a new share repurchase program. Under the repurchase program, the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. The share repurchase program has no expiration date.


Item 3. Defaults Upon Senior Securities			Not Applicable


Item 4. Mine Safety Disclosures			Not Applicable


Item 5. Other Information			Not applicable

5455

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)
3.1			Lakeland Bancorp, Inc. Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018)
3.2			Lakeland Bancorp, Inc. Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K, filed with the SEC on April 9, 2020)
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)

5556

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 8, 2021~~August 5, 2022

5657


(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


(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


	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	$	—


	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