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 | | SeptemberJune 30, 20212022 |
| 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 50,606,36564,801,537 outstanding shares of Common Stock, no par value.
LAKELAND BANCORP, INC.
Form 10-Q Index
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.
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.
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.
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the Three Months Ended SeptemberJune 30, 20212022 and 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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.
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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.
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) | |
|
| 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.
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 ninesix months ended SeptemberJune 30, 20212022 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.
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.
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.
| | | | | | | | | | | | | | | | | |
(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 ninesix months ended SeptemberJune 30, 20212022 and 2020.
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 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 ninesix months ended SeptemberJune 30, 2021 and the three months ended September 30, 2020,2022, there were no sales of available for sale securities. There were proceeds from salesDuring 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
0
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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.
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. For the three and ninesix months ended SeptemberJune 30, 2021,2022, the Company recorded no sales of equity securities and recorded sales ofor 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 thirdsecond quarter of 20212022 and 2020, respectively.fair value gains of $11,000 for the second quarter of 2021. For the ninesix months ended SeptemberJune 30, 20212022 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 SeptemberJune 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 SeptemberJune 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 $12.9included $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 SeptemberJune 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.
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 recognizedrecorded 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 SeptemberJune 30, 20212022 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 $7.7totaled $3.2 million at SeptemberJune 30, 20212022 and $10.0$5.8 million at December 31, 2020.2021.
At SeptemberJune 30, 20212022 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. At SeptemberJune 30, 20212022 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 ninethree months ended SeptemberJune 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 thethese loan transfers, there were no other sales of loans from the held for investment portfolio during the ninesix months ended SeptemberJune 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.
Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date.
Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.
Doubtful: "Doubtful" assets that exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.
Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.
The following table presents the risk category of loans by class of loan and vintage as of SeptemberJune 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 | |
| |
| | | 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 | |
|
| | | | 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-accrualNon-Accrual LoansLoans 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 SeptemberJune 30, 20212022 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 SeptemberJune 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
| | | | | |
(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.
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 SeptemberJune 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 SeptemberJune 30, 20212022 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 SeptemberJune 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 $116,000were no loans that waswere restructured during the three and ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 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 ofmeasures 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, 20202021 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 SeptemberJune 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 ninesix months ended SeptemberJune 30, 2021, was largely due to an improvement in economic conditions utilizedmacroeconomic 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.
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 ninesix months ended SeptemberJune 30, 20212022 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 SeptemberJune 30, 20212022 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 | |
Allowance for Credit Losses - Securities
At SeptemberJune 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 SeptemberJune 30, 20212022 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 SeptemberJune 30, 20212022 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 ninesecond quarter of 2021. For the six months ended SeptemberJune 30, 2021, respectively. In the third quarter of 2020,2022, the Company recorded noa provision for unfunded lending commitmentscredit 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 commitmentssame 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 SeptemberJune 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 ninesix months ended SeptemberJune 30, 2021,2022, the weighted average remaining lease term for operating leases was 9.5411.91 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 9.699.16 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.41%.
As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Lease costs were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 ninesix months ended SeptemberJune 30, 20212022 or SeptemberJune 30, 2020.2021. At SeptemberJune 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 SeptemberJune 30, 20212022 are as follows:
| | | | | | | | |
(in thousands) | | |
Within one year | | $ | 2,9564,833 | |
After one year but within three years | | 5,0818,317 | |
After three years but within five years | | 3,7925,508 | |
After five years | | 7,42315,094 | |
Total undiscounted cash flows | | 19,25233,752 | |
Discount on cash flows | | (3,147)(6,113) | |
Total operating lease liabilityliabilities | | $ | 16,10527,639 | |
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 SeptemberJune 30, 2022 and December 31, 2021, certificates of deposit totaling $139.3 million were obtained through brokers while $236.7totaled $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.
Note 89 – Borrowings
Overnight and Short-Term Borrowings
At SeptemberJune 30, 2021,2022, the Company had no$330.0 million overnight and short-term borrowings from the FHLB while these borrowings totaled $100.0 millionand none at December 31, 2020.2021. In addition, there wereLakeland had no overnight and short-term borrowings from correspondent banks at either SeptemberJune 30, 2021 or2022 and December 31, 2020.2021. At SeptemberJune 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 SeptemberJune 30, 20212022 or December 31, 2020.
Other short-term borrowings at SeptemberJune 30, 20212022 and December 31, 20202021 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 SeptemberJune 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 SeptemberJune 30, 20212022 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 SeptemberJanuary 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, the2006 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 Benchmarkbenchmark rate, (expectedwhich 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 ninesix months ended SeptemberJune 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 ninesix months of 2021,2022, the Company granted 16,02817,722 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 ninesix months of 2020,2021, the Company granted 13,04116,035 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.
The Company recognized share-based compensation expense on its restricted stock of $88,000 for both the second quarter of 2022 and $56,0002021, 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 ninesix months ended SeptemberJune 30, 20212022 and 2020 was $264,000 and $165,000,2021, respectively. As of SeptemberJune 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 0.240.55 years.
Restricted Stock Units
The following is a summary of the Company’s RSU activity during the ninesix months ended SeptemberJune 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 ninesix months of 2021,2022, the Company granted 375,716313,754 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 unitRSU 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 ninesix months of 2020,2021, the Company granted 175,869368,516 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 thirdsecond quarter of 20212022 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 recognizedand $2.0 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Unrecognized compensation expense related to RSUs was approximately $6.0$8.2 million as of SeptemberJune 30, 2021,2022, and that cost is expected to be recognized over a period of 1.301.56 years.
Stock Options
A summary of the activityAt 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 ninesix months of 20212022 or 2020. The2021. There were no stock options exercised during the second quarter of 2022 and the 2,764 stock options exercised during the first ninesix 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.
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.
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.
The following table sets forth the components of noninterest income for the three and ninesix months ended SeptemberJune 30, 20212022 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 | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 20212022 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 arewas 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
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) | |
|
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 ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
The Company had core deposit intangibles of $2.6$10.2 million and $3.3$2.4 million at SeptemberJune 30, 20212022 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 thirdsecond quarters of 20212022 and 2020,2021, respectively, and $658,000$1.2 million and $776,000$447,000 for the first ninesix months ofended June 30, 2022 and 2021, and 2020, respectively. The estimated future amortization expense for the remainder of 20212022 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 | |
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).
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 ninesix months ended SeptemberJune 30, 20212022 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 | |
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 SeptemberJune 30, 20212022 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 impairedindividually 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 SeptemberJune 30, 20212022 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.
For fixed maturity certificates of deposit, fair value is estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of commitments to extend credit and standby letters of credit are deemed immaterial.
The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of SeptemberJune 30, 20212022 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 | | |
|
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 supplementedupdated by Exhibit 99.1 to the Company's Current Reportsubsequent Quarterly Reports on Form 8-K filed10-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.
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.
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 levelacquisition 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 whichand 1st Constitution’s wholly-owned subsidiary, 1st Constitution Bancorp (parent companyBank, 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 intoplease see Note 2 of the Company and 1st Constitution Bank will merge with and into Lakeland Bank. We are looking forwardNotes 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 footprintConsolidated Financial Statements in New Jersey this acquisition provides. The merger integration meetings are progressing and we remainQuarterly 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 thirdsecond 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 thirdsecond quarter of 2020.2021. For the thirdsecond 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 thirdsecond quarter of 2020.2021.
For the ninesix months ended SeptemberJune 30, 20212022, 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 ninesix months ended SeptemberJune 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 ninesix months of 2020.2021. For the first ninesix 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.
The thirdsecond quarter and year-to-date 20212022 results were favorablynegatively impacted by benefitsprovision for credit losses of $2.7$3.6 million and $11.3$9.9 million, respectively, compared to provisionsa 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 thirdsecond quarter of 20212022 of 3.10%3.38% increased 14 basis points compared to the third quarter of 2020 and decreased 1711 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 ninesix months of 2021ended 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 thirdsecond quarter 2020 and year-to-date 2020of 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 toin the linked quarteryear-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 millionincreased $1.43 billion to $5.88$7.41 billion during the first ninesix 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 ninesix months of 2021,2022, to $6.93 billion.$8.50 billion and includes deposits of $1.65 billion acquired from 1st Constitution.
Comparison of Operating Results for the Three Months Ended SeptemberJune 30, 20212022 and 20202021
Net Income
Net income was $22.3$29.1 million or $0.43$0.44 per diluted share, for the thirdsecond quarter of 20212022 compared to net income of $14.4$27.4 million or $0.28$0.53 per diluted share, for the thirdsecond quarter of 2020.2021. The increase in net income compared to the thirdsecond quarter of 20202021 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 benefitprovision for credit losses and an increaseof $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 thirdsecond quarter of 20212022 was $59.5$80.7 million, compared to $52.2$59.9 million for the thirdsecond 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 thirdsecond quarter of 20202021 was due primarily to a reduction ingrowth 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 thirdsecond 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.
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 SeptemberJune 30, 20212022 and SeptemberJune 30, 20202021 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.
Interest income on a tax equivalent basis increased $3.6$21.9 million from $61.5to $87.3 million in the thirdsecond quarter of 2020 to $65.12022 from $65.4 million in the thirdsecond 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 thirdsecond quarter of 2020 while2021, due to the acquisition of 1st Constitution. The yield earned on average loans increased nineby 23 basis points to 4.00%4.22% in the thirdsecond quarter of 2022 from the second quarter of 2021 fromdue 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 thirdsecond quarter of 20212022 from the thirdsecond 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 41increased nine basis points from the thirdsecond quarter of 20202021 to 1.68%1.81% for the thirdsecond 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 ratesconditions during the period.period and an increase in bond anticipation note purchases at lower rates. Average federal funds sold in the thirdsecond quarter of 2021 increased $161.42022 decreased $25.4 million compared to the thirdsecond quarter of 2020,2021, while the yield increased two44 basis points to 0.12%0.55% for the thirdsecond quarter of 2021.2022 as short-term market rates have risen in 2022.
Total interest expense of $5.6$6.6 million in the thirdsecond quarter of 2021 was $3.72022 increased by $1.1 million less thanfrom 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 thirdsecond quarter of 2021 and wasto 0.40% in the second quarter of 2022, largely driven by reductionsthe reduction in market interest ratesthe cost of long-term borrowings on the Company's subordinated notes and a change in mixlower 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 thirdsecond quarter of 2021,2022, a $2.7$3.6 million benefitprovision for credit losses was recorded, compared to an $8.0a $6.0 million provisionbenefit for credit losses for the same period last year. The benefitprovision is comprised of a benefitprovision 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 benefitincrease 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 improvementincreased 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 thirdsecond quarter of 20212022 compared to loan charge-offs of $682,000$1.9 million and loan recoveries of $85,000$312,000 in the thirdsecond quarter of 2020.2021. For more information, regardingsee 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 $1.3increased $1.8 million to $5.5$7.1 million for the thirdsecond quarter of 20212022 compared to $6.8$5.3 million during the same period in 20202021. Commissions and fees increased $800,000 from the second quarter of 2021 due primarily to a reductionincreases in swapwire transfer charges and financial services income. Other income and gains on sales of loans. There was no swap income duringincreased $500,000 from the thirdsecond quarter of 2021 compared to income of $624,000 during the thirdsecond quarter of 20202022 due primarily to changes to the yield curve which makes new swap agreements less attractive. Gainsreductions in write-downs on sales ofpremises 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 forincreased $266,000 compared to the thirdsecond quarter of 2021 increased $248,000 compared to the third quarter of 2020 due primarily to changesincreases in customer behavior related to the pandemic. Additionally, lossesdebit card interchange income. Losses on equity securities totaled $58,000 for$364,000 in the third quarter of 2021three months ended June 30, 2022 compared to lossesgains 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.
Noninterest Expense
Noninterest expense in the thirdsecond quarter of 20212022 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 benefitbenefits 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 forof $7.7 million in the thirdsecond quarter of 2022 and $6.1 million in the second quarter of 2021, increased $2.4an increase of $1.6 million or 13%, when compareddue primarily to increases in occupancy expense related to the same quarter1st Constitution branches. Data processing expense increased $592,000 due to increases related to the expansion of 2020our franchise as a result of staff additionsthe 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 processing2021, 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 thirdsecond 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 $164,0002022 compared to the same period in 20202021 due primarily to a decrease in assessment rates resulting from an improvement in the Company's capitalincreased 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 thirdsecond 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 thirdsecond quarter of 20212022 was 26.5%24.7% compared to 23.3%25.7% during the same period in 20202021 primarily as a result of tax advantaged items decliningincreasing as a percentage of pretax income due to the increase in pretax income during the current period.income.
Comparison of Operating Results for the NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
Net Income
Net income was $72.9$45.0 million, or $1.42$0.69 per diluted share, for the first ninesix months of 20212022 compared to net income of $38.7$50.6 million, or $0.76$0.98 per diluted share, for the first ninesix months of 2020.2021. Net income increaseddecreased primarily as a result of the $11.3increases of $27.0 million benefitin noninterest expense and $18.5 million in provision for credit losses, recordedpartially 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 Incomenet interest income.
Net interest income on a tax equivalent basis for the first ninesix months of 20212022 was $176.3$151.4 million, compared to $152.8$116.8 million for the first ninesix 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 ninesix months of 2021 compared to 3.09%2022 decreased from 3.23% for the same period in 2020. The increase in net interest margin resulted2021, primarily fromdue 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.
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 ninesix months ended SeptemberJune 30, 20212022 and SeptemberJune 30, 20202021 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.
Interest income onOn a tax equivalent basis, interest income increased $34.7 million, or 27%, from $186.3$129.0 million in the first ninesix months of 20202021 to $194.1$163.7 million in the first ninesix 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 declinedecrease in the yieldrate earned on interest-earning assets.investment securities. Average loans increased $517.8 million$1.04 billion compared to the first ninesix months of 2020, while2021, due to the acquisition of 1st Constitution. The yield on average loans at 3.97%of 4.05% in the first ninesix months of 20212022 was 1610 basis points lowerhigher 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 ninesix months of 20212022 compared to the same period in 2020, while2021 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 ninesix months of 20212022 compared to the same period in 2020,2021, while the yield on federal funds sold decreased sevenincreased 16 basis points.
Total interest expense of $17.8$12.2 million in the first ninesix months of 20212022 was $15.6 million$66,000 less than the $33.4 millioninterest 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 ninesix months of 20202021 to 0.45%0.37% in the first ninesix months of 2021.2022. The increase in the balance and reductionwas due to the acquisition of deposits from 1st Constitution. Rates paid decreased in costalmost 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 16increased 145 basis points compared to the first ninesix months of 2020.2021.
Provision for Credit Losses
In the first ninesix months of 2021, an $11.32022, a $9.9 million benefitprovision for credit losses was recorded, compared to a $26.2$8.6 million provisionbenefit 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 benefitincrease 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 loanssecurities 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 discussedrise 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 millionrecoveries totaled $672,000 in the first ninesix months of 20212022 compared to $1.3$3.1 million and $322,000,$519,000, respectively, in the first ninesix 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 ninesix months of 2021 decreased2022 increased by $3.8$2.8 million from $20.3$11.0 million in the first ninesix months of 20202021 due primarily to a $3.6 million decreaseincreases in swap income resulting from the same reason discussed in the quarterly comparison. Gainsservice charges on sales of loans decreased $697,000 driven primarily by a reduction in volumedeposit 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 ninesix months of 20202021 due to the same reasons discussedan 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 ninesix months of 2022 and 2021, compared to losses of $625,000 in the first nine months of 2020.respectively. Other income decreased $567,000increased $672,000 in 2022 due primarily to a $400,000 write-downreductions in write-downs on a branch location held for sale. Additionally, the first nine months of 2020 included gainspremises 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 ninesix months of 20212022 totaled $105.2$95.0 million, which was $9.1increasing $27.0 million greater thanfrom the $96.1$68.0 million reported for the first ninesix 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 ninesix months of 20202021 due to the same reasons discussedincreases in staff and premises from the quarterly comparison.1st Constitution acquisition. FDIC insurance expense inremained flat at $1.3 million for the first ninesix months of 2021 increased $420,000 due primarily to deposit growth2022 and assessment credits recorded in the2021. The first ninesix months of 2020. The first nine months of 20212022 included $1.1$4.6 million in merger related costs for the upcoming merger withcompleted acquisition of 1st Constitution Bancorp. Other operating expenses increased $29,000$4.5 million in the first ninesix months of 20212022 compared to the same period in 2020. Within2021. 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 ninesix 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 ninesix 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.
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 ninesix months of 20212022 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 SeptemberJune 30, 2021.2022. Total loans, net of deferred fees, were $5.88$7.41 billion, a decreasean 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 SeptemberJune 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 byLakeland 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 lawsurrounding 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 SeptemberJune 30, 2021 and decreased $140.4 million2022, an increase of $1.43 billion as compared to December 31, 2020. Commercial, industrial2021 and otherincluded $1.10 billion of loans decreased $244.9acquired 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
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
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, decreasedincreased $5.2 million from $42.8$17.0 million at December 31, 20202021 to $12.2$22.2 million at SeptemberJune 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 securedincreased $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 $11.8by 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 SeptemberJune 30, 20212022 compared to 0.56%0.21% at December 31, 2020.2021. Non-accrual loans at SeptemberJune 30, 20212022 included twothree 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 SeptemberJune 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 SeptemberJune 30, 20212022 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 SeptemberJune 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, 20212022 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 SeptemberJune 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
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 SeptemberJune 30, 2021 decreased $13.22022 increased $10.8 million from December 31, 2020, a decrease2021, 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 theday 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 losses1st 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 | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 SeptemberJune 30, 2021 decreased $30.52022 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 SeptemberJune 30, 20212022 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 froman 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 SeptemberJune 30, 2022.
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 $1.22increased $486.1 million in the six months ended June 30, 2022, including $342.3 million acquired from 1st Constitution, to $2.08 billion at SeptemberJune 30, 2021, increasing $276.4 million2022 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, 20202021 to $6.93$8.50 billion at SeptemberJune 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 ninesix months of 2021 due primarilyended 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 ninesix months of 20212022 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 ninesix 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 SeptemberJune 30, 20212022 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.
•RepaymentsPrincipal 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 SeptemberJune 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 SeptemberJune 30, 2021.2022. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the marketfair value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of SeptemberJune 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 valuesvalue 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.
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 ninesix months ended SeptemberJune 30, 20212022 follows.
Cash and cash equivalents totaling $662.6$245.5 million on SeptemberJune 30, 20212022 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 increasedue 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 netdue 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 SeptemberJune 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 SeptemberJune 30, 20212022 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 SeptemberJune 30, 20212022 from $15.13$16.34 on December 31, 2020.2021. Tangible book value per share increaseddecreased from $11.97$13.21 per share on December 31, 20202021 to $12.95$12.47 per share on SeptemberJune 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. TheIn addition to the equity acquired in the 1st Constitution merger of $285.7 million, the increase in stockholders’ equity from December 31, 20202021 to SeptemberJune 30, 20212022 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 SeptemberJune 30, 2021,2022, the Company and Lakeland met all capital adequacy requirements to which they are subject.
As of SeptemberJune 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% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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.
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 | % |
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 beis effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company doesupdate did not expect the update to have a material impact on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company manages interest rate risk and market risk by identifying and quantifying interest rate risk exposures using simulation analysis and economic value at risk models. Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.
The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net interest income estimated for this purpose for the next twelve months (the base case) is $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 | % |
| | | | | | | | | | |
| | 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 SeptemberJune 30, 20212022 (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.
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 SeptemberJune 30, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 thirdsecond 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 |
Item 6. Exhibits
| | | | | |
2.1 | |
3.1 | |
3.2 | |
4.1 | |
4.2 | |
4.3 | |
31.1 | |
31.2 | |
32.1 | |
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) |
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, 2021August 5, 2022