DEBT

Lines of Credit

As a member of the Federal Home Loan Bank of New York (FHLB), Lakeland has the ability to borrow overnight based on the market value of collateral pledged. As of December 31, 2017 and 2016, there were no overnight borrowings from the FHLB. As of December 31, 2017, Lakeland also had overnight federal funds lines available for it to borrow up to $210.0 million. Lakeland borrowed $80.0 million and $32.0 million against these lines as of December 31, 2017 and 2016, respectively. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of December 31, 2017 or 2016.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Short-term borrowings at December 31, 2017 and 2016 consisted of short-term securities sold under agreements to repurchase and federal funds purchased. Securities underlying the agreements were under Lakeland’s control. The following tables summarize information relating to securities sold under agreements to repurchase and federal funds purchased for the years presented. For purposes of the tables, the average amount outstanding was calculated based on a daily average.



Federal Funds Purchased	2017			2016			2015
	(dollars in thousands)
Balance at December 31	$	80,000		$	32,000		$	115,000
Interest rate at December 31	1.71		%	0.85		%	0.65		%
Maximum amount outstanding at any month-end during the year	$	168,784		$	133,434		$	130,000
Average amount outstanding during the year	$	13,264		$	8,708		$	22,734
Weighted average interest rate during the year	1.42		%	0.71		%	0.45		%



Securities Sold Under Agreements to Repurchase	2017			2016			2015
	(dollars in thousands)
Balance at December 31	$	44,936		$	24,354		$	36,234
Interest rate at December 31	0.02		%	0.02		%	0.02		%
Maximum amount outstanding at any month-end during the year	$	44,936		$	32,872		$	40,140
Average amount outstanding during the year	$	28,480		$	27,535		$	31,293
Weighted average interest rate during the year	0.03		%	0.03		%	0.03		%

Other Borrowings

FHLB Debt

At December 31, 2017, advances from the FHLB totaling $172.0 million, with a weighted average interest rate of 1.69%, will mature within 4 years. These advances are collateralized by certain securities and first mortgage loans.

At December 31, 2016, advances from the FHLB totaling $220.9 million, with a weighted average interest rate of 1.81%, will mature within 4 years. These advances are collateralized by certain securities and first mortgage loans.

FHLB debt matures as follows (in thousands):



2018	$	50,896
2019	40,263
2020	50,881
2021	29,971
	$	172,011

In the first quarter of 2017, the Company repaid an aggregate of $34.0 million in advances from the FHLB and recorded $638,000 in long-term debt prepayment fees.

Long-term Securities Sold Under Agreements to Repurchase

At December 31, 2017, Lakeland had $20.0 million in long-term securities sold under agreements to repurchase compared to $40.0 million at December 31, 2016. These borrowings are collateralized by certain securities. The borrowings had a weighted average interest rate of 2.25% and 3.26% on December 31, 2017 and December 31, 2016, respectively. The remaining $20.0 million matures in 2018. In the first quarter of 2017, the Company repaid an aggregate of $20.0 million in long-term securities sold under agreements to repurchase and recorded $2.2 million in long-term debt prepayment fees.

The above FHLB debt and long-term securities sold under agreements to repurchase are collateralized by certain securities. At times the market value of securities collateralizing our borrowings may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional securities to meet that margin call. As of December 31, 2017, the Company had $73.7 million in mortgage-backed securities pledged for its short-term and long-term securities sold under agreements to repurchase.

Subordinated Debentures

On September 30, 2016, the Company completed an offering of $75.0 million of fixed to floating rate subordinated notes due September 30, 2026. The notes will bear interest at a rate of 5.125% per annum until September 30, 2021 and will then reset quarterly to the then current three-month LIBOR plus 397 basis points until maturity in September 30, 2026, or their earlier redemption. The debt is included in Tier 2 capital for the Company. Debt issuance costs totaled $1.5 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheet.

In May 2007, the Company issued $20.6 million of junior subordinated debentures due August 31, 2037 to Lakeland Bancorp Capital Trust IV, a Delaware business trust. The distribution rate on these securities was 6.61% for 5 years and floats at LIBOR plus 152 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after August 1, 2012, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2037. On August 3, 2015, the Company acquired and extinguished $10.0 million of Lakeland Bancorp Capital Trust IV debentures and recorded a $1.8 million gain on the extinguishment of debt.

In June 2003, the Company issued $20.6 million of junior subordinated debentures due June 30, 2033 to Lakeland Bancorp Capital Trust II, a Delaware business trust. The distribution rate on these securities was 5.71% for 5 years and floats at LIBOR plus 310 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after June 30, 2008, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2033.

In June 2016, the Company entered into two cash flow swaps totaling $30.0 million in order to hedge the variable cash outflows associated with the junior subordinated debentures issued to Lakeland Capital Trust II and Lakeland Capital Trust IV. For more information please see Note 18 – Derivatives.