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Loans, Leases and Other Real Estate
3 Months Ended
Mar. 31, 2018
Receivables [Abstract]  
Loans, Leases and Other Real Estate
LOANS, LEASES AND OTHER REAL ESTATE
The following sets forth the composition of the Company’s loan and lease portfolio:
 
March 31,
2018
 
December 31,
2017
 
(in thousands)
Commercial, secured by real estate
$
2,885,997

 
$
2,831,184

Commercial, industrial and other
339,665

 
340,400

Leases
78,238

 
75,039

Real estate - residential mortgage
323,054

 
322,880

Real estate - construction
283,378

 
264,908

Home equity and consumer
317,720

 
322,269

Total loans and leases
4,228,052

 
4,156,680

Less: deferred fees
(4,083
)
 
(3,960
)
Loans and leases, net of deferred fees
$
4,223,969

 
$
4,152,720


At March 31, 2018 and December 31, 2017, home equity and consumer loans included overdraft deposit balances of $427,000 and $966,000, respectively. At March 31, 2018 and December 31, 2017, the Company had $1.1 billion and $1.1 billion, respectively, in loans pledged for actual and potential borrowings at the Federal Home Loan Bank of New York (“FHLB”).
Purchased Credit Impaired Loans
The carrying value of loans acquired in the Pascack Community Bank ("Pascack") acquisition and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $182,000 at March 31, 2018, which was $635,000 less than the balance at the time of acquisition on January 7, 2016. In first quarter 2017, one of the Pascack purchased credit impaired (“PCI”) loans totaling $127,000 experienced further credit deterioration and was fully charged off. In the second quarter of 2017, a loan with a net value of $218,000 was fully paid off. The carrying value of loans acquired in the Harmony Bank ("Harmony") acquisition was $516,000 at March 31, 2018 which was $253,000 less than the balance at acquisition date on July 1, 2016. In the second quarter of 2017, a loan with a net value of $247,000 was fully paid off.
The following table presents changes in the accretable yield for PCI loans:
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands)
Balance, beginning of period
$
129

 
$
145

Acquisitions

 

Accretion
(44
)
 
(51
)
Net reclassification non-accretable difference
28

 
86

Balance, end of period
$
113

 
$
180


Non-Performing Assets and Past Due Loans
The following schedule sets forth certain information regarding the Company’s non-performing assets and its accruing troubled debt restructurings, excluding PCI loans:
 
March 31,
2018
 
December 31,
2017
 
(in thousands)
Commercial, secured by real estate
$
4,732

 
$
5,890

Commercial, industrial and other
1,505

 
184

Leases
250

 
144

Real estate - residential mortgage
3,045

 
3,860

Real estate - construction
1,472

 
1,472

Home equity and consumer
2,341

 
2,105

Total non-accrual loans and leases
$
13,345

 
$
13,655

Other real estate and other repossessed assets
1,392

 
843

TOTAL NON-PERFORMING ASSETS
$
14,737

 
$
14,498

Troubled debt restructurings, still accruing
$
9,526

 
$
11,462


Non-accrual loans included $3.8 million and $2.7 million of troubled debt restructurings for the periods ended March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the Company had $1.6 million and $2.7 million, respectively, in residential mortgages and consumer home equity loans that were in the process of foreclosure.
An age analysis of past due loans, segregated by class of loans as of March 31, 2018 and December 31, 2017, is as follows:
 
30-59 Days Past Due
 
60-89 Days Past Due
 
Greater Than 89 Days Past Due
 
Total Past Due
 
Current
 
Total Loans and Leases
 
Recorded Investment Greater than 89 Days and Still Accruing
 
(in thousands)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
7,619

 
$
57

 
$
2,174

 
$
9,850

 
$
2,876,147

 
$
2,885,997

 
$

Commercial, industrial and other
650

 

 
232

 
882

 
338,783

 
339,665

 

Leases
167

 
808

 
250

 
1,225

 
77,013

 
78,238

 

Real estate - residential mortgage
3,221

 
162

 
2,191

 
5,574

 
317,480

 
323,054

 

Real estate - construction

 

 
1,472

 
1,472

 
281,906

 
283,378

 

Home equity and consumer
2,331

 
236

 
1,455

 
4,022

 
313,698

 
317,720

 
1

 
$
13,988

 
$
1,263

 
$
7,774

 
$
23,025

 
$
4,205,027

 
$
4,228,052

 
$
1

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
3,663

 
$
1,082

 
$
3,817

 
$
8,562

 
$
2,822,622

 
$
2,831,184

 
$

Commercial, industrial and other
80

 
121

 
56

 
257

 
340,143

 
340,400

 

Leases
496

 
139

 
144

 
779

 
74,260

 
75,039

 

Real estate - residential mortgage
939

 
908

 
3,137

 
4,984

 
317,896

 
322,880

 

Real estate - construction

 

 
1,472

 
1,472

 
263,436

 
264,908

 

Home equity and consumer
1,258

 
310

 
1,386

 
2,954

 
319,315

 
322,269

 
200

 
$
6,436

 
$
2,560

 
$
10,012

 
$
19,008

 
$
4,137,672

 
$
4,156,680

 
$
200


Impaired Loans
The Company defines impaired loans as all non-accrual loans and leases with recorded investments of $500,000 or greater. Impaired loans also include all loans that have been modified in troubled debt restructurings. Impaired loans as of March 31, 2018 and December 31, 2017 are as follows:
March 31, 2018
Recorded
Investment in
Impaired Loans
 
Contractual
Unpaid
Principal
Balance
 
Specific
Allowance
 
Average
Investment in
Impaired Loans
 
Interest
Income
Recognized
 
(in thousands)
Loans without specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
6,342

 
$
6,535

 
$

 
$
7,799

 
$
53

Commercial, industrial and other
1,871

 
2,869

 

 
584

 
5

Leases

 

 

 

 

Real estate - residential mortgage
429

 
444

 

 
947

 
4

Real estate - construction
1,471

 
1,471

 

 
1,471

 

Home equity and consumer

 

 

 

 

Loans with specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
7,424

 
7,767

 
386

 
9,035

 
98

Commercial, industrial and other
236

 
235

 
9

 
235

 
3

Leases
36

 
36

 
16

 
36

 

Real estate - residential mortgage
771

 
911

 
4

 
772

 
5

Real estate - construction

 

 

 

 

Home equity and consumer
980

 
1,005

 
8

 
975

 
9

Total:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
13,766

 
$
14,302

 
$
386

 
$
16,834

 
$
151

Commercial, industrial and other
2,107

 
3,104

 
9

 
819

 
8

Leases
36

 
36

 
16

 
36

 

Real estate - residential mortgage
1,200

 
1,355

 
4

 
1,719

 
9

Real estate - construction
1,471

 
1,471

 

 
1,471

 

Home equity and consumer
980

 
1,005

 
8

 
975

 
9

 
$
19,560

 
$
21,273

 
$
423

 
$
21,854

 
$
177

December 31, 2017
Recorded
Investment in
Impaired Loans
 
Contractual
Unpaid
Principal
Balance
 
Specific
Allowance
 
Average
Investment in
Impaired Loans
 
Interest
Income
Recognized
 
(in thousands)
Loans without specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
12,155

 
$
12,497

 

 
$
12,774

 
$
366

Commercial, industrial and other
618

 
618

 

 
618

 
25

Leases

 

 

 

 

Real estate - residential mortgage
963

 
980

 

 
996

 
15

Real estate - construction
1,471

 
1,471

 

 
1,471

 

Home equity and consumer

 

 

 
6

 

Loans with specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
5,381

 
5,721

 
454

 
5,029

 
206

Commercial, industrial and other
164

 
164

 
9

 
283

 
14

Leases
65

 
65

 
30

 
29

 

Real estate - residential mortgage
781

 
919

 
4

 
940

 
27

Real estate - construction

 

 

 

 

Home equity and consumer
993

 
1,026

 
8

 
1,090

 
52

Total:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
17,536

 
$
18,218

 
$
454

 
$
17,803

 
$
572

Commercial, industrial and other
782

 
782

 
9

 
901

 
39

Leases
65

 
65

 
30

 
29

 

Real estate - residential mortgage
1,744

 
1,899

 
4

 
1,936

 
42

Real estate - construction
1,471

 
1,471

 

 
1,471

 

Home equity and consumer
993

 
1,026

 
8

 
1,096

 
52

 
$
22,591

 
$
23,461

 
$
505

 
$
23,236

 
$
705


Interest income recognized on impaired loans was $177,000 and $151,000 for the three months ended March 31, 2018 and 2017, respectively. Interest that would have been accrued on impaired loans during the first three months of 2018 and 2017 had the loans been performing under original terms would have been $307,000 and $345,000, respectively.

Credit Quality Indicators
The class of loans is determined by internal risk rating. Management closely and continually monitors the quality of its loans and leases and assesses the quantitative and qualitative risks arising from the credit quality of its loans and leases. Lakeland assigns a credit risk rating to all commercial loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within Lakeland’s commercial loan portfolios. The risk rating system assists senior management in evaluating Lakeland’s commercial loan portfolio, analyzing trends, and determining the proper level of required reserves to be recommended to the Board. In assigning risk ratings, management considers, among other things, a borrower’s debt service coverage, earnings strength, loan to value ratios, industry conditions and economic conditions. Management categorizes commercial loans and commitments into a one (1) to nine (9) numerical structure with rating 1 being the strongest rating and rating 9 being the weakest. Ratings 1 through 5W are considered ‘Pass’ ratings.
The following table shows the Company’s commercial loan portfolio as of March 31, 2018 and December 31, 2017, by the risk ratings discussed above (in thousands):
March 31, 2018
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Real Estate -
Construction
RISK RATING
 
 
 
 
 
1
$

 
$
362

 
$

2

 
26,755

 

3
75,608

 
44,973

 

4
882,811

 
96,031

 
19,098

5
1,822,829

 
145,396

 
253,407

5W - Watch
40,360

 
9,022

 
8,292

6 - Other assets especially mentioned
41,753

 
8,693

 

7 - Substandard
22,636

 
8,433

 
2,581

8 - Doubtful

 

 

9 - Loss

 

 

Total
$
2,885,997

 
$
339,665

 
$
283,378

December 31, 2017
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Real Estate -
Construction
RISK RATING
 
 
 
 
 
1
$

 
$
392

 
$

2

 
26,968

 

3
76,824

 
35,950

 

4
862,537

 
96,426

 
15,502

5
1,779,908

 
150,928

 
246,806

5W - Watch
47,178

 
8,779

 

6 - Other assets especially mentioned
40,245

 
8,670

 

7 - Substandard
24,492

 
12,287

 
2,600

8 - Doubtful

 

 

9 - Loss

 

 

Total
$
2,831,184

 
$
340,400

 
$
264,908


The risk rating tables above do not include residential mortgage loans, consumer loans, or leases because they are evaluated on their payment status.

Allowance for Loan and Lease Losses
The following table details activity in the allowance for loan and lease losses by portfolio segment for the three months ended March 31, 2018 and 2017:
Three Months Ended March 31, 2018
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Beginning Balance
$
25,704

 
$
2,313

 
$
630

 
$
1,557

 
$
2,731

 
$
2,520

 
$
35,455

Charge-offs
(22
)
 
(1,012
)
 
(23
)
 
(93
)
 

 
(100
)
 
(1,250
)
Recoveries
31

 
20

 
2

 
2

 
5

 
95

 
155

Provision
104

 
447

 
433

 
123

 
196

 
(19
)
 
1,284

Ending Balance
$
25,817

 
$
1,768

 
$
1,042

 
$
1,589

 
$
2,932

 
$
2,496

 
$
35,644

Three Months Ended March 31, 2017
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Beginning Balance
$
21,223

 
$
1,723

 
$
548

 
$
1,964

 
$
2,352

 
$
3,435

 
$
31,245

Charge-offs
(220
)
 
(163
)
 
(43
)
 
(141
)
 
(609
)
 
(184
)
 
(1,360
)
Recoveries
219

 
95

 
4

 

 
15

 
154

 
487

Provision
861

 
137

 
(7
)
 
2

 
620

 
(395
)
 
1,218

Ending Balance
$
22,083

 
$
1,792

 
$
502

 
$
1,825

 
$
2,378

 
$
3,010

 
$
31,590


Loans receivable summarized by portfolio segment and impairment method are as follows:
March 31, 2018
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Ending Balance: Individually evaluated for impairment
$
13,766

 
$
2,107

 
$
36

 
$
1,200

 
$
1,471

 
$
980

 
$
19,560

Ending Balance: Collectively evaluated for impairment
2,871,534

 
337,558

 
78,202

 
321,854

 
281,907

 
316,739

 
4,207,794

Ending Balance: Loans acquired with deteriorated credit quality
697

 

 

 

 

 
1

 
698

Ending Balance (1)
$
2,885,997

 
$
339,665

 
$
78,238

 
$
323,054

 
$
283,378

 
$
317,720

 
$
4,228,052

December 31, 2017
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Ending Balance: Individually evaluated for impairment
$
17,536

 
$
782

 
$
65

 
$
1,744

 
$
1,471

 
$
993

 
$
22,591

Ending Balance: Collectively evaluated for impairment
2,812,941

 
339,618

 
74,974

 
321,136

 
263,437

 
321,273

 
4,133,379

Ending balance: Loans acquired with deteriorated credit quality
707

 

 

 

 

 
3

 
710

Ending Balance (1)
$
2,831,184

 
$
340,400

 
$
75,039

 
$
322,880

 
$
264,908

 
$
322,269

 
$
4,156,680

(1)
Excludes deferred fees
The allowance for loan and lease losses is summarized by portfolio segment and impairment classification as follows:
March 31, 2018
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Ending Balance: Individually evaluated for impairment
$
386

 
$
9

 
$
16

 
$
4

 
$

 
$
8

 
$
423

Ending Balance: Collectively evaluated for impairment
25,431

 
1,759

 
1,026

 
1,585

 
2,932

 
2,488

 
35,221

Ending Balance
$
25,817

 
$
1,768

 
$
1,042

 
$
1,589

 
$
2,932

 
$
2,496

 
$
35,644

December 31, 2017
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Leases
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
 
(in thousands)
Ending Balance: Individually evaluated for impairment
$
454

 
$
9

 
$
30

 
$
4

 
$

 
$
8

 
$
505

Ending Balance: Collectively evaluated for impairment
25,250

 
2,304

 
600

 
1,553

 
2,731

 
2,512

 
34,950

Ending Balance
$
25,704

 
$
2,313

 
$
630

 
$
1,557

 
$
2,731

 
$
2,520

 
$
35,455


Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities. This reserve was $2.5 million for each of the periods ended March 31, 2018 and December 31, 2017. The Company analyzes the adequacy of the reserve for unfunded lending commitments quarterly.
Troubled Debt Restructurings
Loans are classified as troubled debt restructured loans 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 Company considers the potential losses on these loans as well as the remainder of its impaired loans while considering the adequacy of the allowance for loan and lease losses.
The following table summarizes loans that have been restructured during the three months ended March 31, 2018 and 2017:
 
For the Three Months Ended
March 31, 2018
 
For the Three Months Ended
March 31, 2017
 
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
(dollars in thousands)
Commercial, secured by real estate
2

 
$
1,657

 
$
1,657

 
2

 
$
2,879

 
$
2,879

 
2

 
$
1,657

 
$
1,657

 
2

 
$
2,879

 
$
2,879


The following table summarizes as of March 31, 2018 and 2017, loans that were restructured within the previous twelve months that have subsequently defaulted:
 
March 31, 2018
 
March 31, 2017
 
Number of
Contracts
 
Recorded
Investment
 
Number of
Contracts
 
Recorded
Investment
 
(dollars in thousands)
Real estate - residential mortgage

 
$

 
1

 
$
226

 

 
$

 
1

 
$
226



Other Real Estate and Other Repossessed Assets
At March 31, 2018, the Company had other real estate owned and other repossessed assets of $1.4 million and $0, respectively. At December 31, 2017, the Company had other real estate owned and other repossessed assets of $843,000 and $0, respectively. Included in other real estate owned was residential property acquired as a result of foreclosure proceedings totaling $1.1 million and $843,000 that the Company held at the periods ended March 31, 2018 and December 31, 2017, respectively.